Clough delivered strong growth for the third consecutive year and continued to invest in its strategy to become an engineering-led EPC contractor in the oil and gas sector.


John Smith		Neil Siford


Mike Harding*	Keith Spence*	Emma Stein*	Brian Bruce	Nigel Harvey	Roger Rees
* Independent non-executive director

Clough

(A$ millions)

Financial performance

Clough increased revenue by 37% to A$866 million, with earnings before interest and tax up by 16% to A$59 million. This performance reflects increased activity in its Capital Projects division in the first half of the year. Cash holdings for the period also increased, closing at A$141 million.

Complex engineering, construction and installation – Angel platform, North West Shelf, Western Australia


	2010	2009
Revenues*	5 753	4 185
Operating profit *	394	342
Margin (%)	6,9	8,2
Assets*	2 667	4 294
People	3 212	2 222
LTIFR (Fatalities)	2,0 (0)	1,6 (0)
Order book*	6 685	2 508

* R millions

Investing in the Future

Since 2008, Clough has been strategically repositioning its business, primarily to serve selected markets in the oil and gas sector, with a growth strategy to strengthen its engineering, procurement and construction (EPC) capability primarily in Australasia and globally within the offshore deepwater sector.

The sale of Indonesian mining company PT Petrosea was concluded in July 2009. Funds from the sale have been used to accelerate Clough’s growth strategy through investment and acquisition in new core capacity.

Several key investments have been made to strengthen the company’s marine engineering capabilities. Ocean Flow International, a Houston based deepwater engineering specialist, was acquired in August 2009 and has been augmented by an investment in start-up company Peritus International in January 2010. The formation of the Clough Helix Joint Venture, announced in February 2010, will deploy the Normand Clough, a first class, fully equipped deepwater vessel, to the Asia Pacific region to offer a wide range of subsea services from well intervention to subsea construction.

Clough acquired a 31% shareholding in and formed as strategic alliance with Forge Group in April 2010. This will substantially strengthen the company’s onshore construction capability in Australia and offers a key partnership opportunity for Murray & Roberts in the mining & minerals markets of Australia and Africa. On a case by case basis Clough and Forge will work together to provide clients with an enhanced EPC capability and capacity in the local oil and gas market.

Clough Seam Gas was established in May 2010. A team of industry experts are dedicated to providing EPC services to the burgeoning coal seam gas industry in Queensland.

Leadership

Clough chief executive John Smith, an oil and gas industry specialist, has led the repositioning of Clough as a leading oil and gas EPC contractor over the past three years.

Neil Siford was appointed chief financial officer in November 2009 and an executive director of the company in August 2010. Gary Bowtell has been appointed executive vice president, engineering, raising the profile and importance of Clough’s engineering both internally and externally.

John Cooper resigned as a non-executive director in January 2010 and has been succeeded by Murray & Roberts International director, Nigel Harvey. He joins Brian Bruce and Roger Rees representing Murray & Roberts on the Clough Board.

Murray & Roberts executives Millard Arnold and Bal Panicker supported Clough’s two year process in resolving the legacy G1 project with ONGC in India, putting an end to an untidy saga for Clough.

Operations

Clough has continued to win its share of world class oil and gas projects. A highlight for the period was the award of the A$2,7 billion engineering, procurement and construction management (EPCM) contract for Australia’s largest ever resource project, Chevron’s Gorgon LNG Project. The contract was awarded to the Kellogg Joint Venture, in which Clough is a 20% partner.

Two major contracts on ExxonMobil’s giant Papua New Guinea LNG project were awarded in November 2009. The upstream infrastructure project involves the upgrade of critical infrastructure in the region and will be executed in joint venture with Curtain Brothers (Clough 65%). The second contract involves the EPC for the Hides gas con ditioning plant to be executed by the CBI Clough Joint Venture (Clough 35%). The total value of the two contracts is estimated at US$1,8 billion.

