The Year in Cap-Ex So Far

As we near completion of the first half of the year, Contax Partners provides an analysis of the current status of the GCC project landscape and our analysis on the realisation of those plans.

Within the first 5 months of 2011, c.$39bn worth of energy and energy related projects have been awarded in the GCC with an additional c.$16bn still due for award by the end of June 2011. This award activity is similar to the same period last year when c.$36bn worth of projects were awarded.

At the offset of 2011, it was expected that the first half of 2011 (H1 2011) would see $89bn worth of projects being awarded, thus highlighting the significant difference that exists between planned and actual project award in the region (Figure 1).

Considering this planned and actual Capex award in H1 2011, the award realisation rate is equal to c.44%, a slightly higher rate than the realisation rate of c.41% that was recorded in the first half of last year (H1 2010).

In terms of project numbers, the GCC countries planned to award 175 energy and energy related projects in the first half of 2011, out of which 150 projects have been realized so far.

This more optimistic project realisation rate of 86% highlights that a significant number of projects have been awarded so far, representing a mixture of both high, medium and low value Capex projects.

Comparing the same period last year, 121 projects were awarded in H1 2010 equating to almost the same amount of Capex as awarded thus far in 2011, and demonstrating that the average project Capex amount per project was higher last year than 2010.

For organisations operating in or wishing to operate in the region, it is crucial to understand which projects are being affected. In an effort to offer further insights on this, Contax Partners has conducted the following analysis on key countries, sectors and project size.

In January 2011, the three largest markets for planned award in H1 2011 in the GCC were Saudi Arabia, the UAE and Qatar. Together these three countries represented a planned project Capex award of c.$73bn, equal to nearly c.85% of the total planned energy project award in the region.

During H1 2011, these markets have in fact awarded c.$31bn worth of projects so far. Saudi Arabia (KSA) remains in top position, with c.$18bn worth of projects awarded in H1 2011, representing c.40% of the planned Capex. In addition, KSA has awarded more project Capex this year than the c.$12bn it awarded in H1 2010 (Figure 2).

Meanwhile, the UAE is in second ranking, with c.$12bn worth of project Capex award this H1, compared to the c.$14bn it awarded over the same period last year. Furthermore, the UAE represents a country with one of the highest realisation rates, with c.91% of its planned projects for H1 2011 awarded so far.

In Qatar in H1 2011, only c.9% of its planned energy project Capex equating to c.$1.4bn has been awarded so far, representing less than half of the c.$4bn that was awarded in Qatar in H1 2010.

From a sector perspective, the key sectors in the GCC over the past few years have been oil & gas production and power, with petrochemicals being an important secondary sector.

As we near the end of H1 2011, oil & gas production continues to be one of the best performing sectors with c.$11bn worth of project award having taken place so far, representing a Capex realization rate of c.82%. This is almost the same level as awarded in the oil and gas production sector in H1 2010 (Figure 3).

Meanwhile, the power sector has awarded $7bn worth of projects in H1 2011, representing only c.33% of the projects planned to be awarded in this sector. This is almost identical to the amount of project award that took place in the power sector in the same period last year.

Finally, the petrochemical sector has demonstrated the lowest realisation rate (c.13%) of the three key sectors, with only c.$2bn worth of project Capex award in H1 2011, compared to almost c.$6bn that was awarded in the same period last year.

To analyse the Capex realisation rate from the perspective of project size, we have grouped awarded projects into three main categories: Small scale projects (i.e. those with a Capex value less than $500m); Medium scale projects (i.e. those between $500-1000m); and Large scale projects (i.e. those with a Capex value greater than $1000m).

Of the planned energy projects due for award in H1 2011, c.75% were small scale projects with a total value of c.$22bn, representing 130 planned small project. Of these 130 small scale projects planned for award in H1 2011, a very high proportion were awarded (i.e. c.98%), but in many cases there was a reduction in the project value as upon award c.$22bn was reduced to c.$15bn.

Compared to H1 2010, there has been a slight increase in the total value of small projects awarded in H1 2011, and a reasonable increase in project number with 127 small scale projects awarded in H1 2011 versus 102 small scale projects in H1 2010, equating to c.$13bn (Figure 4).

Meanwhile, medium scale projects accounted for c.13% of the number of planned projects for award in H1 2011, with a combined value of c.$18bn. Only half of the medium scale projects were realised in H1 2011, c.$9bn representing 13 projects, with no significant reduction in their total value compared with owners’ initial estimates.

Compared to H1 2010, the number of medium scale projects awarded remains similar to this year, however value wise, the medium scale projects accounted for almost $10bn in H1 2010, thus a slightly lower amount in terms in total Capex has been awarded this year.

Finally, large scale projects accounted for c.13% of the number of planned projects for award in H1 2011, with a combined value of c.$47bn. Only 35% of planned large scale projects were awarded with no significant reduction in their combined value compared with owners’ initial estimates.

Compared with the same period last year, the number of large scale projects remains on a similar level, whilst the value this year of c.$15bn up from H1 2010 which saw c.$13bn worth of award.