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Foster Wheeler Wins Contract, Shares Drop

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A contract win for Foster Wheeler AG’s (FWLT) Global Engineering and Construction group from Farabi Petrochemicals Company did not boost investor sentiment in the following trading session. On Oct 24, the company announced winning a contract for concept study and technology selection for Farabi’s Jazan Petrochemicals Project based in Saudi Arabia. However, Foster’s shares closed 0.7% lower on Oct 25.

 The financial terms of the deal remain undisclosed, but it will be recorded in the fourth quarter bookings.

The contract entails Foster Wheeler to develop the project’s outline to include the construction of a mega linear alkyl benzene plant along with a number of specialty units that will produce chemicals obtained from the diesel feedstock. Foster Wheeler is also required to prescribe the suitable technology to produce and treat low aromatics solvent and heavy fuel oil.

In addition, Foster Wheeler will also develop the cost estimates for the project, overseeing the invitation of tenders for the FEED (front-end engineering design). The study is expected to be finished by the first quarter of 2014.

This strategic study will further establish Foster Wheeler as the preferred provider of services in the Petrochemical sector. Foster Wheeler is likely to benefit by this as petrochemical companies are expected to grow exponentially following the ‘Shale Boom’ in North America.

This contract is expected to further strengthen Foster Wheeler’s presence in the middle-east. Prior to this, recently Foster received contracts from Abu Dhabi Polymers, Saudi Aramco and Kuwait-based Petro Chemicals Industries Company. Middle East has been one of the primary growth regions for Foster’s business.

During fiscal 2012, the Middle East contributed 7.3% of the total geographic revenue and 9.7% of the total revenue generated by the Global Engineering and Construction division. Further, about 26.8% of the total new orders booked by Foster in fiscal 2012 were from the Middle East region.

Foster Wheeler’s Global E&C Group provides technical and economic analyses and study reports to owners, investors, developers, operators and governments. Foster currently has a Zacks Rank #4 (Sell). Other stocks in the industry worth buying at the moment are Jacobs Engineering Group Inc. (JEC), Premier Oil plc (PMOIY) and KBR, Inc. (KBR) All three carry a Zacks Rank #2 (Buy).

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