James Pang, Managing Director, Commercial & Business Development, Pacific Radiance, Singapore
James Pang, Managing Director, Commercial & Business Development of Pacific Radiance, discusses the remarkable growth story of the Singaporean offshore services company, and elaborates on the companies ambitious business strategy designed to capture the nascent offshore potential of the APAC region.
Pacific Radiance has evolved considerably since its founding in 2002. What are a few historical factors that have made Pacific Reliance into the company it is today?
In the oil and gas (O&G) industry, we are a fledgling company; yet, our management team consists of extremely experienced individuals, some of whom have more than three decades of industry knowledge to draw upon. My father founded Jaya Holdings back in the 1980s, and a number of the management personnel followed him into Pacific Radiance.
Jaya Holdings was focused on the shipping industry and the construction of vessels intended for sale. Today, Pacific Radiance has moved on from that path; we build vessels for our own use, not with the intention of selling them.
Pacific Radiance has adopted a model that is very scalable. We have considerable expertise in shipbuilding—indeed, some of our management team pioneered the development of offshore supply vessels (OSVs) in China. We are able to use shipyards efficiently and scale up when necessary; for instance, at one point, we were building more than 40 vessels. Yet, when the industry is experiencing a downturn, our business model allows us to scale down almost all the way as we do not have perpetual overheads, we do not have to keep orders filled, which is a significant advantage.
Ultimately, we have been able to flourish because of our people, they make all the difference. They provide a breadth of industry experience and knowledge that has been invaluable to the company’s growth. Their high level of expertise has enabled us to build quality vessels at a low price, reducing our break-even rate and giving us a keen edge over our competitors. This ability to construct assets at a low price has propelled our growth over the past decade. During the boom years, from 2005 to 2008, the market was so buoyant that we were able to sell our assets for a significant profit and use the cash generated to enhance the sophistication of our newbuilds.
Today, our fleet consists of both wholly owned and jointly owned assets, for a total of more than 130 vessels. Their makeup is diverse; for example, our portfolio includes diving support vessels (DSVs), platform support vessels (PSVs), anchor handling vessels, multi-purpose supply vessels and ocean tugs. Variety and versatility form the cornerstone of our business strategy and have contributed profoundly to the development of the business. By offering an integrated platform, we are able to support a wide mix of clients whose operations stretch across the O&G upstream value chain. We are working to expand our client range even further and build up a track record all along the chain.
In addition to your expanding fleet, you also have a pipeline of newbuilds coming from China. Is this a high-risk strategy in a market that is, as you have said, vulnerable to oversupply, with so many conventional shipping companies pivoting to offshore supply service. How does your strategy justify such high levels of investment in an industry which is very cyclical?
One of the challenges in the industry today is that there are so many speculators. It does not help that our blue-water cousins are struggling, so they have moved into offshore and built up a capacity, which has created excess supply in this arena. During difficult times, a number of conventional shipping companies floundered and went bankrupt. Some of the larger state-backed entities remain and they have a real appetite for expansion.
One of the challenges today is that many speculators who have placed new orders for vessels are hoping to sell them for a profit on delivery. Such speculative builds creates excess supply. However, speculative builds may not always meet operational requirements, as the investors’ focus is simply to sell the vessels for a profit.
Pacific Radiance stands apart because we are operators; we actually deal directly with the clients, working hand-in-hand with them to ensure successful project execution. The fact that we are a front-line offshore service company allows us to offer solutions that are tailor-made to their needs, whether they are working off the coast of East Africa or in the Pacific.
Our growth is focused in high E&P spend, high E&P growth as well as cabotage protected markets which naturally creates a barrier to entry and limits supply, regardless of the number of newbuilds coming into market. Hence we are less concerned on oversupply.
We have carved out a competitive edge by strategically positioning the company in high growth, emerging exploration and production (E&P) regions that are experiencing heavy upstream activity, such as Indonesia and Malaysia. Indonesia is spearheading the upstream market in the Asia-Pacific, achieving the highest E&P growth in the region. It has a domestic population of more than 200 million, so the internal demand is huge, and its daily crude production has waned. This disequilibrium in supply and demand is creating immense pressure in the Indonesian market. It is currently producing around 800,000 barrels a day (BOD) but needs to achieve more than 1.4 million BOD just to meet domestic demand.
