Annual Integrated Report

2019

Gathering
Momentum

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Underground Mining + Oil & Gas + Power & Water

Overview

The Oil & Gas platform is headquartered in Perth and operates under the Clough brand. It delivers projects across the full project life cycle, including specialist engineering, construction, EPC, commissioning, and operations and maintenance, on new build and operating facilities.

The platform’s businesses are:

1
BOOTH WELSH – Ayrshire, Scotland
2
CLOUGH – Perth, Australia
3
CLOUGH COENS – Busan, South Korea
4
CLOUGH ENERCORE – Calgary, Canada
5
CLOUGH USA AND CH•IV – Houston, USA
6
e2o – Adelaide, Australia.

The platform is targeting oil and gas opportunities in international markets including Canada, Kazakhstan, Mozambique, PNG and the USA, where meaningful growth is anticipated in the medium term. The platform has extended its services to opportunities in the growing infrastructure and mining markets in Australasia.

The Jakarta and Cape Town offices were closed in the year due to a lack of opportunities in these regions.

Performance

Revenue was down 21% to R6,7 billion in the year (FY2018: R8,5 billion), predominantly due to multi-year commissioning and engineering projects in Australia coming to an end without any significant replacement projects. In a challenging transition year, the platform incurred an operating loss of R98 million (FY2018: profit of R209 million). This was mainly due to the delay of several Australian construction projects, losses incurred on two largely completed fixed-price contracts and difficult market conditions in the United Kingdom and Canada.

Overhead costs were well managed and included integration costs in relation to the acquisition of Clough USA. In the context of a tough oil and gas market, about 30% of overhead costs were incurred in business development and tenders to secure new work. This yielded good results and significant inroads were made into the infrastructure and mining markets in Australasia.

These efforts drove the order book to R23,1 billion (FY2018: R6,4 billion), the highest since June 2013 at the peak of the LNG construction boom. The order book is made up of diverse projects across multiple sectors and countries, and positions the platform for growth over the next few years. Projects in Australia make up the highest proportion of the order book, although a significant EPC project in the USA was added after year end.

During the year, the joint venture between Clough and Italian hydro power and tunnelling specialist Salini Impregilo, was awarded the multi-billion dollar civil and electro-mechanical contract for the iconic Snowy 2.0 Hydro-Electric project in New South Wales, Australia. This is a landmark project and cements Clough’s position as a tier one contractor in this sector.

Clough also secured additional mining contracts, including BHP’s South Flank Iron Ore development and Rio Tinto’s Koodaideri development, both in Western Australia. A number of significant tenders are underway in this sector, which is expected to provide a strong pipeline of future projects. Clough, as part of the GCR Mongolia joint venture with RUC Cementation Mining and Gobi Infrastructure Partners, is also participating in Rio Tinto’s Oyu Tolgoi project in Mongolia.

Two major commissioning contracts on the INPEX LNG development were completed in the third quarter of the year. Minor contracts to support the operation of the facilities are ongoing, although these are expected to conclude in a few months.

Business Model Resilience

To achieve sustainable growth through the cycle, the platform has three key strategic objectives:

  • Target growth markets in Australasia
  • Maintain core capability in oil and gas sector
  • Achieve focused growth in international oil and gas.

Significant progress has been made in Australia, with Clough recently awarded several contracts in the Australian infrastructure market. A major investment boom is being experienced in this market, with a government-funded programme expected to last for the next 10 years, particularly on the East Coast. Although this market is not as large, West Coast infrastructure contracts are also being pursued.

The iron ore sector in Australia continues to provide a large and reliable pipeline of projects, as mining companies seek to maintain production output by extending existing mines or developing new ones. Clough has continued to build on its mining capabilities with several contracts underway in the Pilbara region, and many opportunities being tendered for.

A major milestone for the platform was the acquisition of Saulsbury’s Gulf Coast EPC downstream and chemical business unit in February 2019 for US$8,5 million. Clough USA now provides a base from which to extend the platform’s EPC service offering to the growing oil and gas and petrochemical sectors in North America. Integration is underway to implement the platform’s business systems and best practices. Clough USA’s management team combines existing personnel, management from Australia with extensive Australasian oil and gas experience and new appointments.

