Bruno Chabas – CEO, SBM Offshore – Netherlands
The global CEO of SBM Offshore explains the growing relevance of floating production vessels in an increasingly complex energy market that requires more sophisticated and flexible solutions. In line with growing industry trends, he also highlights the company’s various strategic initiatives in global expansion and technological innovation.
Although 2015 is a difficult market conjuncture, SBM Offshore had a near-record high order backlog of USD 21.8 billion as of December 2014. How is SBM Offshore positioned to weather tough market conditions in 2015?
Compared to our peers, SBM Offshore is uniquely positioned from a contractor standpoint. For our lease and operate activities, we have a backlog of USD 21.8 billion with the average lifetime of a contract spanning 14.5 years. In contrast, we have a limited backlog on the contracting side, with roughly a billion dollars— reflecting the downturn in the industry, which is hitting the turnkey side of our business. Overall, despite tumultuous market conditions, our lease and operate activities will provide long term visibility in terms of cash flow generation—ultimately giving us more opportunities to develop more refined products and services in line with industry changes.
In the 2014 results conference call, you stated that “the decrease in price of oil is in fact going to be a catalyst to change the structure of the industry and the way of working.” How are you positioning SBM Offshore to meet these dynamics and become a stronger company?
The nature of the industry over the past couple of years has created a challenging operating environment for our clients from a profitability standpoint. Ten years ago, the length of time required for a new field to transition from development to production was only three to five years; by contrast, today, it takes seven to eight years, which has significantly impacted the economic value of a field for all players in the industry. In conjunction with the decrease in oil prices, these market conditions have incentivized many of our clients to implement cost-cutting initiatives and effectively reduce margins—in turn, pushing contractors to reduce their margins. From our experience, however, the only way you can weather the adverse effects of a down cycle is really by working differently with the supplier base. Since we’re deeply integrated into every project from the engineering phase to the operating and eventual decommissioning, SBM over the last ten years has developed an optimized management system called Group Technical Standards (GTS), which has ultimately allowed the company to consistently deliver projects on time and within budget—contrary to the majority of the industry. GTS allow continuous development of our products and to date have formed the engineering foundation for 20 FSPO projects and relocations to a superior standard acknowledged by our clients.
We have experience in operating FPSOs for more than 260 cumulative contract years now, and, in that time, the longest unplanned shutdown with completely stopped production and cash flow for our clients was only two weeks. SBM’s expertise spans the Product Life Cycle, from designing and building FPSOs, to more importantly, operating them in a safe and reliable manner over a long period of time. By collaborating in more depth with our clients over the past 20 years, SBM has managed to streamline operations, reduce the time-to-market, and significantly ease the financial burden for not only us, but also our clients. Through our unique model of lease and operate, our clients’ costs are reduced as SBM and its partners retain ownership of the vessels. SBM’s commitment to quality is evident, and moving forward, we’re very excited to bring even more value to the industry by shaping the very nature of contracting.
It was announced in December 2014 that SBM Offshore would lay off 1,200 employees. How has this policy affected SBM’s global operations?
The core of SBM comprises three pillars. The first pillar is financial stability. Over the past four years, we have restructured our finances and produced a more robust balance sheet to ultimately place us in a stronger financial position and create more long-term visibility. The second pillar revolves around technological innovation and our commitment to delivering projects in an increasingly more efficient and effective manner. Within the floating production market, SBM alone invests more in the research and development of technology than the rest of the industry combined. We are constantly focusing on ways of bringing more cost-efficient and innovative solutions to the sector. The third pillar centers on our people because at the end of the day, you can have all the right processes and systems in place, but without the right people with the right capabilities at the helm, forward momentum would be inhibited. Given the cyclical nature of the industry, it is important for a company like SBM Offshore to be able to restructure during a downturn in order to reduce our break-even point, while maintaining the level of intellectual capital in the company. Consequently, in light of recent market conditions, we’ve had to reduce our workforce while keeping our core competencies at critical mass. So, yes it’s painful to release 1,200 of our own people, but we’re doing it in such a manner that will allow us to regrow SBM in line with future growth prospects of the industry.
SBM was started through a patent of a mooring system for the world’s first FPSO for another Dutch flagship, Shell. In 2003, the company split into two entities – the yard business and SBM Offshore, which was subsequently listed on the AEX. A high concentration of our technology development takes place in the Netherlands where one of our five Regional centres is situated in Schiedam. Last December we announced the relocation of our headquarters to Amsterdam by Q4 2015. The international orientation, presence of many other stakeholders in the Netherlands, the Company’s Euronext listing and the proximity to the industry are expected to provide many advantages to SBM Offshore as a global player in the industry.
Over the past three years, SBM Offshore has invested approximately $40 million in R&D to bring new technology to the market, with 80% this focused on delivering cost efficient solutions. How will these investments push SBM Offshore to the next level?
The focus in technology is based on one premise: listening to our clients. It seems a bit counter intuitive, but some of the investments that SBM has done in the past were remarkable from an engineering and technology standpoint, but there was simply no demand in the market. As such, one of the things that we did three or four years ago focused on assessing the practicality of our technology investments directly with our clients first, then finding ways to optimize cost efficiencies and production output. Our disconnectable mooring system, for example, has embodied such criteria and proven extremely successful as a result.
