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Interview

with George Yule, Chief Executive, Dominion Gas

09.08.2008 / Energyboardroom

Dominion Gas has been around the industry for over two decades, but many things have changed for this company since 2007 when it went through an MBO. How did you get involved in this and what role have you played in this new phase for the company?

Dominion was founded in 1987 by the former owner Gareth Jones. The company was set up initially to provide cylinder gases for the diving industry in the North Sea, and over the years the business developed to include industrial gases too, with their gas filling facilities based only in Aberdeen.

I joined the company just over two years ago, when Gareth decided to exit the industry due to health problems. I was basically brought on board to prepare the company for the sale, and we ran a very active sale process, managed by Simmons & Company International, the energy deal makers located in Aberdeen. It culminated in the disposal of the company in May 2007, and the sale was done in the frame of a management buyout. Funding was provided by Graphite Capital, the Private Equity firm based in London, and the Royal Bank of Scotland’s corporate finance group.

I was asked to lead the company going forward as its new Chief Executive as we assembled a broader board of directors after the MBO. Then within seven weeks we did a full onward acquisition by buying our closest independent competitor, a company called Global Gas Supplies, in a very quick and aggressive deal time wise that was completed within 5 weeks. That certainly gave Dominion Gas the market leader position in the UK North Sea as a provider of offshore cylinder gases.

What has changed in terms of Dominion Gas’ business focus and positioning through this process?

Dominion Gas is a provider of diving and industrial gases and equipment for the offshore sector, and to complement this, we also offer engineering solutions. The company is very client-focused, so we are not what some would call a ‘catalogue’ gas company; we are in fact an oilfield services company. There is a very big difference between these two types of businesses: i.e. we tend to focus on providing total solutions rather than (just) selling gas.

Dominion is currently going through a transition to move away from being recognized as a gas trading and selling company, towards being seen as an oilfield services company with a broadened range of products, services and capabilities. Some of these will be developed organically within the company, and others will be gained through mergers and acquisitions. The oil and gas market is very buoyant at the moment, and we have an insatiable appetite for growth and success across the global oil and gas / sub-sea sector – and this is a view also supported by our funding providers, Graphite Capital and RBS.

Since 2006 Dominion has moved in terms of size from £5 million turnover to £22 million, and from 30 to 80 employees. During this busy period, we have not only retained our existing client base but also built new ones – many in new geographical locations overseas. We have maintained our client focus despite all the activity regarding mergers, acquisitions and building new plants.

How engaged is Dominion in overseas business, and where does it have a direct presence?

In terms of locations, Dominion has gone from having one site in Aberdeen when I joined the company to 6 sites internationally. Some of these we have developed ourselves e.g. Norway were we have 2 gas filling plants, and others were added via the acquisition of Global Gas Supplies, these being the ones in Azerbaijan and the joint venture in Singapore. Aberdeen is a mature market, but it is important that we retain a critical mass of presence here, because Aberdeen does represent a “supermarket” for many oil & gas and diving companies for their global activities.

Dominion trades from Aberdeen into 22 different countries, but locations such as Southeast Asia, West Africa or the Caspian Sea need us to have a physical presence in-country. Our plans are to expand to other areas such as Latin America/ GOM, West Africa and the Middle East but we remain open-minded to other project-led opportunities in other E+P locations too.

How much does the overseas business represent compared to the turnover derived from UK operations?

The UK currently represents about 70% of our business, while the remaining 30% is done overseas. However, I can see that balance shifting in the future in favour of the international operations we’re involved with. We also need to keep in perspective the size of the UK market compared to the global oil and gas industry as the UKCS is a very mature province; with a good benchmark for technology and delivery but in sheer terms of scale it is a very small area when you compare it with offshore West Africa and Southeast Asia, etc;

Which of these international markets do you consider offer the most potential for growth over the coming years?

In terms of our existing business locations, we believe that Norway is interesting because it offers a more sustainable market going forward, with longer-term perspectives than the UK North Sea and there is still quite a lot of development to be made West and Northwest of the country. We also see Norway as a logical stepping stone to the countries of the Former Soviet Union (FSU). When the time comes, it is probably going to be more strategic to move from Norway to Russia than from Aberdeen to Russia and we understand there is already some very apparent political collaboration between Norway and Russia, in advance of any UK-Russia collaboration.

