SNC-Lavalin says it has been awarded a contract valued at more than $650 million to help build an oilsands treatment plant in the Fort McMurray region of northern Alberta.
The Montreal-based company will provide engineering, procurement and construction services for a froth treatment plant that will process 155,000 barrels of material per day from the bitumen extraction plant.
Bitumen froth contains bitumen, clay and trapped water which is skimmed and sent to froth treatment vessels. Froth treatment reduces the water and solid waste going to the upgrader.
SNC-Lavalin (TSX:SNC) vice-president Andy Mackintosh said the companys track record in the oil sands and its health and safety focus were factors in securing the contract.
Our knowledge and experience of oil sands technology and heavy oil recovery positions us well for the future, he said in a news release.
The engineering phase is underway and construction is scheduled to begin in February. Mechanical completion for the construction is expected in September 2014.
The identity of the major oilsands producer wasnt disclosed, but Maxim Sytchev of Alta Corp Capital said it is likely Canadian Natural Resources Ltd. (TSX:CNQ).
The company had been expected to award a froth treatment plant contract in the third quarter. Mackintosh has previously done work with Canadian Natural and SNC has completed the companys Horizon Oil Sands upgrader project.
In January, an explosion badly damaged the upgrader at the Horizon mine north of Fort McMurray, Alta.. Five workers were injured.
The company has attributed the fire to a valve opening at the top of a coking drum at the wrong time. Frigid temperatures in region at the time caused a great deal of freeze damage to the plant and forest fires throughout the region later in the spring slowed repair work.
After shutting the mine down for repairs, Horizon began churning out crude again in August.
The contract doubles SNCs chemicals and petroleum sector backlog and represents seven per cent of the companys total backlog of $9.4 billion.
We view todays award as the first tangible seeds of improvement in SNC-Lavalins oil and gas fortunes, Sytchev wrote in a report.
He added that becoming a Tier 1 player in the oil and gas sector, SNC will likely have to make a sizable acquisition.
Pierre Lacroix of Desjardins Capital Markets said such contracts generally produce gross margins of between eight and 10 per cent.
Besides the Horizon projects, SNC was selected by Petro-Canada (Suncor) in 2007 to perform the front-end engineering and design for the froth treatment work at the Fort Hills project, that was later suspended indefinitely.
He said the unexpected contract will help to significantly reverse the downtrend in SNC-Lavalins packages backlog, which decreased by $1 billion to reach $4.8 billion at the end of September.
We believe this oilsands contract will also show investors that SNC can be competitive in the heavy oilsands region, especially after the company failed to obtain work on the Husky Sunrise project last year.
SNC-Lavalin is one of the leading engineering and construction groups in the world. It has offices across Canada and in over 40 other countries around the world.
The engineering and construction company has been rapidly growing its business in Alberta, wher a number of oilsands expansions are on the go and pipelines and other infrastructure are being built to handle the flow of new oil production headed to markets.
On the Toronto Stock Exchange, SNCs shares closed at $52.01, up $1.03 or two per cent in Tuesday trading.
