SNC Lavalin suffers setback as awarding of contract for Algerian town delayed

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MONTREAL — Global construction and engineering giant SNC Lavalin (TSX:SNC) has suffered another setback in its efforts to finally nail down a contract worth hundreds of millions of dollars to build a town from scratch in the middle of Algeria’s biggest oil field.

A change in leadership in the North African country’s Energy Ministry and the project’s lead contractor has caused a further delay as officials review plans to build Hassi Messaoud, a town for 80,000 people.

“It’s unfortunately taking longer than we expected,” SNC spokeswoman Leslie Quinton said in an interview.

Although the Quebec-based company was selected as the preferred bidder, it was never awarded what would have been one of the largest services contract in its history. The town would be built over an eight-year period.

There have been three tender calls over the past two years. SNC couldn’t say how much it has spent on the project so far.

Quinton said SNC would love to have the contract and would likely bid again in another tender process.

“It’s a disappointment for us because it is something we’ve been working on for a long time,” Quinton said. But she added that SNC understands the need of the client to consider more details because of the complexity of the project.

Analyst Yuri Lynk of Canaccord Genuity said news reports in Algeria suggested that the contract had been cancelled.

SNC declined to indicate the value of the deal but news reports in July 2009 said the company bid $508 million.

Lynk said the delay was “slightly negative” because it may remove a potential catalyst for SNC shares. “However, there is nothing to indicate that SNC will not rebid, as it did in 2008 when it was originally awarded Hassi Messaoud only to have the contract cancelled because of an appeal by AECOM (NYSE:ACM).”

The 99-year-old engineering firm, with more than 21,300 employees, is one of Canada’s most global companies, with operations in North America, Europe, Africa, Asia and Latin America.

The company is also a major owner of infrastructure such as power plants and pipelines and has been cashing in on the boom in growth in Algeria’s energy sector, where new oil and natural gas fields have been discovered in recent years. 

Hassi Messaoud, in east-central Algeria, is in the centre of the largest oilfield in the African country. Production is being expanded sharply with each new oil and gas discovery, with energy exports destined for markets in Italy, Germany and France. 

Algeria’s oil sector has been open to foreign investors in partnership with Sonatrach, Algeria’s state-owned oil and gas company, since the mid-1990s, and foreign companies now own a sizable chunk of crude oil production in the country. 

On the Toronto Stock Exchange, SNC Lavalin shares closed down 39 cents at $45.64 in Thursday trading.

Organizations: SNC Lavalin, TSX, Energy Ministry NYSE Sonatrach Toronto Stock Exchange

Geographic location: Algeria, MONTREAL, Canada North America Europe Africa Asia Latin America Italy Germany France

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