In general, I see a number of opportunities for companies such as Dominion Gas willing to go international, from North and South America to the Mediterranean Sea and Indian Ocean, but it is important to find the correct balance to avoid over-stretching yourselves trying to do too much at once.

Dominion is obviously looking for areas that offer project-led business, but we have also carried out our own diligence in various locations, and are willing to make our market entry on a speculative basis; meaning without having a contract signed, however this puts greater emphasis on getting the appropriate front end diligence correct to identify the extent of market for our products and services. There are very few instances in life, let alone business where some form of risk is involved – but manageable risk (in my view) if identified is acceptable for most responsible companies.

Companies often need an in-country presence before people will trade with them, and this is no different in the UK. Earlier in my career I spent 20 years with Shell UK in Aberdeen, and therefore know how it was for potential suppliers coming to see us at our offices. i.e. If they were not located in Aberdeen, it was that more difficult for them to break into the offshore business, so why should it be any different in locations such as Africa, Singapore, Caspian, etc;

Which type of companies make up Dominion Gas’ client base?

Our particular emphasis is in the offshore industry, particularly in the subsea sector, but our client base extends to 240 companies, ranging from major oil & gas companies to small fabrication workshops. This means the operators, major contractors, service providers, diving companies, etc.

Typically our clients are operators like Conoco Phillips, BP, Total, Shell, etc; at the top end; followed by oilfield service companies like Schlumberger, Halliburton, Weatherford, Baker Hughes; and we also have specialized subsea contractors such as Subsea 7, Technip, Acergy; ISS, etc;

There is really no magic template that fits for all clients. What we tend to do is to focus on the needs of that particular client and then adjust our strategy accordingly to them.

Of the many clients and partnerships that Dominion Gas has developed over the years, which best illustrates the type of business relationship that you wish to establish?

I would say ACERGY is a very good example of a key relationship for Dominion Gas. We have been trading with Acergy for more than 15 years (under different denominations before they called themselves ‘ACERGY’). Through them, we have been trading in areas such as Africa, Malaysia, the Mediterranean and North America. Acergy has developed a comfortable working relationship with Dominion Gas, from Aberdeen and found our good quality products and services at a level that may be difficult to find in some of their other global locations.

A major issue for companies like ACERGY is to ensure that they never compromise their own reputation and commercial position due to the use of poor quality products. “Prevention is better than Cure” comes to mind with ACERGY and in this perspective, Dominion Gas delivers a high quality range of gas products, equipment and services to UKAS 17025 standard – an altogether better option for our clients.

What is your perspective on where the oil and gas market is heading over the next several years?

I believe that there is going to be excessive demand for oil and gas as a fuel well into the 21st Century, so we will certainly see a supply deficit being sustained going forward until such time that alternative energy sources are capable of back-filling the hydrocarbon energy‘gap’. In the shorter term, my own view is that there will be a stabilizing effect over 2008/2009 because the growth rates for the oil and gas industry have been almost vertical for the past three years. This rate of growth is unsustainable, and has already created pockets of resistance from many users facing significant increases of the oil, gas and fuel prices, let alone putting further strain on limited resources – be this assets, ships, skilled labour and gases.

But I do not expect to see an industry downturn over the next 5 years. I absolutely agree with many economists that the days of cheap energy are gone now. I don’t think we will see any disastrous event or series of events that will lead to the oil price falling way below $100 US dollars again.

Some oil and gas companies that did not develop new reserves in new areas – or perhaps fully recover proven reserves via new technologies, will be left behind in the ‘energy chase’. This should also act as a wake-up call to oil majors sitting on fallow fields for some time and I expect more Governments will take an aggressive approach towards companies with undeveloped reserves across the international frontiers.

There have been huge investments in assets across the oil and gas sector during the past 3 years. Investments in the mobile and jack-up drilling rigs for instance, but also diving support vessels. Locally in Aberdeen, many large companies such as BP, ACERGY and Subsea 7 are setting up new headquarters here as a base for their future activities. There are some fantastic developments happening, and these companies are not investing tens and hundreds of millions of pounds in Aberdeen to switch off the lights any time soon.

Many of today’s major projects are in deepwater or ultra-deepwater locations around the globe. What does this mean for a company like Dominion Gas focused on gas-related products and services?

A lot of attention is given to high-profile deep-water projects, because they are technologically ground-breaking and going deeper than ever been before. These invariably use very costly ROV technology rather then diving gases as this is the only way the deep water reserves can be exploited meantime. But there is also a high level of Oil and Gas exploration still happening in shallower waters surrounding the deep water areas that do require diving gas. I don’t see ROV technology replacing divers in these locations at all because they are dealing with two different areas of recovery.

