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Leighton targets Iraq oil and gas contracts as clouds lift
Source: The Australian
August 5 2011
LEIGHTON is targeting more than half a billion dollars worth of oil and gas contracts in Iraq and hoping for a turnaround in its Middle East business after reaffirming a return to profit in 2012 and upgrading guidance for 2011.
The construction giant is already active in Iraq, where it is working on a contract to rebuild damaged offshore pipelines, and is believed to be pursuing a further $700 million worth of work in the oil and gas space.
Leighton's shifting fortunes in the Middle East, where it had previously booked a $1 billion writedown to its Al Habtoor joint venture, are a positive, but major projects at home continue to cause headaches.
The group said yesterday that its Victorian Desalination Project had suffered another cost blowout, with overruns of $278m stemming from poor weather and industrial action.
Leighton in April said it expected to book just $6m in profit from the desalination project after writing off $282m, but yesterday's revelation confirms the project will turn in a loss.
Even so, a mix of asset sales and tax credits will offset the impact to the group result for the year ended June, with Leighton actually upgrading its guidance to a loss of $408m.
It had previously forecast a full-year loss of $427m.
Early market reaction focused on the change in guidance, with the stock up by 3 per cent in early trade, but Leighton's shares finished 7c weaker at $20 yesterday following a 1.56 per cent fall in the benchmark S&P/ASX 200 index.
The shares are significantly lower than the $22 level at which the group conducted its $757m raising just four months ago.
Leighton had hoped to complete the desalination project by the middle of next year but warned yesterday that it could breach that deadline.
Chief executive David Stewart said the group was working with the consortium developing the project to "seek extensions of time to help mitigate the additional costs those delays are causing".
An analyst who declined to be named commented: "That this has come just two weeks before their results are to be announced is not great, and really there is ongoing concern about delay damages if they don't get this built on time."
Investors had also been concerned about progress at Leighton's Airport Link project but that has been advancing well, with the group able to reduce gross losses from $730m to $520m by confirming it will complete the project on time, thereby avoiding delay damages.
Leighton subsidiary Thiess has been working on the desalination project, and its managing director David Saxelby -- a company veteran -- has announced his intention to exit the company later this year.
Thiess mining head Bruce Munro will replace Mr Saxelby on a temporary basis.
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