with Antonio Campo, CEO, Integra Group
In January 2010, Focus Reports had the pleasure of interviewing Antonio Campo, recently appointed CEO of Integra. The company was incorporated in 2004 by John Fitzgibbons, and developed under the direction of Felix Lubashevsky through the acquisition of 17 companies, leading to its current status as the largest Russian integrated oilfield services and manufacturing group.
You became CEO of Integra in September 2009, a very successful company that had been built up for the last five years by Mr. Lubashevsky. What was the Board of Directors hoping to achieve by appointing you, and what did you want to bring to the company?
Felix Lubashevsky very successfully brought this company through several acquisitions to its current position, and the next level involves consolidating the product and service portfolio that Integra has today. This will imply choosing which aspects of the portfolio should be modified, which parts should gradually be phased out, or spun off, whilst at the same time looking at what other products and services should be incorporated. In other words, we are setting the strategy that will shape Integra over the next ten years. This could include further expansion into the CIS, and eventually further afield, depending on how the strategy implementation goes. This is why I came to Integra – to take the company through this next step.
How have you found the job so far since you arrived? How have you adjusted to the role, and to Russia, which is not just a unique market, but also has a unique geology?
I had some previous knowledge of the Russian oil and gas service sector, because one of my previous roles at Schlumberger was President of Schlumberger for Europe, Africa and the former Soviet Union. Using this preliminary knowledge, I did some research on Integra before joining the company, but this is never enough to give you the full picture, which is only realised when you arrive.
There are elements of the company that are better than I expected and things that are not as developed as I thought when I made my preliminary research. Integra came out of a consolidation of 17 acquisitions, which took place at a time when the market was experiencing very high levels of growth. The significant synergies to be realized after those acquisitions were postponed, as the company was fully focused on coping with such rapid market growth.
The downturn came, and although extremely painful it was very beneficial to Integra. It forced the company to fully realize all synergies and to develop the financial discipline required to have a lean and agile organization ready to cope with the challenges of this cyclic industry. The result is a company much better structured than it was before the crisis.
When we interviewed Mr. Kershenbaum of the Russian Union of Oil and Gas Equipment Producers, he mentioned Integra as a specific example of a construction company that has done well through the economic crisis. One of the factors he pointed to for that success was a commitment to research and development, and restructuring through the lean times. When you arrived, I suppose the order books were starting to fill up again. How successful do you think the company was throughout that stage, and how does that position Integra for 2010?
I would like to single out the financial discipline put in place during this period, as the biggest factor that helped the company to come out of the crisis in the way it did. As an example, the company went from 24,000 employees to 17,000, got control on capital expenditure and successfully refinanced its debt. At the same time, even in those difficult times, the company did not jeopardize its investment in its R&D department, which is really taking shape now. It started around two years ago, when its main focus was on improving rig design and manufacture. Now, the department’s scope is to increase its activities to cover the other products and services of Integra, whilst also serving as a technology scout, looking out for technologies that we should develop, and those we should bring into the company from outside, to complement our current activities.
Do you still intend to pursue the acquisition model of growth?
What we plan to do is twofold – one is organic growth: start some businesses from scratch, as we have done quite successfully in the past eighteen months. Directional Drilling and Coil Tubing are clear examples where Integra today has a significant portion of that market with very good results, both in technical and financial performance. The second part will be to combine the organic growth with some possible acquisitions, to complement our product and services portfolio.
In your view of the market today, is there still that atmosphere of consolidation that was present in the recent past?
In my opinion it is still there and will continue for the next twelve to eighteen months. The complete recovery of the industry has not yet been achieved. It has to stabilise, and with the oil price above US$ 70 , which seems set to continue for the next few months, 2010 will be a transition year. There will be a slight increase in activity, but given the existing oversupply of some products and services the pricing will remain a bit soft. As a result, the OFS industry in Russia is likely to experience single digit growth in 2010 and we should probably need to wait until 2011 and onwards to see pricing becoming a factor in the growth of the service industry.
Integra has a wide range of products and services that it can offer to its customers. Looking at your order books for 2010, what seem to be the most demanded services, and how will that affect the company’s development?
Logically, after a downturn, the first indication that things are starting to improve is an increase in demand for seismic surveys. Integra’s seismic division has seen a very interesting increase in demand, and the order books for 2010 are practically full. Although prices are a little weak, due to the problem of oversupply mentioned before, we see a very good indication that that market is growing. The rest of Integra’s services naturally follow seismic surveys and both the Technology and the Drilling/Workover and IPM divisions are showing signs of improvements.
As for the Manufacturing division, we are seeing an increase on the demand of upgrade and maintenance services which follows the natural tendency of the companies to delay new rig acquisitions. We should see the new builds market to start recovering in 2011-12 as the need to replace part of the old fleet becomes critical.
