with Allister Langlands, CEO, The Wood Group
How would you define the period that Wood Group has been experiencing since it took the strategic decision to go public in 2002?
The last 6 years have probably been one of the strongest growth periods in Wood Group’s history. Our significant focus on supporting oil & gas production allowed us to weather the 1998/99 downturn pretty well. Our robust performance enabled us to continue to invest strongly in the business, including the acquisition of Mustang Engineering, in 2000, creating the platform for our strong growth. The funds raised in our IPO in 2002, combined with our good cashflow, allowed us to continue that investment. Recent growth has been particularly strong and we have doubled the number of Wood Group people to 27,000 in the last 4 years.
How is Wood Group’s current breakdown of activities along the value chain of the oil and gas industry?
Wood Group has three main divisions: engineering & production facilities, well support, and gas turbine services. The engineering & production facilities division represents a little over 60% of our overall revenues, with approximately half related to new developments and the other half to existing production facilities (maintenance, brownfield engineering, modifications, etc.). Within our engineering activities, there is a good spread in terms of end markets, with roughly equal percentages in upstream, pipelines, and downstream markets.
The second division is well support, with about 20% of overall turnover. The largest business line there is electric submersible pumps, with technology that supports mature fields in particular, representing about half of the division’s total revenues. The other significant business line in this division is surface valves and wellheads, where an important driver is the level of gas drilling activity.
The third division, which also represents approximately 20% of the overall business, is gas turbine services. The focus is also on supporting production, with one third of the activity in the oil and gas industry and the rest in the power generation and industrial sectors.
Overall, we could say that about 50% of Wood Group’s profits come from new developments, and 50% from existing production. We believe that this is a good mix which allows us to maintain greater stability throughout industry cycles.
To what extent has the trend of operators outsourcing more and more of the operational duties to the contractors resulted in new business opportunities for Wood Group, both in the North Sea and globally?
Wood Group has a good market position in the North Sea, where we have an excellent mix of clients which include both majors and independents. Clients like BP, Shell and Total are still active in this region although they are also focusing globally on some of the very large opportunities. We believe Shell, BP and Total will remain important players in the North Sea.
With regard to the independents, Wood Group has worked since the 1990s with the first wave of new arrivals to the North Sea such as Talisman and Apache. We were already working on many of the BP assets they acquired, and have remained involved ever since. More recently there is a new wave of independents in the North Sea, which are also Wood Group clients. These include TAQA, which has acquired some of the Shell assets in the North Sea, and Ithaca, which is now developing the Beatrice field after BP and Talisman. We will also be Dutyholder on two FPSOs with independents, Venture and Oilexco.
The Dutyholder role is an interesting development for Wood Group. This is a significant change from the role we traditionally played with the majors, where we were mostly seen as a maintenance and modifications contractor. With some of the new operators, there is a far greater component of operations for us and we are also responsible for aspects like the overall safety case and the safe operation of the facilities. Wood Group has been building this capability over the last few years in order to position itself for such opportunities. This has included hiring senior people with a strong background in operator companies.
Working actively in mature fields is not only an important area in the North Sea; it is also a global opportunity. The North Sea in many ways has been the most significant offshore market in terms of the development of the way of working, which is why UK based contractors have a lot to offer by taking the knowledge and skills gained in this area to other maturing markets overseas. For example, Wood Group currently supports offshore operations in Brunei for Shell and is also very active in West Africa, with a particularly strong presence in Equatorial Guinea supporting ExxonMobil, Marathon and Hess. The Group is also working in several onshore markets, supporting BP in countries such as Colombia and Russia. We now have a good blend of offshore and onshore experience in mature fields around the world.
The Wood Group was a pioneer in understanding the importance of diversifying geographically from the North Sea in order to continue growing and dilute risk. What part of the Group’s turnover today comes from international vs. UK business?
In profit contribution terms, the North Sea – including Norway – represents approximately 15% to 20% of the Group’s overall profits, the rest coming from overseas business. When I joined the Wood Group in 1991, the proportion was the inverse, with almost 90% of the revenues originating in UK activities. In terms of head count the evolution has been similar, and out of approximately 27,000 global employees nearly 80% are located outside the UK. Wood Group is a significantly international business today.
Wood Group’s initial internationalization had an important focus on the Americas. What was the rationale behind this decision and how has this affected your broader overseas strategy more recently?
When a company decides to diversify business from a predominantly home market, it has to establish priorities. Initially, there was a focus on both North and South America, for several reasons. North America was strategic not only because it is a huge service-intensive market in its own right, but it also represented an important skill base for Wood Group’s international growth. Indeed, it allowed us to develop many new capabilities and acquire US businesses which were often focused on the domestic market, and by integrating them in Wood Group they became truly global businesses. On the engineering side, Mustang is a prime example of this type of US acquisition, but also our well support businesses which now have the majority of their businesses in international markets outside the US.
