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Interview

with Gordon East, Managing Director, Petrofac

19.08.2008 / Energyboardroom

How would you describe Petrofac’s current positioning in the context of the UK oil and gas industry?

The vision is for Petrofac to be the global oil & gas industry’s premier facilities and infrastructure provider, admired by customers and employees for consistently delivering and rewarding excellence.

The business is currently built around three divisions – Engineering & Construction, Operations Services and Energy Developments. We design and build oil & gas facilities, operate and manage facilities, and train personnel. Where synergies are identified, we co-invest to provide additional alignment. Our ability to integrate the capabilities into one cohesive, customer-focused service remains a key differentiator for Petrofac.

We continue to mature as an organisation and to develop our business. In just five years, Petrofac has grown ten-fold – achieved through organic growth and acquisition. Whilst we have grown as a company, we have maintained and nurtured a strong spirit of entrepreneurship led by a highly driven leadership team, skilled managers and engineers.

Petrofac’s success is based around its core values – being safe, ethical, innovative, cost-conscious and responsive to our customers’ needs. Commercial innovation is perhaps one of our biggest strengths, whether it is in the field of Engineering & Construction or in the Operations Services area. The single, most successful example of this was our creation of the duty-holder market around ten years ago. Whilst others have followed, Petrofac remains the leading player in this market, and has successfully taken the concept overseas.

More recently, through our Energy Developments business, Petrofac has provided its own capital for upstream and infrastructure projects and is investing alongside its customers and the services it provides, thereby producing another new concept in the industry.

In the North Sea, we have recently announced achieving field development approval for the Don area development. It is a project that enables Petrofac to bring together its capabilities in subsea, field development, duty-holdership, operations management, and brownfield modifications. When combined, these capabilities result in an innovative and profitable development.

In summary, we have a strong record of execution that differentiates us from mainstream competitors and, as a result, demand for our services continues to be very strong.

To what extent does Aberdeen bring together expertise and handle business from Petrofac’s different focus areas?

Whilst we are a truly international and multicultural business, our recently expanded city-centre offices in Aberdeen provide a central capability to offer a full range of services, including operations, maintenance, brownfield modification, well services, production engineering, and specialist consulting.

Our Operations Services division has developed from our Aberdeen hub, and this office has been absolutely vital to the success of the business. Its heritage lies in the days of Atlantic Power & Gas and PGS Production Services, which Petrofac bought around five years ago. At that time, there were just a few hundred employees and now we have several thousand, both on and offshore.

More recently, Petrofac has also expanded into other areas. In 2007, we added well engineering capability to our portfolio through the acquisition of Aberdeen-based SPD. In 2008, Petrofac acquired Eclipse, a production engineering services house, which was also based in Aberdeen, and, shortly after, we acquired Caltec Limited, a specialist production technology company.

Our ability to train local talent into a competent workforce is often the most important aspect of our business. Petrofac Training was established after we acquired RGIT Montrose in 2004. This service enables Petrofac to provide world class training alongside its engineering and operations services and is another key advantage for the group.

Whilst our training services are highly valued by both integrated and independent oil companies, they are of particular interest to the national oil companies (NOCs). On the back of this, Petrofac has developed a number of technical and safety training centres including in Baku, Sakhalin, Houston, Singapore and Dubai.

What is the relative importance of each of the three main business lines, and what are the main expectations for their respective growth?

Each of our divisions is a standalone and independent entity, able to provide a clearly defined range of services. Our key strength is how these divisions can integrate to deliver a total – and unmatched – service. Each has experienced high growth and has delivered good levels of customer satisfaction, and there continues to be that strong demand for our services.

Engineering & Construction continues to grow at considerable pace due to increasing demand for large engineering and construction work. It represents over half of the backlog, approximately three-quarters of the earnings, and around two-thirds of the revenues.

Operations Services remains a fundamental part of Petrofac’s business, representing approximately 45% of our backlog. It plays a key part, not only in terms of making the business sustainable but also in its continued growth. Responding to and anticipating changing customer needs remains at the heart of everything we do, and we have expanded our production engineering and well services capabilities to deliver improved production for customers.

Energy Developments adds value by enabling Petrofac to co-invest in projects alongside its other services, delivering excellent returns, for example in Cendor, Malaysia, Tunisia and the Don area development in the UK. Petrofac also has a number of infrastructure investments that it has made alongside other services, which are providing excellent returns in today’s market.

Petrofac is a portfolio with diversified lines, which make a very powerful combination. The main challenge for Petrofac in all of the areas is to find the necessary resources to execute and deliver the projects and commitments.

Petrofac pioneered the duty-holder system between an operator and contractor over a decade ago, but today many service companies offer similar capabilities. What would you say sets Petrofac apart from the rest in this competitive environment?

Petrofac stands out for the broad range of capabilities that it offers customers. There is a very big difference between providing operations support and personnel to run a platform, and actually managing an asset with the responsibilities that come with being duty-holder. Petrofac has demonstrated that it has capability to improve operations, in a way that grows the value of the asset for the owner.