The shale gas and shale oil resource boom in the USA has established a competitive feedstock source that is stimulating new midstream and downstream processing plant developments. There is a large long-term spectrum of potential projects for Clough USA and this business is expected to contribute significantly to the platform’s earnings in the near term.

PNG’s long-awaited LNG expansion is a key focus area for the platform, given its over 40-year track record of successful project delivery in this country. With three major gas gathering and conditioning plants to be developed, in addition to a major expansion of the existing LNG facility, this market will provide significant project opportunity in the next three to five years.

The platform continues to target opportunities in the international oil and gas market with its global clients, and is pursuing contracts in Canada, Kazakhstan and Mozambique. The latter represents the single largest potential investment in the southern hemisphere, with indications of an acceleration in project opportunities.

CONTRACTOR OF CHOICE

Towards Zero Harm

The platform’s pursuit of Engineered Excellence is underpinned by its commitment to setting new benchmarks in its world-class HSE performances. The platform achieved a LTIFR of 0.17 (FY2018: 0.14), in line with last year and the TRIR performance improved to 1.47 (FY2018: 1.71). The platform achieved 11 consecutive months without a lost time injury and delivered seven projects with Zero Harm during the year.

Clough’s HSE leadership training applies cognitive neuroscience to improve better communication within project teams resulting in safer outcomes and ultimately Zero Harm. All line managers, employees and subcontractors participate in HSE programmes. The MAP/CRM programme, aimed at critical controls to prevent major accidents, has been implemented and is proving effective across all Clough-managed project sites.

Technology

The platform is adapting its IT architecture to support the complexity of a growing business and rapid changes in the technology landscape. A three-year strategy has been developed to lay the foundation for a digital platform. This strategy follows a hybrid approach, focusing on scalable technology to meet the demands of a global EPC business.

Project delivery

NIUPOWER POM POWER STATION

Clough, in consortium with Wartsila, delivered the EPC contract on the power station near Port Moresby in PNG. The project presented challenges such as remote location, high-risk activities with a relatively low-skill labour force, complex immigration coordination and the management of a large workforce. The project was successfully completed during the year without any injuries.

BHP SOUTH FLANK PROJECT

Clough is developing the ore handling plant and non-process infrastructure projects. Site mobilisation for the ore handling plant and the non-process infrastructure is expected to reach practical completion in October 2020, with more than 90% completion expected by June 2020. The project will replace production from the 80Mtpa Yandi mine, which is reaching the end of its economic life.

RIO TINTO IRON ORE KOODAIDERI PROJECT

Awarded in April 2019 to the Acciona Clough JV, the project involves the civil works for the construction of the northern rail formation of this greenfield mine development in the East Pilbara mining region. Site mobilisation commenced in July 2019 and completion is expected by November 2020.

SNOWY 2.0 HYDRO-ELECTRIC PROJECT

The project involves linking two existing Snowy Scheme dams through underground tunnels to depths of up to one kilometre, and constructing an underground power station with pumping capabilities. It is in its early works phase, with main construction expected to commence in late FY2020. Snowy 2.0 will add 2 000 megawatts of energy generation and provide 175 hours of energy storage for the national electricity market, enough to ensure the stability and reliability of the system during prolonged weather events, such as wind or solar droughts.

RIO TINTO OYU TOLGOI PROJECT

As part of the GCR joint venture, the project involves construction and commissioning of two large-diameter shafts and the underground material handling system, expected to be completed in April 2020 and April 2021, respectively. Situated in the southern Gobi Desert of Mongolia, Oyu Tolgoi contains reserves and resources that make it one of the world’s largest known copper and gold deposits.

ENTERPRISE ETHYLENE DEHYDRATION PROJECT

Acquired through Clough USA, this project is expected to be completed by October 2019, and is on track to achieve Zero Harm.