In Latin America, Wood Group got a significant opportunity to support BP’s operations in Colombia back in 1996. Our foothold in Colombia gave us confidence to step beyond and gradually become involved in most of Latin America. It also turned out to be a fantastic talent pool for the Group. We found very good engineers there with a terrific work ethic, and have therefore exported a lot of technical and management level talent from Colombia to our operations throughout the world.
One of the most significant developments over the last decade in the global oil and gas industry is the relative decline of the majors and increasing importance of many NOCs. What is Wood Group’s track record in terms of working with NOCs, and in what way is the business different than working with IOCs?
Looking forward, Wood Group’s client base is likely to continue evolving over time. We have a good relationship with most of the international majors, helped by our long history in the North Sea and acquisitions in the US of companies with established relationships with the US majors. The majors will continue to play a very important role all around the world and are key to many large complex developments, especially offshore. Independents are of growing importance for Wood Group and a particularly good client group for us, because as they go international they are keen on outsourcing much of the operational activities to experienced contractors like Wood Group.
As for the NOCs, Wood Group’s business with these important players has been growing and is going to become even more significant over the next few years. We already have experience and strong ties with NOCs in Latin America, such as PDVSA, Ecopetrol, Petrobras and Pemex, and are focused on growing our business with NOCs in the Middle East and Asia. Wood Group is active with Saudi Aramco, including setting up a manufacturing site in Saudi Arabia for our valves and wellhead business.
Wood Group has achieved much of its growth organically, but is also active in terms of acquisitions around the world. What was the rationale behind one of the most recent acquisitions, IMV in Canada?
As we were doing our strategy review, we realized that one of the big gaps in Wood Group’s portfolio was the lack of engineering and production facilities in Canada. Our assessment was that, while the conventional oil and gas business in Canada was relatively well served and mature, there were significant opportunities in the oil sands business. Current production of oil sands in Canada is slightly over 1 million barrels per day, and plans are to bring that up to 3 or even 5 million barrels over the next 10 years. Most of the current production comes from mining applications, but in the future there will be a shift towards the in-situ applications. IMV specializes in this area, which is why we believed it was a good way of entering that market. IMV is already a top three player in that sector in Canada, so we see significant growth opportunities and are delighted to have them complementing our strong portfolio of activities. We also believe that the oil sands maintenance market offers good growth potential.
Oil sands is an interesting area today, partly because it is one of the few regions in which majors can still invest and have access to large reserves. The last 18 months has seen further investment by a number of the majors, including Shell, BP, Total, Chevron and Statoil.
Many analysts speak today of the Arctic subsea as the next frontier of oil and gas exploration. What expertise does Wood Group have for these challenging new operations?
Wood Group (via J P Kenny) is involved in the Russian Shtokman project, providing engineering services for the 600 kilometer pipeline for the development. In overall terms, we are building up our arctic expertise in order to position ourselves for the opportunities that will arise. Wood Group has some good experience in its existing engineering companies, IMV, Mustang and JP Kenny.
Which markets do you consider offer the most potential for Wood Group to grow overseas towards the future?
Wood Group is well established in North and South America, although we see a good opportunity for growth on the maintenance side in Canada. We are also still looking for the right recipe to achieve greater participation in the engineering market in Brazil, a very exciting deepwater market.
The Middle East is a significant growth area and we are making considerable investments in order to grow our engineering capabilities there. Abu Dhabi is quickly becoming a regional hub for Wood Group in the region. We are also considering making an acquisition in the region to accelerate our growth and local content. West Africa continues to be important for us, and our current focus is on building up in-country capabilities in key markets like Angola. In North Africa, we have a significant presence in Algeria and believe that Libya will start opening up as a market over the next few years. In Central Asia, Azerbaijan is already quite well served, so our priority is Kazakhstan which is at an earlier stage of its development. And, finally, in Asia-Pacific there are some good opportunities to grow in the offshore markets in Australia and Malaysia particularly, though it is a tough market to crack with many strong regional players, and you need to clearly establish a specific strategy and differentiation.
As Sir Ian Wood highlighted, Wood Group has always had a strong culture focused on its people. How are you managing to maintain a corporate culture amidst such rapid international growth, incorporating new companies and integrating different cultures?
If you look at Wood Group’s growth over the last 10 years, only about 25% has been through acquisitions. Moreover, our acquisition model is quite different fromothers’ in that we tend to buy relatively small businesses, to which we can add significant value. Wood Group also has a structure which is relatively decentralized, though of course we need managers in the initial phase of new business acquisition and also set the overall strategy for the company. We strive to be local as much as possible, in contrast to many US service companies, for example, which have traditionally relied on expats to develop their overseas business to a large extent. Wood Group’s approach is more similar to that of Schlumberger, which is also a global business that takes on local flavor. Being decidedly local and decentralized is a cornerstone of our strategy, allowing us to be closer to the client and therefore provide higher quality service.
