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with Bob Keiller, CEO, PSN

17.07.2008 / Energyboardroom

PSN as it is known today emerged after an impressive turnaround which you led while still a part of Halliburton, followed by a very commented and awarded management buyout in 2006. What was the main motivation behind this decision and how did it all play out?

While the Production Services business was a part of the Halliburton Corporation, it was clear that it was not a core part of the engineering and construction business, at the time under KBR. As a result, we often struggled to compete for attention and resources within the organization. I took over as managing director of the business in October 2004, and within a few months it became clear to me that the prospects for the production services business would be better if we were able to stand alone. Only three months after being appointed to this position, I made the initial approach to Halliburton in order to see if there was any chance they were interested in splitting this business.

At that time there were many challenges for a potential deal to go through. First of all, the business was not for sale, we had no money, and no idea about how to value it. Just by asking the question there was also a risk that I could lose my job, because such a proposal was not something to be taken lightly. During that time, Halliburton was tied up with some legacy issues and the discussions could not advance for a while.

But finally, in late January 2005 Halliburton said they were open for discussions. My colleague Duncan Skinner (current CFO) and I flew to Houston to present our arguments regarding the benefits of splitting production services into a separate business. We were well received and we were invited to make an offer. This meant that we quickly had to assemble all types of support, which fortunately was readily available within Aberdeen and the broader Scottish community.

We engaged the help of a number of advisors based in Aberdeen, and soon found offers of financial support from various sources. We finally went for the Bank of Scotland’s Integrated Finance approach, in which both debt and equity are provided to management teams in order to help them take a business to success. This scheme suited us very well because it allowed management to retain significant equity in the business, and also represented a long-term funding approach.

Having agreed on the financial aspect of the deal, we were then faced with the complexities of actually carrying it out. Since Production Services was not a separate legal entity within the Halliburton Group, we had to buy the trading assets of the business in over 20 countries where it was active. One of the lead lawyers even described it as the ‘mother of all deals’ because of its complexity. In consequence, it took us 15 months to get the deal closed, so it was not until 1st of May 2007 that we could create the new organization called Production Services Network (PSN).

The only challenge remaining then was to convince all our staff, customers and suppliers that this was a good thing for them. Instead of being part of a large American multinational corporation with a long track record and top class credit rating, we were now asking them to sign over the future to a new-start company with no history of its own, though ultimately it was built on 30 years of experience.

How would you explain such a phenomenal first year in business for a company that was, in some respects, completely new?

There are a number of reasons which explain our early success. Quite frankly, we benefited largely from being in a market where demand was booming. We were already coming from 5 years of growth as a management team, so we knew that it was a fundamentally sound business. To this positive environment we could add the fact that we were finally able to benefit from our independence, no longer being constrained in terms of the types of contracts we could bid for and the margins we had to achieve, etc. That flexibility gave us a greater degree of freedom and allowed us to book many opportunities which may not have been possible as a part of Halliburton.

That said, we also acknowledge that we also maintained many of the sound commercial practices learned at Halliburton. There is a lot to commend in terms of operations in particular, and we have built on those strengths for PSN as well. Generally speaking, I believe that what is fundamental to the success of this business is that we have built it on solid foundations.

What were the main challenges the management team faced immediately after establishing PSN as a separate entity?

We were facing the prospect of building a new company, without a name, identity or reputation to speak of. We thought long and hard about the type of business we wanted to have, because it was our choice to make. There were many possible options: we could be the type of company which goes with the lowest price on every contract; or the type that hires and fires people to satisfy business demand, ruthlessly moving from one project to another; or the type of company that has to be present in every country with oil and gas activity, etc.

Through these discussions, we decided that the most important thing was to boil it down to the essential elements of the business. This brought us to our core values, which constitute the DNA of the business. Instead of normal DNA which has 4 building blocks, PSN’s core values are made up of 7 parts. In a living organism, the DNA determines how growth takes place. PSN is a growing company, but we want to grow in a way that retains the character and nature of the business.

It is easy to write down nice words and good intentions; the big difference is being able to turn them into reality for the business. At PSN, we are proud to say that there are many examples which illustrate our firm commitment to our core values. In terms of health and safety, our employees can be sure that we will turn down any business where their integrity is endangered, because we have already done it several times. We have turned down millions of dollars worth of contracts, in places such as Iraq and the Niger Delta, because we simply refuse to put our people in a place where their safety may be in jeopardy.

