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Interview

with Chris Sparg, Managing Director, Dormac

24.01.2012 / Energyboardroom

Looking at the environment in general, booming oil and gas activity has been taking place along the Sub-Saharan African Coasts. Is this a game changer for the sector in South Africa?

Chris Sparg: The industry has been working in the West African markets on the repairs of oil rigs, supply vessels, pipelaying barges, etc. for many years now. What we have seen is the introduction of the latest generation self-propelled thruster-controlled oil rigs and drillships that require deeper ports. This is a gamechanger with respect to what we need in terms of infrastructure. South Africa’s deeper ports, such as Saldanha Bay and the Port of Coega, are therefore becoming increasingly more strategic. Cape Town will also remain attractive for its drydock, which is the widest and longest in Southern Africa. This will continue to attract work from Western Africa. We have also seen several large projects coming up recently. But still, we think that there is a much larger capacity available in South Africa that is not being fully utilized. Last year, for example, we have seen over 6 rigs passing by to go to Singapore. A lot of this has to do with the permanent infrastructure that is being offered by the oil and gas repair sector in Singapore.

In comparison, the A-Berth facility in Cape Town, has been earmarked as an area for development in Cape Town. However, this still does not showcase sufficient capabilities and is also not deep enough foir new generation rigs and drillships. Further development of Saldanha Bay will enhance our focus on the sector. Such development needs to take place in partnership with the South African government. As the ports are owned by the Transnet National Ports Authority (TNPA), we are unable to physically invest in fixed berth infrastructure. Everything is required to be done on long-term tenders, and the decision-making timeframes from the TNPA in these tenders remains very long. In many cases we lose the window of opportunity to attract certain business in the timeframe that is being made available to us. The world sees good stability, good pricing and excellent quality in South Africa and the industry is here to provide accordingly. The infrastructure, however, is something that frustrates international ship and rig owners in a considerable manner and we believe it is something that can be easily addressed by industry and the SA Government to enhance our countries capability in this sector.

What can you do about this situation? Do you see conditions changing in the future?

Chris Sparg: We have looked at international partnershipsto try to progress on this matter. In many instances inSouth Africa we tend to give a lot more importance to international players before appreciating the local competence that exists. The local confidence may still be lacking, which is why we hope that an international alliance will help elevate the profile in order for the government to engage with us directly.

Is this a trend you see being undertaken by other companies in the sector too?

Chris Sparg: I think it is still unique at the moment. Local players are forced to do a number of things. First of all, they need to interact with industry forums such as SAOGA or Wesgro. As an industry, we are forced to look at common user facilities. In that sense, successful models abroad exist, such as the Australian Marine Complex (AMC) south of Perth in Australia. A similar model could be the solution for locations such as Saldanha Bay. There is no opportunity to strategically advance a company perspective, so future developments will need to come from an industry perspective as a whole.

Taking a look at Dormac’s own infrastructure, we see a presence of the company in 5 strategic ports with bases in Durban, Richards Bay, Cape Town, Saldanha Bay and Walvis Bay in Namibia. How do all these locations fit together?

Chris Sparg: Ten years back, we realized that it was impossible to develop in one particular area or port alone. The Dormac model offers options in different ports. If there is a port or a particular berth that is not available, this model allows us to offer alternative solutions. Moreover, this set-up allows us to serve both developments along the Western as well as the Eastern coasts. Dormac’s model may also be quite different to most other companies, as we support both ship repair and oil and gas. The oil and gas work is rather cyclic and consists of a series of large projects. This obviously creates an issue for certain companies to sustain themselves in between these projects. The advantage of Dormac’s model is that our ship repair work helps us to sustain all of our overhead structure, while we are able to respond to the larger projects by drawing on the skills that have been developed within the ship repair division. This puts us in a position where we are able to relocate teams very quickly, either between our own strategic ports in South Africa or into a new location along the East or West African coast. Our model is based on staying mobile in order to support these projects.

The Cape Town facilities are also brand new. Can you elaborate to our readers what additional capabilities and capacity this brought to the company?

Salvo Cutino: We have established one of the highest under crane hook workshops in the Western Cape area. In terms of workshop capacity and our ability to accommodate the big equipment coming off rigs, we are well equipped. We have two scopes of business, one being the onsite work where big projects can require up to 1,000 or 2,000 people onsite. The other scope is the work that is being brought back to the workshop, to either fabricate, overhaul or maintain equipment.

