L&T Hydrocarbon-led group wins $1.6bn contract from Aramco

An L&T Hydrocarbon Engineering-led consortium on Thursday announced that it has bagged a USD 1.6-billion contract from oil major Saudi Aramco. The L&T subsidiary owns a 60 percent stake in the order is for the development of the second phase of Hasbah Offshore Gas field, situated off the coast of Saudi Arabia, which is to be completed over the next 36-40 months, Subramanian Sarma, Managing Director and Chief Executive, L&T Hydrocarbon Engineering told CNBC-TV18.  

“We have a strong bidding pipeline. We have been bidding for several projects in the Middle East, especially in Saudi Arabia,” Sarma said. He added that the Aramco contract takes the company’s order book to about Rs 7800-7900 crore.Below is the transcript of Subramanian Sarma’s interview to Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: The total order size we learned is USD 1.6 billion and your stake is around 60 percent in it. So, for L&T Hydrocarbons, it would be roughly a USD 1 billion order. Could you confirm that and also could you tell us what is the timeframe that you have to work this order out?A: Yes, this is correct. Our share of the total order value will be a little in excess of USD 1 billion. This project has to be completed over 36-40 months in that period. We are quite excited. It is a large order for us in the country where we have been operating for a long time, so we have been looking forward to win something big and it has come our way.Reema: Any more deals from Saudi Aramco in the pipeline or in Suadi Arabia, Middle East?A: We have been having a strong bidding pipeline. We have been bidding for several projects in the Middle East, particularly in Saudi Aramco and they have been going through the process. Some of them have already submitted and some are under preparation. So, it will come through. We will know the outcome of this in the next few quarters.Nigel: Could you tell us what is the return on equity (ROE) you are looking at from this particular order. Could you also tell us what does this take your total order book to?A: This is the first major award in this financial year. We had made announcements of other awards or other wins in the previous month. We had also got, domestic market, we had about Rs 1,300 crore and then you add this up. So, that takes the order to almost close to whatever, Rs 7,800-7,900 crore.Nigel: What about the ROE on this order?A: That will be consistent with normal industry norms. We have bid this on a competitive basis. We have international competition, reputed players. So, normally to win these kind of jobs you have to put a competitive price and the margins will be consistent with the industry norms.Reema: How is the hydrocarbon business? It had taken losses earlier. Have you sorted out all the payment issues, there were some write offs as well before?A: I have spoken to you last time. We have launched what we call a transformation journey, transformation plan. So, we have implemented several measures to strengthen our execution platform and we are going through that journey. We have made some good progress and both in terms of closing out the legacy contracts, recovering the receivables and also gaining new jobs. So, I am optimistic that we will have better days ahead for hydrocarbons going forward.