Thierry Pilenko – Chairman and CEO, Technip – France
The CEO of Technip talks about how service companies can weather the storm of the current low oil price, how to move from plumber to architect in the service segment, and the importance of R&D in maintaining a position as a technology leader.
Many commentators perceive 2015-2016 as a risky year for oil and gas service groups, especially since all the majors have announced that they will drastically cut their investments. Is Technip strong enough to face this situation?
Technip has indeed a solid position in spite of the current market meltdown. Firstly, it is important to note that the oil service industry has experienced similar cycles in the past. While plummeting prices motivate our clients to reduce costs, they usually start by drastically adjusting their exploration and drilling budgets before proceeding to introduce restructuring plans within their own companies. For instance, first level suppliers involved in seismic studies, well services and drilling operations are directly and strongly impacted by the current slump. However, what clearly distinguishes the current crisis from previous ones is that some of the oil majors have almost immediately initiated a staff reduction. What also differentiates the current situation with the 2009 crisis is the immediate reaction from both IOCs and NOCs.
In spite of strong challenges generated by the slowdown, we are entering this difficult period having achieved a record of order intakes in 2014. This achievement allows us not to overreact. This performance also enables us to gain visibility, pace ourselves, and carefully examine opportunities to adopt a new positioning in key segments. The 2009 cycle was short-lived, while the current slump will undeniably sustain itself and lead to consolidation or asset sales in the whole industry, which can be already observed in North America for instance. Again, our record backlog of EUR 21 billion (approximately USD 23.4 billion) end 2014, our diversified portfolio and strong technology position allow us to continue to implement our overall strategy in the short term.
Your subsea division is proving far more resilient than expected. How should this segment support the group in years to come? What are Technip’s main competitive advantages?
Despite its cyclical nature, the current crisis must be addressed by implementing structural changes. I believe that the need for cost reduction emerged prior to the crisis. The steps we have taken to broaden our portfolio of solutions have contributed significantly to our solid performance. We won major projects in the subsea world thanks to our complete set of solutions, leveraging our unique vertical integration relying on strategic assets, such as our vessels and our flexible pipe manufacturing plants. This wide scope of solutions distinguishes us from our competitors who are often specialized in either installation or manufacturing. In addition, prior to this downturn, we liaised with FMC Technologies to build an alliance and form a joint venture – Forsys Subsea – aiming at significantly reducing the cost of subsea development, by up to 30 percent. I subscribe to the philosophy of prioritizing innovative technologies and standardization as a means of cost reduction. When we initially entered a discussion with FMC Technologies, the price per barrel was approximately USD 110. If I were to make any forecasts on the evolution of Technip in coming years, I would predict a greater ability to drive lower costs and rely on our conceptual resources to produce innovative solutions.
You advocate for further cooperation between service companies and operators. Nonetheless, operators were the first to express the need to renegotiate with contractors. How does Technip actually cooperate with operators?
The dramatic changes occurring in our business environment compelled our clients to enact drastic measures. At the same time, developing further cooperation between clients and contractors is critical to fostering a resilient cost environment. I sometimes embark on heated conversations with clients regarding their demands but I prefer a closer and more collaborative approach, sitting down and brainstorming together in order to determine a suitable and efficient solution. For example, a major operator approached us to carry out an integrated project in the Caribbean, which comprised the subsea development and a platform. We sat down with their executives and explained that in order to truly save costs, it was essential to redesign the project, using the standards we were recommending, without compromising safety and quality. When this operator agreed to let us take the initiative and expose our ideas, we ultimately managed to achieve a double digit percentage reduction in costs. When we fine-tuned the Kaombo project on behalf of Total, we managed to reduce the overall costs of the subsea system by focusing on technology and local content, by defining the actions that should be carried out inside and outside Angola. Our alliance with FMC Technologies could help us expand this approach focused on early engagement across the entire subsea sector. We subsequently sought additional opportunities in regards to standardization and integration while reducing interface for our clients.
In other words, it has been critical for Technip to engage with its clients at the earliest stage possible, whether downstream or upstream. We must continue to expand our competencies and evolve as architects and no longer behave only like plumbers. Our clients used to present themselves with pre-made designs. They now rely on us to articulate the entire structure of a project. We will continue to progress if we carry an adequate vision of the reservoirs, the wells and the subsea system altogether. As a result, over the next few years, we will be introducing new competencies in sub-surface engineering.
You have expressed your desire to diversify your portfolio by completing strategic acquisitions. In 2014, Technip ultimately surrendered in negotiations to acquire CGG. How would you define your external growth strategy?
First of all, one of the the main purpose of acquisitions at Technip is to achieve differentiation via technology. We have turned the page regarding CGG. However, I emphasize on our commitment to integrate new competencies in sub-surface. Our partners and clients welcome our aspiration to enlarge our skill set and become a broader and more powerful contractor.
Technip aims at expanding its capabilities by acquiring companies belonging to first tier structures. In 2012, we acquired Stone & Webster because their technologies carried a fantastic reputation in the market place. We actually contributed our technologies into their processes to provide a stronger product. We seek high standards and companies, which dominate their market segment or possess critical assets. For example, Global Industries held a competency and two flagship vessels, which were essential to our business and allowed us to win more complex projects. In the service industry, being an expert in a very niche market comes with great risks. For example drilling companies are often very competent but rely on an imitable business mode, which can be easily challenged by newcomers. When a company chooses to combine a wide array of technologies and assets, it steps onto the path of long-term sustainability. For example, in regards to floating LNG, we deliver a solution comprising subsea, floater and LNG processes all within Technip, which enabled us to win a project on behalf of Shell. Today Technip is the only company capable of producing an internal solution combining all three technologies. Integrated engineering companies are far more resilient during crises than their pure-player counterparts.
Your appointment as CEO of Technip was symbolized by your commitment to become a prominent service provider and industrial player. What are the industrial ambitions of the group in the short to medium term?
Technip is indeed both an industrial player and a service provider. The integration of our own products even in the largest projects we undertake, serves to illustrate this trend. We reduce interfaces for our customers, which places us in a comfortable position to win strategic projects. Again, in order to be regarded as a legitimate industrial player, one must provide high-end products. For example, we have gained a leading market position in the field of flexible pipes. We are currently the only company to have tested a pipe in real-world conditions at a water depth of 3,000m. These promising outcomes result from intensive R&D efforts. When we analyze our subsea backlog in comparison to our competitors, our edge is driven by our integrated solutions. We established an alliance with Heerema Marine Contractors to access their assets for ultra-deep-water installations coupled with the deep-to shore capability, which emanates from our partnership with Global Industries. At this stage, Technip is consistently solicited and consulted by its clients during the early stages.
Veritas launched a successful wide azimuth campaign under your helm that led to the successful studies of oil under salt crusts. You have always shared your belief in this resource. Where else can we find oil today?
Salt constitutes an abundant resource, which means that we must unlock the potential of pre-salt layers. In addition, shale oil, which I actually call “source-rock oil” and finally, the Arctic represents strong potential in terms of resources.
Lastly, what keeps you awake at night, as CEO of Technip?
My main concern as CEO of Technip is safety. My parents were poultry farmers, and as a child I witnessed many accidents, sometimes lethal. I remember thinking, as a child, that there should be something we could do better in terms of safety. This is what keeps me up at night.
Our operations are very complex, and sometimes conducted in very sensitive and remote geographic locations. I am responsible for the safety of our staff, in every region of the globe, and could never forgive myself if I were unable to prevent a major accident. As a result, safety is a critical component of our success and will never be disregarded or compromised in any economic situation.