There is a huge market in existing fields for inspection, repairing and maintenance (IRM) and as fields become more mature, they will need a greater level of care and attention. A large part of the subsea activity Dominion is involved in is towards preserving the integrity and longevity of mature fields.

How is Dominion Gas raising its profile internationally among potential new clients, such as the NOCs for example?

The overseas oil companies tend to do their projects via the major EPC players. So our connections tend to be with these companies rather than with the foreign oil companies themselves. We look for project opportunities in particular associated with sub-sea projects worldwide and investigate about the companies involved, their product needs and their key drivers.

We have an ongoing campaign to raise awareness about Dominion Gas which involves various methodologies e.g. through participation in oil shows, conferences, selective advertising and specific client visits on a regular basis. We do respond to opportunities that arise quite aggressively because we also recognize that being assertive in business is necessary at times to ensure opportunities are secured at an early stage.

How far along is Dominion Gas on the path towards being a recognized name in its field on the global oil and gas market?

Although we are only part of the way along this route, I believe we have raised our profile quite significantly internationally – however, there’s still a long way to go because when most people think about gas companies they think of the big multi-nationals with tens of thousands of employees and World-wide distribution outlets across all Continents. We are mindful of Dominion Gas’ size inasmuch that we have 80 staff across the world and a board of only 6 Directors, but to counter balance this we have a huge appetite for further growth and success and a number of unique selling points in our ability to move quickly, compared to the bigger players governed by stock exchange regulation and internal bureaucracies. We can make strategic or commercial decisions faster, to move matters forward for our clients as needed.

The only item on our business agenda is to be successful and to make clients WANT to deal with Dominion Gas. Although we are well recognized in some regions as a reliable supplier, we still need to become better known in other geographical areas. We do not expect to go into a new business location, assemble a building, employ half a dozen locals and then demand attention from the local market – it just doesn’t happen automatically, and we have to earn attention.

What are your main ambitions for Dominion Gas over the next 5 years?

For Dominion in 5 years time to be recognized internationally as a successful and profitable oilfield services company, with a strong reputation for customer service, products, quality and professionalism.

Inwardly, which is just as important, we want our staff to feel secure and content in their job. They should be speaking about their company with pride, and we want to share our coming successes with them as this is a key part of the equation, beyond just being successful on the business side.

After having worked on the client side in a major oil company for many years, what is the most motivating thing about your current position as Chief Executive of Dominion Gas?

I have always tried to be a leader, rather a follower, so I am now ‘living the dream’ in that regard. My reputation as an individual is very important for me, in all aspects of my life and definitely in business. I want to be successful, and it has taken me 30 years of effort (and some failure along the way) to get to my current position. However, it is far from being a one man show at Dominion Gas and a large part of our success to date comes from the fact that Graphite Capital and RBS have invested a considerable amount of money in the business. Given their confidence in what we’re trying to do with Dominion Gas I need to deliver for them.

I enjoy leadership, but I’m part of a team here and am at pains to point this out whenever I’m associated with our success to date. We are continuing to build the company on a very good foundation, the former owner did most of the hard work in getting the company established over 20 years, and my main role now is to capitalise on the favourable market conditions which are encouraging companies such as Dominion Gas to flourish and prosper in other locations.

I came up through the ranks from the workshop floor, going through various levels of management to where I am now, and it’s good for Dominion that my feet are on the ground as I will never get carried away by newspaper reports or last month’s (or last years) bottom-line profits. I enjoy the challenge and the variety of the job and meeting our targets, but this is always done with safety in mind as our top priority. It is equally important to get the right balance in terms of work and family life and to ensure that we provide a safe place of work for our own staff and also safe products for our clients’ staff too.

What is your final message to the readers of Oil & Gas Financial Journal?

The oil and gas sector remains a frontier industry, with many borders still to be crossed in terms of introducing ground-breaking technology. But one thing that we also need to remember is that there are some things in our day time job that we can still do better/ more efficiently – regardless of modern technology. It is an exciting industry to work in, full of highs and lows, and continually fraught with frustrations and adrenaline surges day-on-day. I look with a great sense of pride and achievement at what has been achieved in the oilfield industry since Drakes Well ‘spudded’ in the 19th Century, and there’s still much to do yet.

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