PSN sends this strong message about its commitment to values not only to its employees, but also to clients and partners. A few years ago, we found ourselves in a situation with a client in which we were concerned with their management and approach to health and safety. For this reason we went to speak to them with the intention of simply ending the contract, but after some discussion the client agreed to work towards improving their health and safety standards on a particular site, so we continued working together. The fortunate result is that we have no recordable incident to speak about on that site ever since.

As PSN grows abroad, so do the complexities of doing business in very diverse environments. What is your approach to make managing this expansion go smoothly?

One of our core values is localization, which is really about engaging with the communities where we operate. This means of course providing long-term, sustainable employment and training opportunities, and using local companies to help support the business as much as possible.

But localization also refers to a much more direct approach to contributing positively to the communities where we operate. Currently, the most satisfying example of this for PSN as an organization is probably our project in Bangladesh. In that country, PSN is working with a client by helping them operate an offshore gas facility with and onshore processing plant and power station, which provide electricity to schools and hospitals in the area of Chittagong. Virtually all of our staff there are local .

When we asked them about ways in which PSN might help the villages in which they live, they brought up concerns about children who were left out of the public education system because they had no ability to read, write or count. We decided to get involved and, together with the local authorities, established about 25 single classrooms in the villages where our people live. In each of the classrooms we offered over 20 children the necessary teachers and materials in order to help them develop their basic reading, writing and counting skills. The main achievement of this program is that it has allowed over 400 children to get accepted into the public education system, whereas previously they would not have had the chance.

Where does this strong commitment to values and social responsibility come from?

When the management team sat down to establish the core values for PSN, we thought it would take a couple of hours. It ended up taking us 4 days. At one point we were dealing with 20 core values, but made an effort to boil it down to the essential elements. We debated long and hard over what the commitment to these values meant. We were aware that to be true to our word, PSN would have to behave differently than most other companies. This could attract some people to the business, but also put others off. When we talked about localization, for example, it was not just about the number of people from the local community that we were going to employ. It was also about engaging positively with the supply chain and the community.

Though we are still far from perfect, the Bangladesh school project is a great example of what we can achieve. As a result of this success, we now have the proposal to build a school with four classrooms which will act as a storm shelter during the flood season. This will provide a more permanent, elevated building. There will be a space to store food, supplies, and allow people to administer healthcare and provide basic resources which are valuable to the local community. We are now corporately making this our main target for fundraising for the rest of this year. The global management team is very enthusiastic, and that says a lot about PSN.

Do you believe that this engagement and commitment to localization has helped PSN’s overseas expansion?

I believe that this is very much valued by our clients overseas. For example, I believe that one of the key factors in securing the Sakhalin Island project was our commitment to ultimately creating a Russian team there, as we have already done in our operations in Northern Russia. In places like Chad and Cameroon, PSN is one of the few Western companies to hire local people directly, as most go through special agents or intermediaries. Not only are we training them on site, we also bring some of them to Aberdeen so they can learn new skills and return to their countries to more senior positions. PSN makes it a local operation, but with the benefits of having access to a global network of production services expertise.

What does PSN’s UK home market represent today for its business and development?

In terms of revenues, the UK market is just under half of our overall business. It provides the platform from where we can train, hire, and develop new skills and processes. The UK remains an essential element for us in terms of being the place where we can improve aspects of the business, which can later be applied across our network. Here in Aberdeen we can also absorb the ideas from different parts of the business and integrate them into our corporate management system. Having a strong business in the UK is very important for PSN, though ultimately we would like for the UK business to be a slightly lower proportion of the overall business. However, this will be as a result of stronger international growth, and not of a drop in UK activity.

PSN continues hiring increasing numbers of graduates and apprentices in the UK, and we also have an excellent skills conversion program in place to meet our needs. What is particular in the UK, is that it is the only place where we do not apply our localization target. In Aberdeen we are lucky enough to have people from over 40 different countries working with us. They come from places as different as Paraguay, Angola, Vietnam, and India. Some of them will end up travelling overseas or back to their home country, but many are here to stay because they think that this is a great place to live and work. The mix of cultures helps us avoid becoming too short-sighted in the way we operate, and also to recognize that different cultures have different approaches.

Which recent projects or partnerships would you highlight as an example of the scope of work that PSN is ideally placed to carry out for today’s demanding oil and gas industry?

Production Services began working with Conoco and Phillips over 10 years ago in the North Sea, and as PSN we remain important partners for ConocoPhillips today. We are working in a very integrated way, both onshore and offshore, such that it is hard to tell who works for PSN and who works for ConocoPhillips. As a result, we are able to dedicate our efforts towards achieving the goals for the entire team, rather than wondering about the contractual terms and responsibilities. This has allowed both parties to focus on what is important, getting things done safely and on budget. Our relationship covers a wide scope of technical aspects, and a variety of projects of all sizes. This means everything from onshore turnarounds, through to tie-ins of major new capital developments, to minor modifications and integrity management of existing systems.