Your greenfield projects receive much more press than your activities associated with brownfield developments and extending the lifecycle of FPSOs. What is the evolving importance of these segments to SBM Offshore’s continued growth?
When you look at the overall energy market, 50 percent of the world energy reserves need to be developed offshore and most of it will be developed through greenfield. As these projects are typically located in remote, deep-water geographies, FPSOs will continue to be a valuable engine of growth for the company for the foreseeable future. Perhaps as a testament to that growth, we currently have three projects under construction at this stage: FPSO Turritella for Shell’s Stones development in the Gulf of Mexico and two for Petrobras’ pre-salt fields offshore Brazil called FPSO Cidade de Maricá and FPSO Cidade de Saquarema.
With that said, however, we believe that there are some ways to accelerate the speed of development by standardizing processes and developing more innovative solutions that the industry currently lacks. One of SBM’s priorities centers on being a leader in this area by closing those technology gaps and improving upon the overall efficiencies of the industry.
SBM Offshore is providing a large complex turret mooring system for Shell’s Prelude FLNG project. How has this project poised the company to expand its presence in the FLNG sector?
For the FLNG market, we’ve been focused on providing specialized equipment for large builds such as the turret mooring system we designed and are building for Shell’s Prelude, which we believe will prove to be quite a lucrative market. Especially when companies invest a few billion dollars into a new build, they need to be certain that the system mooring the vessel to the seabed is proven technology and absolutely fail-proof. Over the years, SBM has provided all the large turrets in the world, to the tune of six or seven – in total we have delivered 55 permanent mooring systems for the industry as well as 34 for SBM’s own fleet of FPSOs).
Moving forward, we believe the FLNG market is going to evolve similarly to the FPSO market. The FPSO market is currently segmented into three major segments: the large FPSOs producing more than 200,000 barrels a day, mid-size FPSOs producing between 80,000 – 150,000 barrels, and the smaller FPSOs that require minimal technical expertise. We’ve typically operated in the mid-size market segment, where we can effectively leverage our technical competences, while maintaining a high level of financial stakes. The FLNG market is going to evolve in the same manner. We’re going to see the market for large new builds, like Prelude, rise. But we’re also going to see an increase in converted LNG tankers in order to develop the abundance of smaller fields. Our core position is for (1.5 – 2 mpta) conversions. We aim to leverage SBM’s extensive experience in designing, building and operating FPSOs to market our FLNG solution; we’re looking to position ourselves as the preferred turnkey and lease and operate contractor for mid-scale FLNG.
SBM Offshore has improved its safety performance year-on-year for three years. However, it is not the time to rest on your laurels. How will SBM Offshore push the envelope for even safer operations?
For me, the indicator of health for any company is not only financial metrics, but also its safety performance, which reflects the quality of a company’s operations, well-being, and leadership. We are constantly monitoring and stressing the importance of leadership involvement in worksite safety. As such, our safety performance has improved significantly with the rate of high-potential events decreasing by a factor of three to four. Having said that, however, we did have two fatalities last year with one of our subcontractors, so despite our emphasis on vigilance and precaution, safety improvements and training at all levels including at our joint venture shipyards and with our subcontractors will always be at the forefront of what we are doing. Also, with the recent string of industry accidents on FPSO platforms, we’ve started to focus more on process safety and effectively training our people on how to produce oil and gas more safely. Through these initiatives, we hope to lead by example and set the industry bar high in the areas of physical risk mitigation and preventative safety.
In 2014, SBM Offshore boasted 13 percent less green house gas emissions per hydrocarbon production offshore compared to 2013, 9 percent less energy consumption and 17 percent less oil discharged from produced water offshore compared to 2013. What is your vision for sustainable and “green” operations for SBM Offshore in the future? How are you molding SBM Offshore to optimize your environmental footprint?
Working in an environmentally sustainable manner is going to be key for operating in the oil and gas industry. Minimizing greenhouse emission in the context of field production is an on-going effort that we work very closely with our clients in addressing. The first step is to monitor what’s currently being done and then engage with our clients about whether or not there’s a more effective way of doing things. Defining an action plan, increasing transparency, and communicating with the local community are the primary priorities in reducing our environmental footprint.
How are SBM’s initiatives in parlaying its offshore expertise into renewable technologies progressing?
While going through a fairly drastic restructuring, we have been hard-pressed to allocate our resources efficiently among essential areas. Aside from floating production systems, we have dedicated some seed money in developing renewable alternatives such as wave energy as a form of electricity generation. It’s in the development phase, but we believe that we’re already ahead of the curve when compared to our peers. It’s a high stake investment, but it is something that could be the next breakthrough in the industry. Although the rate of failure is high in the industry, the progress that we have achieved over the past three years has been extremely promising and we’re looking forward to even further development.
Looking at your leadership style, what ambitions do you have for the organization in the next five years?
Recently, we have gone through a difficult phase with the restructuring of the company and the abundant unfavorable press. But we have changed the company and the landscape of how we operate. Our objectives moving forward will focus on reinvesting in our core competences, maximizing our capabilities, and maintain our front-runner status in both technology and production capacity. With the quality of our products and services alone, I’m confident that SBM will continue to bring value to our clients and stakeholders. We’ve done a remarkable job of investing in our technology and our people, and we look forward to continue building upon that foundation moving forward.