SNC-Lavalin wins contracts for Alberta transmission line and Persian Gulf oil
Pedestrians walk past the offices of SNC Lavalin in Montreal. (Ryan Remiorz / THE CANADIAN PRESS)
Ross Marowits, The Canadian Press
Published Friday, December 7, 2012 12:19PM EST
MONTREAL -- SNC-Lavalin capped a strong week Friday by announcing an oil services contract in the Persian Gulf region and having its AltaLink subsidiary win approval for a $1.5-billion transmission line extension in Alberta.
The Montreal-based engineering giant said its offices in Saudi Arabia and London have been awarded a five-year contract to perform a number of engineering, procurement and construction management support services for onshore and offshore hydrocarbon and industrial projects in the Persian Gulf region.
SNC-Lavalin (TSX:SNC) didn't provide a value for the contract from Khafji Joint Operations, a joint venture between the Aramco Gulf Operations Co. and the Kuwait Gulf Oil Co.
"We're very pleased to secure this contract, which further extends our hydrocarbon footprint with Aramco and provides a first opportunity to work with the Kuwait Gulf Oil Co.," said senior vice-president and general manager Ric Sorbo.
"Our track record in the offshore upstream sector was a key reason for this success."
Sorbo was appointed acting head of the hydrocarbons and chemicals group following the resignation this week of Andy Mackintosh after a little more than a year in the job. The division accounted for 15 per cent of SNC-Lavalin's revenues last year.
Alberta's utilities regulator also approved AltaLink's application filed in March to build a 500-kilovolt, direct-current transmission line that will nearly double its rate base.
SNC-Lavalin is expected to perform the engineering, procurement and construction portion of the project.
The approved Western Alberta Transmission Line will run 350 kilometres from Genesee, west of Edmonton, to Langdon, east of Calgary.
Pierre Lacroix of Desjardins Capital Markets called the approval in Alberta "another important win for SNC."
He said it reinforces the $7 per share value he assigns to SNC-Lavalin's ownership interest in AltaLink and the view that the company is "well-positioned to secure lucrative new contracts."
"Recent contract awards convey the importance that clients place on the firm's strong track record and its capacity to execute large-scale projects," he wrote in a report.
Lacroix said the approval caps a week when SNC-Lavalin consortia were selected to build the $2.1-billion light transit rail line in Ottawa and a power plant that will produce 463 megawatts of power in Poland. SNC-Lavalin's share of the European contract is estimated to be worth nearly $184 million.
The analyst also said SNC is very close to booking a $650-million to $750-million services contract tied to the Muskrat Falls hydroelectric project under development by Nalcor and Emera Incorp. The high margin, low-risk contract is expected to be approved by the Newfoundland and Labrador government in the coming weeks after Ottawa gave a loan guarantee for the $7-billion Lower Churchill hydro project.
The string of new contracts comes a week after the company's former CEO, Pierre Duhaime, and jailed former senior executive Riadh Ben Aissa were charged with conspiracy to commit fraud and utter false documents in connection with a contract pertaining to the multibillion-dollar McGill University Health Centre.
Duhaime was "relieved" of his duties earlier this year after an independent review conducted by the company discovered he signed off on $56-million worth of payments to undisclosed agents, breaching the company's code of ethics. His departure was classified as a retirement.
Maxim Sytchev of AltaCorp Capital said SNC's backlog replenishment is strong but predicted the company's shares will remain volatile because of an inquiry into Quebec's construction industry and the arrests of former employees.
Some have suggested that SNC could be precluded from bidding on contracts in Quebec. But the analyst said this would be difficult to do because no one wants layoffs at the province's largest engineering company.
As well, companies named in corruption and bribery investigates in other countries have seldom been excluded from participating in government contracts.
Only Alcatel-Lucent was not allowed to bid on contracts for a year in one jurisdiction, Sytchev wrote in a report.
"Overall, we continue to urge investors to focus on SNC-Lavalin's pristine balance sheet, very valuable concessions and SNC's ability to score new contracts," he said, adding he's not concerned that the company is sacrificing margin to win the new contracts.
SNC-Lavalin is one of the leading engineering and construction groups in the world, working in some 100 countries.
On the Toronto Stock Exchange, SNC's shares were up 78 cents at $37.639 in midday trading Friday.