Wood Group maintains a set of common values and a specific culture, but on an international scale it takes different flavors. This is inevitable for a truly global player like us, it would be wrong to believe that there can be a constant global culture because people from different parts of the world have their own values and culture which need to be blended with Wood Group. On the other hand, there are certain standards in terms of quality and service that must be met by all components of our business, wherever they are. Wood Group is very focused on high standards of HSE and quality so there is no compromising there, yet at the same time we are able to adapt to how things work in individual locations.
How is Wood Group faring at a time of skill shortages affecting all parts of the value chain in the global oil and gas industry?
Accessing sufficient numbers of skilled people to meet the opportunities becoming available from our clients has probably been Wood Group’s biggest challenge over the last two years. In this regard we are no different from anyone else in the industry. Nonetheless, we have managed to continue growing the number of employees despite this tight talent market, actually doubling our head count every 3 or 4 years. In 2007, Wood Group’s staff increased by over 15%, and I am pleased to say that it seems that 2008 will be along the same lines. So we remain very active and successful in recruiting talent for our business. We work hard at trying to create an environment in which management and employees can thrive.
What is the key to the sustained growth Wood Group has achieved even throughout difficult times for the industry?
Wood Group is a multi-services company, meaning that we have several business lines to achieve growth. Some people believe that in order to succeed you must specialize in one core business, but we see things differently because that approach can eventually result in limiting growth prospects. Our mix of a strong engineering business, with both greenfield and brownfield capabilities, plus the well support and gas turbine business, make up an excellent portfolio which we are very comfortable with. These complementary activities also allow us to attain critical mass, so when we can get 3 or 4 different activities established in a market it raises our recognition and capacity to undertake important projects.
What type of work would you describe as an ideal project for Wood Group, showing all that the company is capable of?
I believe that one of our greatest strengths and distinguishing features is that Wood Group is very flexible and responsive to what our clients want. We see ourselves differently to some of our very large competitors, in that we never say ‘this is our way, take it our leave it’. We understand that all clients are very different and like to do their projects and operations in their own ways. We can adapt and work around our clients’ requirements.
That being said, we could say that a good example of a very complete project for Wood Group would be what we did in Venezuela a few years ago, under the previous regime which had a strong outsourcing mentality.
We have a water injection project there, in which we took over the operations and management of about fifteen offshore platforms and several onshore water treatment plants. In addition, we built five new offshore platforms which we had also designed. Besides the design, operations and maintenance, Wood Group was also providing key support to the major equipment including pumps and gas turbines. So that was a major undertaking which wrapped up a lot of our capabilities, which could be considered an ideal project because we were able to take it from the conceptual and FEED stage, right through to commissioning and long-term operations and maintenance.
How favorable are your clients today to these types of turnkey projects?
It is impossible to determine an overall trend in this regard, as there is such a diversity of clients seeking different things, depending on the particular time and circumstances. We have a good opportunity for this with new players entering the North Sea, for example, thanks to our experience in offshore facilities. NOCs are also interesting clients because they are keen on bringing in new knowledge and ways of operating to their countries, in order to train the local workforce so they can build up their own capability over the years.
The Wood Group has already achieved iconic status among Aberdeen’s oil and gas industry, and represents an example to up-and-coming players with big ambitions. As a company that sees itself more and more as an international player in this global industry, what does its home city, Aberdeen, represent?
Wood Group absolutely remains an Aberdeen-based company. This is where we have our roots and our home market, so we are going to remain very committed to the region for as long as an oil and gas industry exists here. Moreover, Aberdeen does a lot of things for us internationally, helping create relationships with many people who have worked in Aberdeen at some point or still remain linked in some way to the city. Aberdeen is a very important training ground for many companies and continues to develop innovative technology for the industry, particularly in key areas like subsea where the UK is world leader.
As a company we support the government and entities such as Scottish Enterprise in their overseas missions or receiving foreign visits in the city. We also assist other companies, whenever possible, in their efforts to internationalize their business. Wood Group has learned many lessons from its own experiences growing abroad, and we are happy to share that knowledge with other local players looking beyond the UK.
What has it meant for you personally to take the driver’s seat of Wood Group since January 2007, after Sir Ian’s Wood very successful run spanning several decades?
The first thing to say is that Sir Ian has been a very prominent figure for the company for many years, but at the end of the day Wood Group is about a broadly based management team; a great group of people at many levels who have been key to our success.
Ian and I have worked closely together for a long period of time, about 17 years at the Board level. When I became deputy chief executive nearly 10 years ago, we worked even closer and gradually started changing roles leading up to my naming as Chief Executive in late 2006. Ian remains very active and involved in the business, and I feel very fortunate to have him close by. We discuss major issues and work closely on the overall strategy, together with our excellent Board of Directors. As an executive, of course it is good to be in a position with hands on day-to-day control as the CEO, so I enjoy it thoroughly. I also feel lucky enough to be in this role at a great time for the industry and for Wood Group. It is also a big responsibility to keep that growth momentum going for all our employees.
What is your final message to the readers of Oil & Gas Financial Journal on Wood Group?
Wood Group has had a very successful last couple of years, in terms of international growth and development. Although we have already achieved much, the current environment offers many opportunities to continue growing even more in the future.