EMPLOYER OF CHOICE

Leadership and succession

Developing the capacity and capability of the platform’s leadership and management teams is critical to achieving its strategic goals and objectives.

Clough’s Training Academy programmes are an integral part of its strategic initiative to build capability across the business. Through its Construction Management Academy and Project Management Academy, employees with leadership potential are encouraged to develop skills for their own career advancement and for the long-term success and evolution of the business. The academies apply transparent selection criteria and prepare participants for the next steps in their careers.

Clough recognises that an effective succession plan is dependent on the attraction and retention of employees and is committed to develop young professionals with leadership potential. The Young Professionals Group was established in the year for employees with less than 10 years’ experience, to provide them with an opportunity for shared development across a range of learning activities.

Clough also runs a Graduate Programme and Internship Programme. The structured, three-year Graduate programme is designed to provide a challenging and rewarding career start that supports the development of core competencies and capabilities through experience and training. The Internship programme offers students in their penultimate year an opportunity to gain practical experience in their field of study and prepare them for future employment.

Best people practices

Formal performance reviews are held annually to ensure employees are achieving specific goals that support overall business objectives, and to identify their development needs. The human resources function has developed a reward and recognition programme aimed at identifying and rewarding high-performing staff on a more frequent and less formal basis.

An employee engagement survey across all business functions was undertaken in the year. The survey identified areas for improvement, with new processes and programmes actioned to address these. New IT and management systems have also been implemented to improve process and workflow issues identified in the survey.

All employees are required to renew their Code of Conduct training annually and to foster an environment that encourages ethical behaviour. Breaches or suspected breaches must be reported to management or to an external confidential hotline, available to all employees.

REPUTATION

Diversity and localisation

Gender and cultural inclusion are receiving attention across the platform. The aim is to create a culture that embraces and encourages diversity as a core value, while working towards an employee profile that more accurately reflects the local communities in which it operates. Specific targets are set for participation by women and indigenous employees in its projects.

Working alongside the Workplace Gender Equality Agency, Clough has conducted research to measure equality in the workplace and to inform initiatives for improvement. Support is provided to all employees, regardless of gender, to help them balance careers and family responsibilities.

Numerous initiatives are underway to increase the participation of indigenous communities. The platform is committed to developing indigenous business and individual employment experience beyond low-skilled roles.

In Australia, Clough has been working to create opportunities for Aboriginal and Torres Strait Islander People and recently developed a Reconciliation Action Plan to increase diversity in all operations. The plan outlines Clough’s actions, responsibilities and accountabilities, and aims to build strong relationships and facilitate connections with these communities.

Clough has been delivering projects in PNG for over 40 years and is one of the most experienced contractors in the region. Good community relations play a critical role in the successful delivery of projects. Clough’s specialised community relations professionals have extensive experience in working with the local communities and have earned their respect and trust through effective consultation and engagement. Community engagement plans support project delivery and community benefits; such as local employment and procurement of goods and services, business development, improvements in local infrastructure, utilities and services, and community support initiatives.

The Clough Foundation focuses on improving the lives of people living in communities where it operates. Overseen by a semi-independent board, the trust supports organisations and communities that provide sustainable benefits to society and represent the company’s diverse operations. An example is ChildFund, which provides maternal and child health care, health clinic upgrades and immunisation patrols to remote regions in PNG.

PROSPECTS

After a difficult year for the platform, the substantial order book secured will provide the revenue base for a return to profitability in the new financial year and growth thereafter. Infrastructure projects in Eastern and Western Australia, and in the Western Australian mining sector, will provide opportunities in the short term. Internationally, the platform’s history of successful project delivery in PNG positions it well for oil and gas and mining opportunities there. Several near shore marine opportunities are being pursued in the LNG market in Africa and North America. Clough USA will continue to expand its market presence and is developing a strong pipeline of petrochemical project opportunities for FY2020 and beyond.

The buoyancy of Australia’s infrastructure and mining markets, coupled with the LNG market in PNG and North America, gives the platform clear visibility of its pipeline of work and confidence in its return to a substantial earnings contribution to the Group.