Having 5 different workshops around the coast, we can accept a project anywhere and send our equipment to any of these workshops, while still focusing on the onsite work with mobile workshops. For us, the new Cape Town facility has been a stepping stone into the offshore industry. The launch of our offshore division last year was a big step. We have been quite successful so far, with a big project completed in Saldanha Bay for Transocean’s Celtic Sea. At the same time, we are tendering for several other big projects for 2012. A similar workshop will be built in Walvis Bay and then hopefully in Richards Bay in the future.

Chris Sparg: It is also fair to say that while these buildings are only a year old, they have already been extended. Moreover, we have also retained our old Cape Town facilities. We have also just tendered for the lease of an area in Richards Bay, where we intend to erect facilities closer to the port area as well.

As you mentioned, setting up the oil and gas division was a stepping stone for the company. What challenges did you experience in doing so?

Chris Sparg: Whilst we formally launched this oil and gas division last year, we have been operating in the oil and gas sector for the last 6 years already. We already did project work for Chevron’s LNG FSO “Escravos” in 2008/9 for example. We have been engaged with companies such as Technip and a number of other projects in Durban and Walvis Bay. In rig repair, we had already worked on various rigsbefore and even build the latest generation Bunker Barges. This step towards oil and gas was a more formal one. Because the market has traditionally regarded Dormac as a ship repair player, this was a step taken to show to the world that our capabilities are more extensive today. We are one of the only shipyards in South Africa now certified by DNV 18000, 14000 and 9001, which demonstrates that we have the quality, safety and environmental management systems in place. In terms of challenges ahead, improving port facilities and infrastructure are probably the most prevalent challenges.

Salvo Cutino: We have skilled people and all the equipment and machinery to match the work done to International standards.. However, we need TNPA to free up the necessary waterspace, berth and drydock facilities. We have to operate within the parameters of what the current facilities can cater for.

In oil and gas, we have traditionally been involved in repairing and maintaining floating units that can be moved anywhere in the world. So still today, we compete with other locations such as Singapore, the US and Brazil. Our ability to perform timeously is a critical element. For ship- and rig owners, deviation costs and loss of earnings due to moving rigs from West Africa to Singapore is a big factor in their decision-making process. We are better positioned to service Sub Saharan Africa.

Another element that continues to play a role on the offshore side of the business is the requirement of local content. Countries such as Angola, Nigeria and Cameroon are pushing for more local content. Increasingly, we have seen several new rigs coming into the market from the Asian yards, many of which are destined for Brazil or Nigeria. Much of this new tonnage is stopping in South Africa for last minute commissioning, repairs and modifications. We thus do not only pick up work related to Africa, but also on passing tonnage.

Globally, the sector is rather limited in terms of numbers of players. There are only 5 or 6 major drilling companies, 5 or 6 major oil companies, and so on. They know the global shipyards quite well and are aware of the limitations of South Africa. The market is there for us, but we now have to find ways to capitalize and respond to this market. At the moment, we are mainly involved in project of around USD 20 million, while we would like to become more involved inlarger conversion and projects. Currently, these conversions are mostly executed in places such as Singapore and Dubai. To attract such projects, we need to demonstrate capacity, facilities, skills, on time delivery, etc.

You briefly mentioned the Transocean Celtic Sea conversion project before. It was a project that embraced over 1 million man hours without any lost time injuries. Was this a milestone project for Dormac?

Salvo Cutino: For us, yes. We always strive for excellence on every project, and this project was highly positive for the client. When you sell yourself in the market, this is the sort of track record that potential clients will be looking for.
Chris Sparg: Our previous project was for Chevron, embracing nearly 700,000 man hours in a much shorter timeframe. Upfront, Chevron had determined that the success of the project would not depend on financial, technical or delivery outcomes. Their most important success criterion was to avoid any injuries. Dormac was able to deliver this very complex project with a clean bill of health with no injuries.. Large projects which we recently completed with the companies such as Technip and SBM, have also had similar outcomes.

Looking into human capital, we have observed this as a factor that can often pose a challenge in the sector. How have you experienced the availability of the right skills in South Africa?

Salvo Cutino: Overall, human capital is of a very cyclic nature. If you take the last 2 years, we have seen significant decline in employment due to the global financial crisis. In turn, many skilled South Africans working abroad have had to return home which has resulted in an increase in available South African skilled resources. As a result, it is not a challenge for us to recruit new resources. This, however, does not mean that we do not invest in the development of new talent and skills.