Petrofac has particular expertise in dealing with mature assets, often with a legacy and long history of changing owners. Having led the field, we have been ahead of the game and, with the ageing infrastructure in the North Sea, it is a task that cannot be underestimated. Petrofac has developed very efficient and customised internal processes for managing these specific types of assets.

From an asset owner’s perspective, they want enhanced production to drill new wells and for the existing wells to be in the best possible shape. What differentiates Petrofac from others is that no one else has the same range of services to respond to these needs. When you add to that our track record of over ten years as duty-holder, it is easy to see why we are still market leader.

What was Petrofac’s key to winning the contract to manage all of Dubai’s offshore oil and gas assets, and what has this meant for the company?

Being awarded the contract to manage assets on behalf of Dubai’s government was a major milestone for Petrofac. It was Petrofac’s first international contract of such scale, and was also the first time we had contracted directly with a government entity. We remain focused on how we can deliver further improvements in operational performance.

Has this contract opened the door to similar opportunities in the region and with other NOCs around the world?

Our contract in Dubai has provided a great opportunity and is certainly a springboard for further growth in the region.

There has been a shift in the dynamics of the relationships between national oil companies and governments and the international oil companies. Other governments, not only in the Middle East but also in Latin America and the Far East, are closely following what we are doing in Dubai and already new conversations are opening up.

In the true entrepreneurial spirit, Petrofac is constantly seeking out new opportunities – often creating a market itself. The company is talking with many NOCs around the world, in a process driven by both their interest and Petrofac’s efforts to highlight the benefits of working together.

In many ways, it is also driven by the need for production at record-high oil prices, the tight supply and demand curve, and the risks existing in different parts of the world. Necessity tends to create innovation and invention. Countries cannot rely today on what they did 20 years ago, so they are starting to think differently.

What regions do you believe offer Petrofac the most potential for growth over the coming years?

Petrofac’s focus continues to be on our core markets of the Middle East, Africa, the CIS and Asia Pacific, and to establishing a deeper presence in those areas. There are very ambitious countries in these regions, which are growing and have large populations with desperate energy needs. We are actively pursuing bids in Saudi Arabia and in Africa. Another potential growth area for Operations Services in the future could also be central and south America.

There are still so many opportunities in the Middle East and Europe that they will likely remain the main drivers of Petrofac’s growth for some time to come.

To what extent is Petrofac’s international expansion driven by relationships with global customers?

Petrofac has many key customers, including major oil companies with which we have developed global relationships as a tier-one contractor. The company’s Middle East heritage has enabled us to build particularly strong relationships with governments and companies in that area. This extends to some parts of the former Soviet Union, and to Africa where we have a long history working with locals NOCs, which may offer us new opportunities in the future.

In your view, what are the main highlights of Petrofac’s activity in the UK?

Petrofac employs about 4,500 people in the UK, from the southern tip of England to the northern extremes of Scotland, with approximately 2,500 of the employees offshore. Whilst Aberdeen is the central piece of the operations, its offices across the UK are vital to the company.

Petrofac is proud of its work in the UKCS. A significant part of this is in breathing new life into assets, and in moving them to their next phase. We have driven projects to turn around ageing assets, some of which are now producing at unprecedented levels compared to their previous life. Petrofac plays a key part in a continuing cycle of resurgence in the North Sea.

We are partnering with dynamic young companies such as Lundin, Venture and Tullow in order to breathe new life into the industry, creating more jobs and increasing Petrofac’s business.

Not only are we enabling other companies to achieve this but we are also investing our own money and capabilities to help make it happen. With the Don area development, for example, we were able to find a development solution where many companies before had been unable to figure out what to do, and now they are set to come on stream during the first half of 2009.

The UKCS is going through another period of high activity, but some doubts persist as to its future. How much more life do you see for this region’s oil and gas industry?

I have a lot of faith in the North Sea and believe that there are many more phases for the region. The players will change, as we have seen before and still see today, and some of them will grow from small to big players over time. Petrofac has been a part of many of these success stories, and we will remain committed to the region for the coming generations. The only limits are our own imagination and the ability to innovate and implement these new ideas.

Petrofac was recently included in the FTSE 100 index. What has this achievement represented for the company?

This represents a significant milestone for Petrofac, because it is recognition of how far we have come, having grown very rapidly and doubled in size since our admission to the Official List of the London Stock Exchange in 2005. But it is not an end or beginning in itself, just another step in our journey. Our ambition is to remain a sustainable business that can continue to grow, year on year, and from generation to generation. Petrofac aspires to continue being a key part of the oil & gas industry in 50 and 100 years from now.

Aberdeen has been fundamental to Petrofac in the past, but how do you see this relationship towards the future?

Petrofac has deep roots and heritage in Aberdeen, and our base in the city is symbolic of our long-term commitment to the region and the North Sea. I believe that the oil & gas industry has many more decades of life here. In general, Aberdeen has already seen the rise of a number of different industries, and no matter which way it goes, Petrofac will be in the city for the long haul.

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

Petrofac is much more than an everyday service company – we can truly align ourselves to customer needs. With continuing, strong demand for our services and an excellent record of execution, we can deliver good growth both as a company and as a partner.

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