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CBI Wins $85M Shah Deniz Deal

Zacks Equity Research

Chicago Bridge & Iron Company N.V. (CBI) recently announced that it has received an $85 million contract from a consortium led by BP plc (BP) for the Shah Deniz Stage II project.

The Shah Deniz gas field is the largest natural gas field in Azerbaijan. It is situated in the South Caspian Sea, off the coast of Azerbaijan, approximately 70 kilometres (43 miles) southeast of Baku. This gas field, discovered in 1999, is supposed to supply gas directly to Europe. The Shah Deniz field is primarily operated by BP which has a 25.5% share in it.

The scope of the contract requires CBI to provide core services including engineering and project management for advancing the South Caucasus Pipeline Expansion (SCPXY) project of the field. This critical pipeline will become the mode for transferring gas between the Shah Deniz field and Turkey passing through Azerbaijan and Georgia.

The field has a present annual production capacity of about 10 billion cubic meter (bcm) of natural gas. The next phase, Shah Deniz II, is vital for Europe as it will present an alternative gas supply to Russia’s Gazprom. Shah Deniz II is expected to become operational in 2019 and produce 16 bcm of gas annually. Of the total 16 bcm of gas production, 10 bcm will be allocated for Europe and the remaining 6 bcm for Turkey.

The consortium involved in the development of Shah Deniz includes Statoil ASA (STO), The State Oil Company of Azerbaijan Republic (:SOCAR), BP and others. This consortium has recently awarded a $750 million construction and supply contract for the development of Shah Deniz II.

CBI is a leader in the Liquefied Natural Gas (LNG) storage market, where it expects more opportunities to win contracts, especially in LNG/low temperature storage systems (petrochemicals). Such deals are expected to increase the company’s market share in the domain.

CBI currently has a Zacks Rank #3 (Hold). Another better-ranked stock in the sector that can be considered at the moment is MasTech Inc. (MTZ) which sports a Zacks Rank #1 (Strong Buy).

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