Chris Sparg: We have generated 423 artisans in the last 3 years and have been recognized by Merseta in 2010 and 2011 for excellence and dedicationwith respect to the quality and quantity of artisans produced. We have a formal training and HR system that continues to provide excellent skills. As a business, we have grown fourfold in five years. To sustain our growth, training was thus a necessary element. I am also proud to say that we are generating more people as skilled artisans than we can permanently reemploy. . . In 2008 and 2009, we trained over 300 artisans on our ship building line – some came from from SASOL, who were exposed directly to our ship building production lines tocomplete their 4th year of training.

If you look at the senior management team here, around half have come through artisan programs. It is thus an important area to invest in, which is why we continue to train.

A training ground for the sector as a whole?

Chris Sparg: Absolutely! Our programs are not only orientated around the generic fields of engineering and boiler-making, but around marine in particular. These artisans thus receive orientation on the ships and rigs in order to become familiar with both oil and gas and ship industry systems.

Do you feel that the academic and tertiary institutions in the country are also in line with what is needed in South Africa?

Chris Sparg: We have worked with local universities in Durban to develop project managers in the marine sector, but our biggest issue is the gap that persists for school leavers. . We have put bridging courses in place due to this deficit in the school system.

In 2005, we ran adverts for around 30 artisan programs, and received only around 200 applicants. In those days, the interests were more focussed on IT and software while we have now observed a real increase in interest in engineering. We have many programs where we for example invite schools as well for orientation into our industry. We have a massive unemployment rate in the country, and it is now up to the industry to draw on these human resources that are indeed available. We have taken people off the streets with a reasonable education level, and managed to turn them into coded welders in just 9 weeks. It can be done!

Our proposed new dry-dock facility in Durban would bring sustainably 1,500 extra jobs to the city immediately, with a 1 to 5 kick-up ratio. Is this truly not aligned with what the government has asked us to do? Theprivate sector is able to invest and create businesses sustainably to create jobs and train people. All of this can be done faster with the dedication of the SA Government to unlock certain infrastructure within the ports.

It is essential in South Africa is to have a favourable Broad Based Black Economic Empowerment (BBBEE) rating. Also according to this criterion, Dormac has .made significant efforts to reach this level mainly through our procurement and training initiatives.

Considering that we meet all the necessary requirements and have a clear value to add, we therefore do not understand why some of our expansion requests are not approved sooner.. The Durban dry-dock request has been delayed significantly for example – for nearly ten years. From an industry perspective, these processes become very frustrating and prevent us from progressing with the sector and the local economy at large within the window of opportunity afforded to us by industry

One way to overcome domestic restrictions is to cross borders. You are already operational in Namibia, but how do you now see the further internationalization strategy of the company?

Chris Sparg: It is our intention to increase ourpresence in other international areas, for example further up West and East Africa. We are also looking at further development up Tanzania and Mozambique. In West Africa, we will try to expand responsibly into areas not only where the market exists, but where we can guarantee our clients the execution capabilities that we currently have. If we are unable to guarantee a certain turnaround on a contract, we will not expand into that particular area.

Clearly, a lot of developments have been taking place in the last 5 years. If we take another look at Dormac in 5 years from now, what will we ideally see?

Chris Sparg: Ideally, you will see a permanent port infrastructure in Saldanha Bay, where we are able to offer rig facilities with a large floating dock. You will hopefully see further expansion on the Durban shipyards that will now begin to attract the East Africa work. We also hope to see infrastructure development in the Port of Coega, where we continue to support the deep rig basins. Certainly, you will see a major expansion in Walvis Bay, Namibia. You will also see a new division being started under the oil and gas division to support the riding squads or repair teams along East and West Africa. As opposed to bringing rigs into a port in West Africa, our intention is to put large teams in those areas to conduct complete projects to assist our clients.

Any final message you would still like to add?

Chris Sparg: It is important for the readers to understand that, in South Africa Dormac has significant capacity, good quality, internationally competitive pricing and great logistics. This market can easily cater for projects of sizes of up to USD 50 million. There is a very mature industry base and a number of available contractors. There are a number of service providers in South Africa that are already linked to international partners. In terms of industry support, there is a very wide base to support these projects. I look forward to further industry and SA Government co-operation to further position our industry to provide first class facilities to support our clients in the oil and gas and ship repair markets and to create sustainable growth, job creation and skills upliftment in this sector.

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