One of the biggest projects that Integra has been involved in over the last few years has been the Vankor field. A lot of your work was done in the initial development phase. What kinds of opportunities are present there now for Integra?
Integra is in the process of finishing the first phase of the Vankor field, which is a very large and interesting project for the industry, and for Integra in particular. The company is currently in active negotiations with several customers for IPM projects of similar nature.
There will be an increasing number of these types of projects in the future, simply because the biggest challenge for oil companies in the next upswing of business is going to be the lack of human capital. Finally, the big ‘crew change’ that the industry has been talking about for the last few years is now taking place. The last escalation of business took these experienced engineers and field teams to the limit. They were kept in the field by their employers through bonuses and special packages. However, it has passed the stage today where these people can be tempted to come back.
As a result, the model of project management that Integra has at Vankor will flourish, positioning our company to fully realize the potential of these opportunities.
One of the challenges of new exploration regions in Eastern Siberia is the geographical proximity of China, and the potential for Chinese construction companies to encroach on the eastern Siberian area, not necessarily offering better products, but definitely offering better prices. Is that competition something that you are worried about?
There will be increased competition in the future, and the Chinese service industry is one aspect of this, not only in the service sector, but also in manufacturing one. The only way to fight this competition is through differentiating technology and performance, and to bring value to the customers. At the end of the day companies will look at value and not only pricing as the main factor in choosing a manufacturing and/or service provider.
A significant component of Integra strategy is to continue to add differentiating technology in all our Divisions keeping in mind the different challenges the industry will be facing in the next few years. In other words, we need to be prepared to be competitive in Western Siberia, Eastern Siberia and offshore, each with different technology requirements.
We are actively working in the short and medium term in improving our position in Western and Eastern Siberia and on a longer term in complementing our portfolio to be more competitive in the offshore market.
Having worked for Schlumberger for a long time, what have been the biggest and most rewarding challenges coming to Integra, which is a very young company, where the corporate structure is not yet in place?
A lot of processes and systems are not yet in place at Integra, not only because this is a very young company, but as it is an amalgamation of 17 companies there were virtually no common practices in place. On the other hand, it is much easier to implement best and applicable processes where there is none as opposed to change an existing process in a big and mature organization.
The Project Management division of Integra was a positive surprise. Given the human capital issues already discussed, integrated project management is going to play an ever increasing role in the future development of the Russian market. I used to work in IPM at Schlumberger, and I am very surprised to see the levels of processes and systems that Integra has in place, which allows the company to seamlessly integrate a multi-product offering. Integra is probably the only Russian service company in a position to offer such integration because of our breadth of products and services. This gives Integra an advantage over its Russian competitors, and means the company can compete in equal terms with some of the international players.
And do you think that such corporate cultures are well suited to the Russian industry?
There have to be some differences, but even Schlumberger and Halliburton have to comply with Russian regulations. I have started to bring more focus on quality and customer service in Integra, which is not necessarily entrenched in Russia because business here is much about building relationships. However, after a certain time, companies have to start backing up these relationships with good performance. As Integra goes forward, performance and technology are going to become increasingly important, especially as the focus of the business starts to move towards Eastern Siberia, and offshore. The relationship is and will continue to be important, but companies also need to have the technology and the performance to back these relationships up.
Implementing these processes, and this focus on customers and quality, has been very interesting for me, as well as adapting Integra to focus more on achieving high margins through differentiated technology. Again, it’s not about being the cheapest, but being able to provide a differentiation that allows your company to deliver good performance whilst maintaining good profitability. The big international companies have high R&D expenditures but this high-end technology in today’s Russian environment is only required to serve 10% to 15% of the market’s needs. The rest can be very well served by the technology Integra actually offers. Therefore, our task is to differentiate ourselves in the market we play today as well as to continue evolving and adapting to the future needs.
Performance and technology is something that the international players do very well. What is Integra’s main competitive advantage over these companies?
Competing with companies like Schlumberger, Halliburton or Baker in the high-end market is very difficult, simply because we don’t have some of the technology that comes from their level of R&D budgets. On the other hand, as explained before, about 85% of the local market needs can be very well served with the technology we provide. If we add to this the fact we are a Russian company who better understands the local industry, who are good at what we do and culturally are closer to our customers, then we definitively have an advantage with respect to the International competitors in our market segment.
What advice would you offer to our readers thinking about coming to Russia to do business here?
Russia represents one of the biggest and more promising hydrocarbon regions in the world. There are still a lot of unexplored areas that have potential for very high returns, because until now virtually all exploration and production has been concentrated on Western Siberia. Eastern Siberia and Russia’s offshore regions are ripe for development: not just for oil companies, but also the service sector that naturally follows.
Conditions in Russia are improving by the day with the government introducing incentives to increase exploration and further development. However, there are some logistical and cultural differences, some technology needs that are specific, so as long as you are able to adapt, there is a significant opportunity here.