The value of awarded contracts continues the strong momentum that was witnessed during the first quarter to reach R64.3 billion ($17.2 billion). The Q2'19 contract awards grew by 32 percent compared to last quarter and by an impressive 92 percent compared to Q2'18. Furthermore, Q2'19 marks the highest value of awarded contracts by quarter since the second quarter of 2015, when it reached SR64.9 billion ($17.4 billion). As for the value of awarded contracts thus far in 2019 (H1), it reached SR113.2 billion ($30.2 billion). This marks a 101 percent increase compared to H1'18, illustrating the sharp turnaround in construction contract awards thus far in 2019. The value of awarded contracts during H1'19 has already eclipsed the toVzjo10uslr tal value that was witnessed for all of 2018 by 12 percent. The SR64.3 billion ($17.2 billion) in awarded contracts during Q2'19 contained significant mega-projects across numerous sectors. Most notably was the oil & gas, real estate, and military sectors, which accounted for approximately 87 percent of all awarded contracts during Q2'19. Other contributing sectors included education, industrial, and water. While a majority of the contracts were awarded by the government, the private sector was an active participant in the real estate sector in particular. As depicted in the below chart, the value of awarded contracts in 2019 is showing signs of a strong rebound. The USSABC Contract Awards Index (CAI) reached 238.67 points at the end of the second quarter. This highlights the resurgence in 2019, which is on pace to match the construction boom witnessed prior to the brief economic downturn. The CAI's 238.67 points marks a 41 percent increase versus Q1'19, which ended at 168.69 points. Compared to Q2'18, the CAI grew by a noteworthy 64 percent. As for the CAI's performance during the second quarter there was uneven growth during the three months. April's CAI reached 163.52 points, May decreased to 154.66 points, and June ended higher at 238.67 points. June's value of awarded contracts accounted for SR47.9 or 74 percent of Q2'19. The CAI eclipsing the 200 point barrier, an achievement not witnessed since Q2'16, indicates an important milestone. During the construction boom of the last decade, there was a period of 22 consecutive 200 plus points. While the CAI has a long way to go to duplicate that feat, the current pace suggests that a CAI run above 200 points is likely possible. The value of awarded contracts by sector during Q2'19 was overwhelmingly dominated by the oil & gas sector. Of the SR64.3 billion ($17.2 billion) in awards, the oil & gas sector alone accounted for a substantial 74 percent of awarded contracts by value. Saudi Aramco continued awarding many megaprojects to international contractors at its Marjan oil field as well as the Tanajib oil complex in the Eastern Province. Looking at H1'19, the oil & gas sector accounted for 52 percent of the SR113.2 billion ($30.2 billion). The oil & gas sector is on pace to have the highest value of awarded contracts on record with the second half of 2019 remaining. The current highest tally occurred in 2009 when it reached SAR60.5 billion ($16.1 billion). Real estate and military rounded out the top three sectors by value. The real estate sector benefited from a strong performance in the residential subsector as it registered SR3.9 ($1 billion) in awarded contracts. The military sector only had two awarded contracts but one of them was worth SR3 billion ($800 million) and was awarded by the Ministry of Defense. For the second consecutive quarter, the Eastern Province contributed the largest share of awarded contracts by region. The majority of oil & gas projects took place in the Eastern Province, which was a leading factor in having SR49.3 billion ($13.2 billion) or 77 percent of the awarded contracts in that region. Saudi Aramco was the awarder of oil & gas projects across a number of its onshore and offshore oil plants. Smaller contracts in the Eastern Province were also awarded in the transportation, water, power, and real estate sectors. The Makkah region registered SR8.5 billion ($2.3 billion) or 13 percent of the total value of awarded contracts. Numerous contracts across several sectors were awarded in Makkah but the largest contracts occurred in the military, industrial, and real estate sectors. As previously mentioned, the largest contract was awarded by the Ministry of Defense in the amount of SAR3 billion ($800 million). The industrial sector had a sizeable contract that was awarded by Ma'aden for the Mansourah-Massarah gold mine. The real estate sector largely contributed to the remainder regions as the Ministry of Housing awarded contracts to continue its development of the housing sector. The oil & gas sector led all other sectors with approximately SAR59.4 billion ($15.8 billion) worth of awarded contracts. The oil & gas sector continued its strong momentum that began in Q1'19. The oil & gas sector grew by an impressive SR44.7 billion ($11.9 billion) over Q2'18. Furthering the magnitude of awarded contracts in the oil & gas sector is that H1'19 witnessed SR59.4 billion ($15.8 billion) in awards compared to SR14.2 ($3.8 billion) for all of 2018, marking a 318 percent increase. Two contracts that were each in the amount of SR11.3 billion ($3 billion) represented the largest contracts in the oil & gas sector. The first contract was awarded by Saudi Aramco in June to a consortium of McDermott and China National Offshore Oil Corporation. The contract pertains to package one of the construction of an offshore gas-oil separation platform (GOSP-4) complex in Marjan oil field. The Marjan Field Development project consists of new