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Interview

Wael Bakr – CEO, MCS, Egypt

24.04.2017 / Energyboardroom

Wael Bakr, founder and CEO of MCS, an Egyptian company providing proprietary subsea technology, outlines how the company has managed to develop into an industry leader in the past decade; the core focus they place on R&D; his frank perspective on the opportunities and challenges in Egypt’s oil and gas industry today, and his argument that the future of the subsea industry is in autonomous technology.

Wael, you were the founder of MCS back in 2004 and MCS is now a global provider of specialist, subsea innovation technology. Can you tell us how the company was started?

“The drop in oil prices in the past few years has actually boosted our company significantly. It really forced the oil industry to think differently about their operations and costs, and to focus on new cost-effective instead of guaranteed solutions.”

It all started when I graduated from university. One of the major service companies in the world at that time, Racal, was facing a problem and coincidentally, my university graduation project was in that area. They purchased my graduation project and hired me fresh from university to work in their research center in Egypt to continue developing my project. This research center grew rapidly while I was there and eventually oversaw all the operations within the Middle East region. This was how I entered the oil and gas industry.

I spent 12 years there until they sold their subsea division to Fugro and had to move their Middle East research center out of Egypt. I left the company because I wanted to stay in Egypt, so I decided to start my own company, MCS. we were also fortunate that Racal gave us the rights to use some of the technology that we had developed in our own company. Interestingly, Fugro is now both a client and a supplier at the same time depending on the service.

Now MCS is positioned as a subsea innovation company and a holding group for our various business lines. We do not sell a set of services – we work by identifying problems and challenges within the oil and gas industry, and developing proprietary solutions for it. Each time we develop a new solution, we spin it off into a business line.

This is why we have MCS Free Zone and DeepTech. DeepTech is an international service company specializing in deep water projects, providing reliable ROV services utilizing cutting edge technology.

We are headquartered in Egypt with branches in Malaysia and UAE but we work on projects all around the world.

MCS is very unique as an Egyptian company that specializes essentially entirely in R&D. What do you think contributed to MCS’ success?

Firstly, I was blessed because I entered the oil and gas industry, and specifically the subsea niche, through Racal and Fugro. This was critical because at that time, the oil industry was rather laidback in their attitude to new technology. They did not want to try new things because when the oil price was high, they were making profits regardless of the technology they used. What they wanted was guaranteed production and guaranteed profit, so they were very reluctant to test any type of new technology at all. Entering this sector through an established giant like Racal was a huge boost.

Next, when I left the company, they allowed us to keep some of the proprietary technology that we had developed, which was what we used to start up MCS.

It also comes down to our core business. We are a technology company at heart. Contractors may compete with each other but they always need innovative technology solutions, so we occupy a rather privileged position where we do not face the same kind of competition.

The drop in oil prices in the past few years has actually boosted our company significantly. It really forced the oil industry to think differently about their operations and costs, and to focus on new cost-effective instead of guaranteed solutions. Four years ago, we had to spend time and money to convince people about the value of our technology. Now, it suffices simply to say that it reduces their cost by half.

What are some of the innovative technologies you are bringing to the industry?

I can tell you about our latest product. When a company wants to connect a well to a pipeline, the first thing they have to do is measure the distance between the two. Measuring it onshore might cost you just an hour: you take a ruler and simply go out to measure it. Offshore, the same task can cost up to USD 1 million, because you need to make preparations, send vessels and ROVs, do a day of calibration, and so on. Onshore you can see over a kilometer whereas offshore visibility may be less than five meters.

What MCS has done is develop an optical technology where you use computers to measure distances to the millimeter – regardless of water depth. Since you can only see five meters underwater, we take each little five-meter section and piece them all together like a puzzle to give you a full 3D model to scale, offering full visibility of underwater structures. This means that for the same task, instead of costing USD 1 million, it will cost 10% of such cost.

What we are doing is giving the offshore industry back their eyes to see underwater. We have actually won an accolade for this award from the Abu Dhabi Marine Operating Company (ADMA-OPCO) in the UAE; they were the first company we piloted this project with. As a result, their sister company, Zakum Development Company (ZADCO), now lists this technology as a contractor requirement on all their subsea projects!

This technology is particularly of relevance to the Gulf region, because much of the infrastructure here were built in the 1970s and have not really been repaired since. Previously, national oil companies (NOCs) in the region did not use to repair pipelines because the oil price was so high that they could simply lay down a new one. In this climate of low oil prices, operators want to extend the life of their existing infrastructure because companies are seeking to minimize investment into new projects.

How does MCS, as a mid-sized company, support such heavy investment into the R&D of such innovative technology?

It is about the mentality of the company. We are fundamentally an R&D company – that is our core business. We are not a company spending on R&D; we are an R&D company spending on projects!

Whenever we develop a new technology, we spin it off into a new business line, which generates a revenue stream for the company. All company revenues belong to the R&D department, which is the richest department in the company! When you also consider that we are a technology company, we might spend four years and a few million dollars on R&D, but the product is simply software that we can sell to as many companies as we want, on a daily-rate basis! We do not face constraints on our product sales.

In every five R&D projects, admittedly only one will succeed, but the revenues from the one success can cover the other four losses and support the company for a decade. In that sense, R&D is a very profitable business – if you do it right.

MCS walks the very fine line between being a dreamer and being a business. Usually dreamers sink a company and businessmen kill the dream, but we have maintained the fragile balance.

The success of any R&D company depends on the quality of the process, as you said, which boils down to the quality of the people. How do you ensure that you find people of the right caliber?