Countries such as Indonesia that are facing strong headwinds in terms of energy needs are under intense pressure to meet local demand, so government budgets for the E&P sector are being augmented, which has spurred investment and production. Yet, because of cabotage laws, only locally flagged vessels can operate in Indonesian waters. Fortunately, in Indonesia, for instance, we have a local partner who knows the local market well and can operate freely in this thriving region.
Why, in Indonesia for example, did partners decide to work with you, as opposed to someone else?
Our partners in Indonesia are purely offshore players, with a long-standing footprint in that field. Before investing, they were looking to expand their deep-water activities and, to do so, they needed sophisticated assets and skills, such as dynamic positioning expertise. We were able to provide what they needed by sharing processes and knowledge. We have also been able to add value in terms of financing and improving their supply chain. The partnership was mutually beneficial. Since joining hands in 2011, we have quadrupled their net profits and injected nearly 10 high-value assets. In addition, they have access to our entire fleet. The step-up for them has been tremendous.
Given the thriving activity in the region, how are you positioning yourself to capitalize on this forecasted growth?
We are still an emerging company focusing on high growth and high E&P spend markets. We penetrate these markets through alliances, acquisitions or joint ventures; such growth strategies enable us to jump-start our activities there. As we have already mentioned, Indonesia is a market we are right in the heart of, but we have a keen eye on various arenas across Southeast Asia, Africa, Australia and Latin America. We are seeking partners who can share our vision and ambitions.
Do you feel Singapore is the right location to capitalize on this regional growth?
First, Singapore does have an excellent brand name. In terms of corporate governance, it offers a certain level of comfort and it readily complies with key international standards, which reassures investors. Singapore business is synonymous with efficiency and predictability, which are crucial traits for a thriving business environment.
In addition, many major suppliers are located in Singapore because of its world-class business platform, so we have easy access to engineering personnel and many different types of equipment.
Considering that emerging states in the region are becoming increasingly competitive, can Singapore maintain its position as the leading energy hub in the region?
For shipbuilding, there are many emerging competitors, particularly China and Vietnam, apart from traditional countries like Korea and Japan. They are attracting major investments from foreign parties. In terms of the cost structure for shipbuilding, Singapore will find it difficult to compete with these emerging giants.
Yet, in terms of ship-repair, Singapore is extremely well placed—that is why Pacific Radiance is investing approx 50 million USD in two grave-in dry docks here. The fact that Singapore is located at the epicenter of a slew of major sea-lanes gives it a huge natural advantage in this market. Furthermore, given the ramp-up in E&P activity around the region and mandatory shipping check-ups, we believe the market for ship-repair is set to expand further. Major vessel operators are already in Singapore, they know the efficiency of the domestic port and they have used the country as a base for decades—those factors are critical for continued growth.
Many executives stress that the industry should do more to contribute to the development of human capital instead of poaching from each other, which ultimately drives costs up. How far do you agree with this statement?
We have about 180 onshore staff and more than 1,000 offshore crew. There is a need to train young talent. It is like a zero-sum game: everyone suffers if supply shrinks as costs swell. We are working to grow organically by implementing a management training program. It is also easier to carry a brand and a culture when you cultivate your own workforce. Even so, when it is done in moderation, bringing in talent from other companies can help to cross-fertilize ideas. If there is a heavy influx of outside talent, it can be hard to integrate the different business mindsets.
Many oil and gas companies operating in Asia choose to work with European operators because they can leverage their North Sea deepwater expertise. Given deep water expenditure is set to double in Asia Pacific 2017, how can Pacific Radiance compete against these international competitors?
Certain clients do prefer European operators but I think they make up only a small group. Many of the vessels in our fleet can operate in both shallow and deep waters. In fact, some of our operations in East Africa, where we are supporting a drill ship, have gone past 2,500 meters. We are rapidly establishing a strong track record in this area. Our portfolio now includes 17 new vessels that have the capacity to work in deep waters. We believe we have the right assets, right people and right partners. Our driving philosophy is to ensure that our partners make money, and this mindset has helped propel our growth.
If we were to return to you in three years’ time, what would you have liked to have achieved?
I do not want us to be focused just on Southeast Asia, which currently accounts for 55 percent of our operations. I would like us to penetrate more emerging markets around the globe, as we scale up our operations and expand our fleet. We are engaging in what is a long-term game and we hold a long-term investment view. Staying true to that strategy is important.