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Interview

with Calum Melville, Managing Director, Cosalt

19.11.2008 / Energyboardroom

From a management buyout of GTC in 2001, to acquisition in 2007 of GTC by Cosalt, you are now Managing Director of the new entity. Would you please give us an overview of the history leading up to the present?

GTC Group started in 1990 with my brother, me, and my father, who was the sole shareholder alongside my mother. In 2001, they wanted to retire, and my brother and I bought the business from them. In 2007 Cosalt approached us, and the reason we accepted their offer among the numerous others was their strategy, which fit well with what GTC was doing, and also their size, as there were concerns that if we sold the business to someone too large, they would impose their structure to a negative effect. Strategically and size-wise, Cosalt fitted.

What was it about Cosalt’s strategy that made the company an attractive partner?

GTC wanted to grow the business geographically and expand product and service offerings. We had been successful expanding product and service offerings beyond the original lifting equipment management concept, but as with any private business we kept growing organically by plowing all the money back into the business here. To grow geographically was proving difficult, and GTC believed we needed to expand in that manner to have a network of sites to support clients on a pan-North Sea, and ultimately global, basis. Clients are now looking for global processes and procedures to support their businesses, and even if not so much driven by legislation, they want to ensure robust processes and procedures whether in Aberdeen, Adelaide, or Amsterdam. This commonality improves quality and safety, which is hugely important to them, and improves operational performance. There’s a huge win in this for clients, and we’ve got a number already who since the acquisition are interested in a pan-North Sea contract, with some interested in global support through Singapore, Gulf of Mexico, or South America.

One year out, how would you assess the transition under a new Cosalt brand?

It has been interesting, because Cosalt didn’t have a specialist lifting equipment management division, so when they acquired GTC, they acquired our expertise. Many changes have been driven up from GTC into Cosalt, rather than the other way around. We’ve extended our expertise beyond the current Aberdeen business into Yarmouth, and acquired a business in Stavanger. So we’ve now got an operation in the offshore division that covers most of Yarmouth, Aberdeen, and Stavanger, and the company is in the midst of setting up an operation with our marine cousins in Rotterdam and looking at an area in Northern Norway as well to give us a true pan-North Sea offering.

How has the integration proceeded of the fairly divergent products and services between GTC and Cosalt?

The products and services supplied as GTC and those offered by Cosalt, on the face of it, do not have a particular match, but they’re all safety-critical and driven by legislation. Looking at the range of products and services Cosalt now offers, this includes lifejackets, life rafts, lifeboat servicing, things that GTC historically didn’t do before. Everything is driven by an inspection regime, with regulation obliging clients to inspect generally every six months to one year. The client needs a third party to come in and do it, and there tends to be a limited lifespan in the majority of this equipment, because of the onerous nature of the inspection regime, because it’s safety-critical, and the environment it’s working in of North Sea oil and gas is relatively rough. All manned facilities anywhere in the world have the products and services supplied by Cosalt, and they’re core operationally. And while a lifejacket may not have a direct link to a chain block, from the client’s perspective they’re both safety-critical. If they have to abandon the platform, they absolutely need a lifejacket, and lifting and loading is not glamourous, but has the ability to damage equipment, or injure, or God forbid, kill people. You can imagine from a client’s perspective, it’s hugely important for them that this particular type of equipment is managed properly.

What is your perception of safety in the North Sea and Cosalt’s contribution to it?

There are three parts to it: how we manage safety internally in our own business, the products and services supplied to our clients, and then what we call technical and legislative support, which is added value. Taking lifting equipment as an example, under regulations there is an ICP (Independent Competent Person), and Cosalt carries that role for a number of clients including Sigma 3, who is the management provider for Shell and PSN, amongst others. Cosalt adds value in aspects like planning and lifting operations, to make sure they’re done safely. Cosalt provides Shell all training for their man riding winches, and this is just one example of the what Cosalt does beyond making ensuring the actual equipment is safe, to make sure the people are safe, they’re trained, have the right kind of equipment, and our clients understand the regulations and how you get from that piece of paper, the regulation, to something practical, on the platform. In this manner, the client has something tangible to work with to assure they not only comply, but that it’s done safely. For example, Cosalt wrote a scheme of compliance for Shell, and statistics have shown a 70% reduction in incidents since we’ve written it. For Cosalt, we are looking to drive safety in a number of ways: internally, through the equipment, and added value in supporting our clients.

Externally, from the clients’ side, when Cosalt arrives with proposals for upgrading their equipment, do they understand the cost-benefit?

