Alphavalue | Even if the battle between Chevron and Occidental for Anadarko serves to remind us that financial discipline and oil and gas rarely go together, it remains far from its 2014 heights. The companies integrated in Tecnicas Reunidas have drastically restructures their cost basis in the last five years, to the consternation of the oil services sector.
The discreet family-owned Spanish group is not exactly a beginner, given its fifty years of engineering experience. It is specialised in the execution of engineering contracts, acquisitions and construction, and suffered from the cure of global austerity as various of its projects were the first to be cancelled.
Tecnicas Reunidas has a good record in the delivery of upstream projects (e.g. gas fields in Haradh and Hawiyah for Saudi Aramco), downstream units (i.e. refineries and energy plants. Meanwhile it is absent from deep water and does little in LNG. The main interest is the apparently well-rooted position of the company in the Middle East: the region represents 70%, with Saudi Aramco and ADNOC as its main clients.
For example, Saudi Aramco is expanding its production capacity in the Marjan oil field by 300,000 b/d by 2025 and has presented an offer close to 15 bn$ (as part of the Programme to Increase Crude at Marjan). Downstream expansion is also important, as Saudi Arabia plans spending around 100 bn$ in the next decade with the aim of reaching 8-10 M b/d refining capacity (compared about 5M b/d now). The main projects include the Jubail petrochemical project (9 bn$), the Fadhili gas plant (6.5 bn$) and the expansion of the Petro Rabigh refinery (9 bn$).
ADNOC also has major plans, as it wants to increase production to 5 M b/d by 2030 (compared to about 3 M b/d today) and its downstream capacity in refining and petrochemicals. Capital spending has been set at 132 bn$ as part of its 2019-23 business plan. The main projects include the Ghasha concession and the expansion of the Ruwais refinery (about 45 bn$).
Tecnicas Reunidas has also been bidding for projects in other places. Given a small advantage in projects in which the company has done engineering and design, the complete conversion of a Moscow refinery (GazpromNeft) is promising. This would permit Tecnicas Reunidas to show its ability in a country where refineries lack sophistication and need updating to remain competitive following OMI 2020. In terms of valuation, we offer a potential for fundamentals of +10.5% at six months highlighting the quality of the company and the improvements achieved.