Published July 13, 2009

Rotary emerging as a global EPC player

By VEN SREENIVASAN

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IT'S not often that a company can boast a single order the size of which is almost double its entire previous year's revenue. Oil and gas tank-farm engineering group Rotary Engineering has done just that.

After weeks of market speculation, the company confirmed last Thursday that its Saudi subsidiary, Petrol Steel Co, had won a US$745 million contract from Saudi Aramco Total Refining and Petrochemical Company (Satorp) - a joint venture between Saudi Aramco and multinational oil giant Total - to build 62 atmospheric storage tanks and eight 'bullet' tanks with a total capacity of some one million cubic metres in Jubail, Saudi Arabia.

Petrol Steel is 51 per cent owned by Rotary. The other 49 per cent is held by Saudi Arabia's Rafid Group.

But with much of the pre-fabrication work for the project being done in Singapore, more than 76 per cent of the revenue from the tank farm project - some US$568 million - will accrue directly to Rotary.

Work starts next month and completion is due at end-2012. The facility will start commercial operations in March 2013. When completed, the 400,000 barrels per day export refinery will be the one of the world's most advanced.

The tank farm is one of 13 projects awarded by Satorp to global players that, besides Rotary, include Japan's Chiyoda group and South Korea's Samsung Engineering.

This deal - which boosts Rotary's order book to almost S$1.5 billion - is the group's single biggest contract to date, and is almost double its previous 'biggie', the S$535 million Universal Terminal deal on Jurong Island two years ago.

The company typically enjoys a gross margin of 18-20 per cent on such projects, which translates to an earnings boost of some S$165 million for the next three years.

But what is more significant is the fact that this contract propels Rotary to a higher level, making it a key player in the oil-rich Middle East - and Saudi Arabia in particular. It is already in talks with key energy players in several other Gulf and North African countries for more projects in the energy-rich region.

Rotary's foray into the region began in 2006. A year later, it invested S$22 million in a fabrication and maintenance facility in Jubail Industrial City, affirming its commitment to a permanent presence there.

This paid off nicely when in 2008, it secured an S$11 million ethylene plant contract from SHARQ Eastern Petroleum in Jubail. Then came a US$62 million Saudi Kayan Petrochemical Co deal to build 24 tanks.

There is now market talk that Satorp is likely to expand the contract to build another 15 tanks at Jubail. This could be worth another US$150 million.

But while the Satorp projects will no doubt be a key catalyst for Rotary's growth, the company is already busy with numerous other projects, including its S$130 million oil tanking Odfjell Terminal contracts and its S$38 million deal to build Neste's bio-fuel plant at Tuas.

Meanwhile, Rotary is believed to be in advanced talks for some S$200 million worth of terminal and storage projects in Malaysia, Indonesia and Thailand. And China and India are two big markets where it already has a firm toe-hold.

Taken together, the developments of the past 12-18 months are breathtaking leaps for a quiet homegrown company which has passed largely unnoticed as an engineering, procurement and construction (EPC) specialist for oil storage terminals on Jurong Island. Few paid much attention to the company as it was thought that as Jurong Island reached capacity, Rotary would slowly fade into obscurity as a smallish EPC player.

No one reckoned on the company reinventing itself as a global player, as it now seems to be doing.

This latest Satorp project is a tremendous boost to a company which last year posted revenue of S$520 million and profits of S$51 million. At the end of its first quarter on March 31, the company had cash of S$159.3 million, against S$123.3 million a year ago. It also had an order book worth some S$360.2 million.

Given its capability to venture far beyond Singapore's shores and muscle in on projects which have traditionally been the exclusive domain of the global 'big boys', one should not be surprised if by the financial year-end, Rotary's order book swells to S$2 billion, or more.