PSN is very flexible and adapts to its clients, which is why we are working not only with the majors but also with many independents. We are able to offer new entrants in the UKCS over 25 years of experience helping operators enhance their assets. For these types of clients we are well placed to support them on a wide range of projects, with different engineering scopes and services.

From an international perspective, there are many extremely important projects, so it is difficult to single one out. An interesting example is the work that PSN is doing with Occidental in California. The assets used to hold the US government’s strategic petroleum reserves, until Occidental took over the facilities several years ago. We are helping them with a wide range of operations and maintenance services for the gas plants. We also support construction and drilling activities. So there are many different levels and layers to what we do, but ultimately we are there to help them get the most out of the production in the long run.

As fields mature and decline, there are a number of techniques which PSN has expertise in which can help enhance oil recovery. We are ready and standing by to help them achieve these long term objectives.

PSN works hand in hand to get production up and costs down, ultimately extending the life of the fields. That is why we are focused on production services as opposed to any other type of services.

What is PSN’s growth strategy at this advanced stage of its international expansion: organic growth or acquisitions?

Our main way of expanding the business is still through organic growth. A large part of our business comes from repeat business from existing clients, and this creates relationships which have taken us to new places together. Many times these clients will ask PSN to help them as they move into new markets. As a result, this has become an effective way for us to become active in new countries organically.

We will also consider acquisitions as a way of entering new markets or of creating critical mass in existing markets. Our first consideration for an acquisition is “fit”, meaning that it shares at least a large part of our DNA. Only after establishing if there is cultural compatibility and strategic fit, will we enter to assess the valuations and price. What we are really not looking to do is acquire a company or business that is totally unrelated to PSN, which would dilute our brand and the core values it represents.

Looking at our most recent acquisitions, on one side we have Grasso in the Gulf of Mexico, which was necessary in order to attain critical mass in that important market. We went from being a small player, to having a good position which allows us to compete for contracts in the Lafayette and Houston area in particular. On the other side, there is Tartan Engineering in Calgary, Alberta which finally allowed us to establish ourselves in Western Canada after years of looking into different alternatives of cracking that market. We were fortunate enough to meet with a company which was looking itself for an international partner in order to expand its overseas business. Though in legal terms PSN has effectively acquired Tartan, we prefer to see it as them deciding to join our network.

Though PSN is already a very international company, there are still some oil and gas markets where it is not present, such as Latin America. What is your strategy with regard to the geographic focus of PSN’s business?

As this stage in our growth, we are focussed on consolidating our presence in the places where we are already active or have relationships with existing customers, rather than dedicating big efforts to enter brand new markets. In some countries we only have one project, so it makes more sense to build and develop a multi-project environment in those markets first.

We want to preserve the brand, the culture, and identity which we have created, and therefore have to be careful and develop in a sustainable way. If we were to try to grow the business by 70% per year, there is no doubt that we would make mistakes and our reputation would suffer. At our current rate we can sustain the quality, and in any case our ambition is not to be the biggest, but to be the best.

As PSN becomes an even more global player over the coming years, how important will its Aberdonian roots and identity remain?

PSN is an international business, so in theory we could be based anywhere in the world. A rational decision would be to go to the place offering the lowest taxation rates or other fiscal incentives. But we don’t see things that way. We ultimately think that Aberdeen is a great place to be based, for many reasons. In terms of location, it is well placed for both the Eastern and Western Hemisphere. It is also well connected to the major European transport hubs, and from there we can go anywhere in the world. Regarding quality of life, it is very safe and a great place to live and bring up families. There is always a lot going on and the weather is never extreme.

You have been given several awards highlighting your entrepreneurship, after leading the MBO and successfully launching PSN as a new company. Have you always considered yourself as an entrepreneur?

To be honest, though many people have put the ‘entrepreneur’ label on me recently, it is not something I have carried with me throughout my career. Looking back, I would say that I have always been interested in changing things and finding different ways of getting things done. Since I was a student and on through the early years of my career, I have always challenged the norms and strived to do things differently. I don’t really know if this makes me an entrepreneur, and all I tell people today is that I am the CEO of PSN. I feel that we are only at the start of the journey, and still seek advice from those with experience. Only when the journey is over, and I am sitting in my chair with a cigar, will I maybe feel truly qualified to give others advice about being a successful entrepreneur.



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