offshore facilities such as platforms and pipelines to link to a new gas facility in Tanajib on the Arabian Gulf, and from Tanajib to the expanded natural gas liquid (NGL) facility in Khursaniyah. GOSP-4 will handle 475 thousand barrels of oil per calendar day (MBCD) of oil and 813 MBCD and 747 million standard cubic feet per day (MMSCFD) in associated gas. The project is expected to be completed by the fourth quarter of 2022. The second SR11.3 billion ($3 billion) contract was also awarded in June by Saudi Aramco to Saipem as part of the expansion of the Berri field development project. The Berri field development project involves low-pressure gas being sent to the Berri gas plant in Jubail, which will be expanded under a program to recover more NGL and sulphur. The project consists of a GOSP at the existing Abu Ali gas plant, as well as additional facilities at the Khursaniyah gas plant that will process 40 million barrels per day (bpd) of hydrocarbon condensate. The project is expected to be completed by the third quarter of 2022. The real estate sector registered the second highest value of awarded contracts by sector during Q2'19. The amount came to SR5.1 billion (1.4 billion), which was a decrease of 60 percent compared to Q2'18. As for H1'19 the real estate sector has witnessed SAR8.3 billion ($2.2 billion) worth of awarded contracts versus SR14.4 billion ($3.8 billion) during H1'18, marking a 43 percent decrease. Within the real estate sector, residential real estate garnered the highest share of awarded contracts, accounting for SR3.9 billion ($1 billion) or 75 percent of all contracts. The commercial real estate and mixed-use real estate subsectors accounted for the remaining awarded contracts. For H1'19, residential real estate also contributed the largest share of awarded contracts, yielding SR6.8 billion ($1.8 billion) or 83 percent of the real estate sector contracts. The Ministry of Housing was the predominate awarder of contracts in the real estate sector during Q2'19 as it awarded approximately SR3.9 billion ($1 billion) to several contractors across the Kingdom. The biggest recipient of contracts from the Ministry of Housing was Katerra Construction which won five contracts worth SR2.4 billion ($1.6 billion). The largest of the five contracts was in the amount of SR1.5 billion ($400 million) and includes the construction of 2,482 residential units in Makkah. Additional work includes the construction of a mosque, utility facilities, parking spaces, and associated facilities. The project is expected to be completed by the fourth quarter of 2024. The military sector rounded out the top three sectors by awarded contract value, registering SR3.1 billion ($835 million). The awarded contracts during Q2'19 in the military sector grew by SR2.8 billion ($745 million) compared to Q2'18. Only two contracts were awarded in the military sector with one accounting for a majority share of the value of contracts. The large contract was awarded by the Ministry of Defense in the amount of SR3 billion ($800 million) and entails the construction of King Fahd Naval Academy City on 4.5 million square meters of land located in Al Qadhima, Makkah. Industrial sector as Ma'aden continues to develop its gold mine exploration. Ma'aden awarded a contract worth SR2.3 billion ($606 million) to a consortium of Larsen & Toubro and Outotec as part of the Mansourah-Massarah gold mine project. Ma'aden is currently working to develop new gold mine facilities across the Kingdom under its plan to exploit gold ore deposits.The Mansourah-Massarah gold mine, which comprises mining, processing plant, and infrastructure works, will process four million metric tons of blended sulphide and oxide ore feed per year. The project is expected to be completed by the third quarter of 2022. The pickup in contract awards during Q2'19 after a strong showing the previous quarter bodes well for the non-oil economy for the remining of 2019 and into the medium-term. Encouraging developments in the oil & gas sector, which has witnessed a flowing pipeline of mega-contracts as well as the continued focus to develop the Kingdom's infrastructure capabilities have catapulted the value of contract awards back to levels seen during the prior construction boom. Several developments bring further optimism to the construction sector such as the its contribution to GDP, the Kingdom's capital expenditures thus far in 2019, and the improvement of the cement sector on the back of awarded projects. The construction sector's contribution to GDP grew by 1.26 percent in the first quarter, marking the first increase since the fourth quarter of 2015. Furthermore, the Kingdom's second quarter budget report indicated a 22 percent increase in capital expenditures during H1'19 compared to last year. The Kingdom has spent 37 percent of its capital expenditures thus far in 2019, indicating that the second half will see a sizeable increase in investments. Lastly, the cement sector has witnessed signs of recovery on the back of the elevated number of contract awards. The Kingdom's 17 cement producers witnessed sales growth of 19 percent in June and 7 percent in July, the first consecutive growth of 2019. There a number of mega-contracts on the horizon that will likely keep the pace of awarded contracts elevated over the next two quarters. Saudi Aramco's ongoing development of the Marjan and Berri field projects will continue to produce a pipeline of contracts. The development of phase I of the Red Sea Tourism Project, which includes construction of a base camp, marine works, labor accommodation, and the hotel building package will also provide numerous opportunities for contractors. — SG