We currently have around 220 employees, of which 200 are engineers. We discovered that we had to recruit people fresh from university, not from the market. This means we invest a lot in training them to be fit for the company, a process that takes up to ten years. 80 percent of our investment is in people.

We expend a lot of effort on recruitment as well. Statistically, we only accept one out of a hundred CVs. Even before we do the technical evaluation, we need to receive the greenlight from HR regarding the personality fit, particularly for our R&D department. This is because research projects take four to six years on average, and researchers need to be there the entire time for best results. We did try to replicate our company model in Europe but it did not work because people there tended to move between companies a lot more, which is why companies in Europe focused a lot on documentation to ensure project continuity. But this sacrifices flexibility and innovation. Movement kills research.

The condition is that as a company, you also minimize turnover by providing the best environment for your employees in terms of not just remuneration but also training and skills development. A successful company cannot have a greedy management that does not reward its employees.

This is the main reason we based ourselves in Egypt. There is a huge reservoir of smart and well-educated human capital. It also seems that when people are raised in a rather chaotic environment, they develop more common sense, drive and entrepreneurialism, which we need as a company.  Furthermore, Egyptians tend to be very loyal. In the Gulf, where there is a huge Egyptian diaspora, people do remark that Egyptians tend to be a ‘homesick’ people – they feel very strongly that they want to return to Egypt. In Egypt, this mentality contributes to the success of our company.

This is also why we set up our affiliate in Malaysia. We found that it was a better culture fit there for MCS compared to other countries in the region. That said, as a company, we are an open company with many different cultures and nationalities because diversity is also essential to R&D and our success.

You mentioned that the industry used to be closed to new technology but is opening up now as they are facing downward cost pressures. Was MCS also at a slight disadvantage because Egypt is not a country typically associated with cutting-edge oil and gas technology?

In the beginning, it was difficult, I have to admit. We went up to Aberdeen in the early days to pitch our technology and people thought we were crazy to go to the center of subsea technology development! It took a while but our technology proved itself in time.

The fact is that our technology works and we are often the only ones providing it; for our latest solutions, we are a few years ahead of our peers. As I told you, operators now request that all tender bidders use our technology, sometimes even specifying that it has to be the latest version, not an older version. In fact, our employees are also very sought after in all giants, and we actually encourage our engineers to leave after four years so that they can act as brand ambassadors for us.

Our business lines now have more work than we can handle so I think we have progressed well as a company. We are still a relatively young company, so we do not have the reach or maturity to enter every single market in the world. The industry is a mix of politics and economics, for instance, in Indonesia, a company cannot have foreigners under the age of 35. Most of our employees are around 25 to 40, so we have to use a lot of local employees for our projects there. In the Gulf, it is all about economic considerations: if my technology is the best and I am the only one offering it, they will use it. We need to adapt to the particularities of each market.

We strongly wish to grow one country at a time, and it is the case that whenever we enter a country, it only takes one penetration point, one project, there before word of our technology spreads and we gain a major market share. This is because our technology works.

Despite MCS’ success, it is not always smooth sailing running a company. What are some of the key challenges MCS is facing now?

Being based in Egypt, MCS faces two issues. The first is supply chain. As a R&D company, we sometimes require specialist or custom-made equipment, which is not always available in Egypt. Sometimes it is because the manufacturing industry in Egypt is not precise enough, sometimes it is because we cannot import it on time due to bureaucracy, sometimes it is because companies cannot send it to Egypt because it has the possibility to be misused for terrorism. For instance, MCS has a technology to put an inspection device on a drone to inspect offshore structures, which eliminates the need to send people into a dangerous environment. But we cannot get the drones sent here to Egypt.

The recent pound devaluation has also created some brain drain in the country. University professors are leaving Egypt because their salaries have halved in value. This is serious for the country because these people have expertise and experience developed over decades. In terms of supply chain difficulties, we face a delay of maybe months, but when it comes to human resources, we are talking about years and even decades.

I would also like to see more support for local companies. For instance, in Brazil and Angola, as a local company, I would receive many advantages and support programs, not just from the Ministry of Energy but many other supporting ministries. In Egypt, on the contrary, following the currency flotation, it is actually cheaper for us to operate as a foreign company!

That said, as a company we recognize that these economic reforms are for the long-term benefit of the country and we fully support them. Egypt is still maturing as a country recovering from the political crises in the past few years and I hope they will continue to make the tough but necessary decisions for Egypt to prosper. But as Egyptians, we also need to be patient and take a longer-term perspective. For instance, people in the government have worked in a bureaucratic environment for 30 to 40 years, so we cannot expect them to change overnight.

Would you have any words of advice for other local companies looking to grow?

For large companies, the future of Egypt is definitely in technology. There is so much potential in terms of human capital in Egypt, as long as they are fully realized and managed properly. For smaller companies, I must say that the ecosystem is difficult. MCS had a lucky break at the beginning, and now we are doing our part to support local ideas. I recommend that smaller companies think outside the box and utilize untraditional new technologies wherever possible – which do not have to be expensive or take a long time to develop – to improve their processes and effectiveness.

Egypt is one of the richest countries I have ever seen in the world. If you are looking for opportunities, this is the best place.

Where do you see MCS in a few years’ time?

We do not think about where the company will go but rather, where the technology will go. I firmly believe in the future of autonomous subsea technology, which will reduce human risk and increase cost-effectively dramatically. If you think philosophically, humanity saw a jump in living standards with the invention of the steam engine and the Industrial Revolution, which meant that we are no longer limited by our physical abilities. The next revolution is in artificial intelligence, which will mean we are no longer limited by our mental abilities. MCS has already made a machine that can ‘see’, now we want to develop a machine that can ‘think’!

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