The BAM Clough Joint Venture (Clough 50%) has recently been awarded the LNG condensate offloading jetty for this project, valued at about
US$ 260 million.

Capital Projects

Clough delivers an EPC service to gas projects, including domestic gas, LNG and coal seam gas projects, in the Australian and South East Asian region. On a case by case basis Clough may also service Australian mining & mineral and water infrastructure projects where its EPC skills and local expertise can add value.

Key projects for the year included Chevron’s Gorgon LNG project, ExxonMobil’s PNG LNG upstream infrastructure and EPC4 gas conditioning plant projects, Apache’s Devil Creek development project, Linkwater’s Toowoomba pipeline, Newmont’s Boddington gold mine and Iluka’s Murray Basin mineral sands project.

Marine Construction

Clough offers engineering, procurement, installation and commissioning (EPIC) services to the offshore oil and gas industry, including platform and pipeline installation projects in Australia and Southeast Asia and subsea construction projects globally.

The Java Constructor pipelay vessel successfully installed the 750 ton Montara topside for PTTEP in August 2009. However, an unrelated hydrocarbon release and subsequent fire which destroyed the platform, caused the project to be abandoned. In June 2010 the vessel was contracted to provide offshore services to NuTech for the East Udang development project, located offshore Indonesia.

Subsea construction vessel Normand Clipper completed its contract with APL for the Neptune LNG project, offshore Boston, in November 2009, before being contracted to Bluewater Industries for the ATP Telemark hub project in the Gulf of Mexico. In March, the vessel was reclaimed temporarily by owner Solstad to help fulfil its chartering obligations. Clough has decided not to extend its charter of this vessel.

The Normand Clough completed a 14 month contract with Wild Well Inc in the Gulf of Mexico in February 2010, immediately sailing to Singapore to be fitted with well intervention and subsea construction equipment for the Clough Helix Joint Venture. The vessel mobilised in July for the JV’s first project for CNOOC in the South China Sea.

Asset Support

Clough provides an engineering-led asset support service to the oil and gas industry. The overarching goal is to maximise the life and profitability of production facilities, both onshore and offshore, whilst creating a safer, cleaner, more efficient hydrocarbons industry.

Asset support services are delivered through a joint venture with AMEC and include brownfield engineering, operations and maintenance, shutdowns and turnarounds. The Asset Support business is undergoing a major injection of resources and organisational development as the focus on this significant market segment increases.

Underpinning the business is excellent delivery and performance on current long term asset support contracts with ConocoPhillips, Woodside, Chevron and Maersk.

Sustainability

Clough worked on 15 projects throughout the year, with an LTIFR of 2,0 (2009: 1,6).

Clough’s workforce grew from 2 200 to over 3 000 skilled technical, professional and trades personnel over the past year. Approximately 1 000 people were recruited into the business, with a large proportion of this workforce located in Papua New Guinea to support ExxonMobil’s PNG LNG upstream infrastructure and EPC4 projects. Chevron’s Gorgon project also drove significant workforce growth with Clough staff being placed in Australia, Singapore and London to support this world class project.

Clough’s Success Through People program continues to be the mainstay leadership development program with over 300 supervisory personnel having participated in the program since its launch in 2008.

The Normand Clough deepwater vessel in Table Bay, Cape Town

Prospects

Woodside Pluto LNG project

Clough ended the year with an order book of A$1 billion (2009: A$402 million). This is expected to increase significantly in the near term as it does not yet reflect future work orders for ExxonMobil’s PNG LNG upstream infrastructure or the award of the PNG LNG jetty construction project.

While the general outlook for Clough remains positive, with a strong statement of financial position and anticipated increased contribution from investments, there is some uncertainty in the highly competitive Marine Construction sector. The company will continue to capitalise on opportunities in the oil and gas sector, in particular Australian domestic gas and LNG projects and as the market recovers, in the growing deepwater subsea production sector.

John Smith