The cost-benefit is not totally the driver for our clients. The term I like to use is that the risk is disproportionate to the spend. In other words, for our clients, using Shell as an example, if they have an incident then they book £50,000 of cost immediately. That’s just a basic investigation. Beyond that, if someone gets injured, or God forbid, killed, or equipment gets damaged, you could easily be in the range of £100s of thousands of cost.
Cosalt’s products and services are such critical parts of getting the oil and gas out of the ground, they’re woven into the fabric of what they do. From a clients’ perspective, it’s more crucial to ensure they have a provider that’s providing a quality product – far more important than driving costs down two or three percent.

What makes Cosalt the partner of choice in these safety-critical issues?

What makes Cosalt the partner of choice is the proven ability in the management of clients’ equipment, technical and legislative areas, and a long relationship with people at the HSE and other industry bodies like IMCA, which gives our clients confidence in what we do. Our industry is not glamourous when I talk about the services we provide, but it’s safety-critical and extremely important that clients, operationally and on a daily basis, have got that level of support and trust.

What is it about other markets that make them attractive to expand into? Is it a matter of lacking safety standards, or catch-up in terms of compliance?

There are a number of issues. In some markets, Cosalt’s clients are already operating, so the best way to expand is piggybacking off existing agreements. Our clients want us to be there, and even if legislation isn’t necessarily in place, they are keen to have a commonality of process, quality, safety, and equipment, whether in Nigeria or the North Sea. Cosalt sees a significant market in a number of areas we can tap into, through the fact that we’ve got proven ability.

Will these clients be used to seeing safety-critical items packaged in this manner, for instance lifting equipment alongside lifejackets?

I would say no, but what clients are interested in is a basket of services and they can understand the link of that basket of services and it saves them bedspace and time offshore doing inspections. If they can take this basket that is safety critical, and save money at the same time, it’s a win-win situation. The important message is we need to keep adding to this basket of complementary services, but we can’t come along and start providing the likes of underwear, because clearly it doesn’t sit with the rest.

In expanding the offering in a relevant way, Cosalt looking to partner with other companies, or have you reached the limit in this respect?

We haven’t reached the maximum in our products and services offered. Cosalt very recently moved into lifeboats, because our clients see them as lifting and loading, and the majority of lifeboats lift and load out of the water using a winch, which Cosalt is heavily involved in, alongside wires, hooks, and the attachment onto the boat itself. The boat is almost a byproduct from our clients’ perspective; if you can imagine 50 people in a boat, lifting and loading it is of great concern. Client feedback has been extremely positive, because they understand it’s a safety-critical service and sits well in the suite of the basket of services Cosalt is already supplying. Areas like firefighting equipment offshore also sit well with what we do because we’re involved in gas detection and breathing apparatus. All these for our clients make sense if Cosalt can bundle them up and continue to expand our offering. In my view, that’s the future. The clients want a limited number of partners, and they genuinely do want partners as opposed to vendors or providers, that they can work with and receive added value from beyond the actual product and service, to help comply technically, legislatively, and through training.

What’s at the top of your priority list?

The top of Cosalt’s priority list is to expand our products and service offerings throughout North Sea operations, and expand technical and legislative support beyond what it is at the moment, into more of a compliance role. Beyond that, the company is looking for further geographical expansion and product and service expansion.

What do you anticipate as the biggest roadblocks?

Expanding product and service offerings in the North Sea is a relatively straightforward process because Cosalt has the in-house skillset to do that. Expanding geographically is more difficult, because we want to do that by acquisition and find the right targets. In this market, money is harder to come by, and potential investors are much more cautious about what they’re investing in. However, although the price of oil is low at the moment, the fundamentals of the oil and gas industry are strong because demand will continue to outstrip supply. That’s the bottom line.
The right acquisition targets don’t necessarily have to have the same range as us. They could be complementary to export products and services into, while allowing the management team to expand sufficiently to manage these new acquisitions. The limits on management will be a challenge because at the moment Cosalt does not have a huge infrastructure.

What types of qualities are you looking for in bringing the necessary individuals on board to bring Cosalt to that next level?

I’m looking for people with proven ability and international experience in oil and gas market, with a particular focus on the Gulf of Mexico as the main target. Cosalt has realized that it must acquire to achieve success there. We don’t believe a Greenfield site would work. Our clients are responsive to the idea of us being there, because they’re struggling to get the level of products, service, and quality that they’re used to. It always comes back to the fact that safety-critical items cause them concern.

What can we expect to see from Cosalt in the next five to 10 year time horizon?

I would expect to see a truly global oil and gas service provider, with a significant range of products and services. When I say truly global, I am talking Gulf of Mexico, Middle East, perhaps former Soviet regions, South America, Australasia, and the Far East. The company has some very supportive shareholders. Cosalt and its shareholders believe in the ambitious strategy with the next five years bringing the company unquestionably into the realm of the FTSE 250, with a real global footprint.

What is your final message to OGFJ readers?

Cosalt fully intends to grow our business to become a global provider of critical safety products to the oil and gas industry, and over the next five years will be known in all major regions involved in the sector.

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