Saudi Arabia's $5.2 Billion Maritime Project Boosts Lamprell

(Bloomberg) -- Shares in Lamprell Plc gained the most in more than two years after the builder of oil rigs partnered with Saudi Aramco to develop the biggest maritime yard in the region.

Saudi Arabian Oil Co., also known as Aramco, established a joint venture with the kingdom's national shipping company Bahri, South Korea's Hyundai Heavy Industries Co. Ltd. and Lamprell to develop and operate the $5.2 billion project located at Ras Al-Khair on the east coast.

Lamprell shares gained as much as 14 percent to 115 pence and traded at 111.75 pence at 11:01 a.m. in London.

“The integrated maritime yard will be the largest in the region in terms of production capacity and scale,” according to Aramco's statement. The facility will serve “offshore oil and gas rigs, offshore support vessels, and commercial vessels including Very Large Crude Carriers.”

The deal is “transformational,” Lamprell's Chief Executive Officer Christopher McDonald said in an interview. Aramco has committed to buy 20 rigs in the next 10 years from the maritime yard.

“This deal will give Lamprell a foothold in a key new yard in the Middle East,” Cenkos Oil & Gas wrote in a note. “The relationship with Aramco should lead to further work on other projects,” it said.

Although Lamprell has three yards and a four-decade history at its base in Sharjah in the United Arab Emirates, Wednesday's announcement will give it a presence in neighboring Saudi Arabia, the world's largest oil exporter. The kingdom plans to list around 5 percent of state-owned Aramco next year in what could the the largest initial public offering in history.

Biggest Market

“We now have exposure to the biggest oil and gas market in the world” and Aramco is expected to become one of Lamprell's largest customers for new rigs, McDonald said.

The maritime yard will cost a total of $5.2 billion, $3.5 billion of which will be funded by the Saudi government to establish, prepare and construct the site and shared infrastructure, Lamprell said. The remaining $1.7 billion, will be split with around $1 billion in debt -- to be provided by the Saudi Industrial Development Fund -- and $700 million in equity, McDonald said. 

Lamprell will own 20 percent of the equity, requiring it to spend up to $140 million over the course of the yard's construction, with the funds coming from its existing financial resources and future cash flows, according to the statement. Aramco will hold a 50.1 percent stake, Bahri will have a 19.9 percent interest while HHI will have a 10 percent stake.

The current rig construction market is still suffering from “structural overcapacity,” McDonald said. The oil services sector has been a victim of a three-year price slump that forced producers to slash capital expenditure, cancel or postpone projects and eliminate jobs.

The yard is expected to be partially up and running by 2019 and fully operational by 2022. The financial benefits for Lamprell of this joint venture will be felt from that point onwards, Tony Wright, the chief financial officer, said in an interview.

The agreement will be worth “a lot, eventually,” said Alex Brooks, an analyst at Canaccord Genuity.

--With assistance from Joe Easton

To contact the reporter on this story: Angelina Rascouet in London at arascouet1@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Alex Devine