Ann: 2023 Half Year Results Presentation, page-24

@Pioupiou,

The post of mine which you referenced is dated 2018, and the engineering construction world is a far different place today: not only is there far more work going around today (2018 was close to the very nadir of the resources capex cycle), but there has been an exodus of capacity from the industry since the last commodity boom, including in the form of some spectacular engineering contractor failures.

The result - unlike 2018 when engineering contractors were scratching for work - is industry capacity utilisation which is currently very high; I hear it from across the entire supply chain (customers, contractors, suppliers), with executives of contracting companies in recent months repeating the same line, namely,

"We are invited to tender on more work than we can handle. As a result we able to be selective and better price for risk."
(Paraphrased: "We are incorporating operating margin buffers")

(Just today, Downer's new CEO is the latest one to articulate this sentiment of properly pricing risky work going forward.)


"If the cycle were to continually repeat itself every ten to twelve years, MND's management could devise a business model that optimised the cycle. However, to expect the oil-&-gas sector to continue to repeat its boom-and-bust pattern over multiple cycles is unrealistic – oil-&-gas could decline as a sector as a result of Government policy promoting renewable alternatives.
I am unaware of any replacement for the oil-&-gas construction business that MND has considered. I moot with low conviction, Small Modular Rectors (SMRs) paired with renewable energy facilities in hybrid energy systems in remote areas (a conceptual example, not an issue begging for comment)."

Over the past 25 years of my life I've come across a never-ending volley of opinions about the imminent demise of the oil industry; for example, this from 2003:



That was after that esteemed publication in 1999 predicted the oil price to go to US$5/bbl (it was around $10/bbl at the time) and I remember clearly Newsweek about the same time having a cover article entitled, "Cheap Oil Forever: While Prices Will Keep Falling".

The oil price rose no less than tenfold over the next five years.

(And there are hundreds of predictions like that, heralding the soon-to-happen end of the oil and gas business.)

I think I'll be an old man by the time MND no longer makes money constructing things for oil & gas assets:


[The cycle is dead!
Long live the cycle!]


And its not just new project work in oil & gas which is said to be picking up.
The resources sector currently has a shopping list of new projects in copper, lithium, and nickel; ditto for electrical infrastructure, too.

According to the ABS work which I was reading a few weeks ago (some of which gets cited in MND presentations), the capital project budgets out to 2025 for Resources, Oil & Gas, and Electrical Infrastructure, collectively amount to an extra $17bn (which, for context, is a substantial 30% increase on the 2022 base of $58bn of project work done).

I have no doubt that MND will pick up its fair share of that large capital project increment.

Viewed another way, if Engineering Construction still makes up a mere 25% of Total Group Revenue in 2 years' time, I'll eat my own children.

.