with Ian Wood, Chairman, The Wood Group
Looking back at the young man you were in the early 1970s when everything began for the Wood Group, would you describe him as an ambitious entrepreneur with a vision or as a common businessman just taking it one step at a time?
I would say that the most accurate definition would fall somewhere in-between. When I started the business in 1964 after finishing university, I was taking over a relatively small family fishing business due to my father’s poor health. The business had already begun to expand into other areas, such as food processing and sheet metal fabrication, by the time the first oil people arrived in Aberdeen around 1967 and 1968. They consisted of very colourful personalities, with cowboy boots and hats, so it was quite a culture shock for Aberdonians at that point in time.
In a way I was very lucky to be at that early stage in my career at such an exciting moment for Aberdeen. It was really a case of being in the right place at the right time, while still being young enough to have the necessary drive to make things happen. My father, on the other hand, never quite understood the oil and gas industry or was really able to get involved in it, much like the rest of his generation. I can’t really say I had a long term vision at that point, but I did have a kind of stubbornness and was able to recognize the opportunities that this new industry could bring. In addition, I was slightly annoyed with the newcomers’ patronizing attitude towards Aberdonians, as if they were doing us a favour by giving us bits and pieces of work.
I had a real ‘eureka’ experience on my first trip to Houston in the early 1970s. When I saw everything that was going on there, I realized suddenly just how big the industry was and the huge potential that was opening up for Aberdeen thanks to North Sea discoveries. But then, really, I was not making plans more than 3 years in advance. The family company had already grown considerably, from 60 people to over 1,000, and on the flight back from Houston I remember trying to work out how to tell my colleagues that our lives were about to change. We had to form new businesses, new facilities and establish new management teams to handle the new opportunities.
We acquired an Aberdeen ship-building company which gave us quayside workshop and logistics space, and started working on logistics support, and reparation and fabrication of equipment for the new oil industry. At that time, I never dreamt that the company could be what it is today with 26,000 people in 46 countries, simply because I never looked that far ahead. What I did have was real hunger and ambition to prove that a Scottish company could do just as well as the Americans or anyone else who would come telling us how we had to run our business. I was quite parochial at that stage, wanting above everything for Scotland to control its own destiny, but today I consider myself to be a global player.
Did the rest of the business community in Aberdeen share your drive and enthusiasm with regards to the oil and gas industry?
The older generation was quite defensive and found it very difficult to adapt. They had been involved in traditional activities for a long time with many family-run businesses, and were reluctant to change. Moreover, there were many critics of the oil and gas industry, predicting it would not last more than a few years in the region, and therefore did not represent a long-term opportunity. Decisions had to be made with a fair degree of uncertainty regarding the future.
How do you explain that someone without formal business or engineering education to begin with, was able to create what would become a global energy services giant in the competitive oil and gas industry?
I studied psychology in university, so for me it has always been about the people. I was not interested in running a business in a normal way, I only went into the family business on the basis that I could grow and evolve. It was all about using the people’s abilities to develop our different activities. Particularly since Wood Group is a service company, so it is predominantly dependant on the quality of its employees. What has made our business succeed is the group of extremely talented, highly motivated, customer-focused, and technologically strong people who run it. In order to achieve this, we have had to be very good at attracting, recruiting, developing, rewarding, promoting and empowering the right people. From the very beginning, when we had very little knowledge of our own about the industry, the priority was to recruit a few people with the relevant skills and experience. From there on, we started learning about the business, got more people to join us, started training them, etc. Then, things gradually started to unfold to what we have today.
What realization prompted you to take the decision to make Wood Group’s internationalization a priority since early on, something quite unique at the time?
Once again, the driving force was mainly to get a Scottish company alongside those big somewhat patronising companies which had come to Aberdeen from the beginning. It was a long process but we were determined to be able to compete with those international players not only in the North Sea, but worldwide. With our growth over the years, we are now actually in the position of giving work to some of those same companies, hopefully not in such a condescending way. Although the British government did not play a major role in this, they were interested in seeing the local industry develop, and we were lucky to be one of the first companies in the UK to make a name for ourselves. As such, although we were never given any huge favours, we did get good communication and guidance from the senior oil operating people in the incoming industry and this was helpful..
In addition to this, the 1986 oil price crash was a defining event which further convinced us of the need to be more international. At that moment, things looked so bad that people were saying that the oil and gas industry in Aberdeen was finished. You don’t need many shocks like that in order to realize the importance of spreading the business to new parts of the Globe.
What would go through your mind at those tough times for the oil and gas industry in the 1980s and 1990s?
Wood Group is more focused on the production support side of the business, which is less cyclical than front-end development activities, though the company is involved in them as well. Today production support still represents over 50% of our business, and we intend to keep it this way because it makes us less vulnerable to the industry’s cycles. It is essential to keep a proper sense of perspective – this is a cyclical business. We are currently in the longest oil and gas up-cycle that I have ever experienced, and we constantly debate how and when a correction might take place. The market has changed radically in just a few years, and there is more and more talk about long term energy shortages which suggests the super-cycle could continue.
It is important to remain flexible, because even this incredible cycle will not last forever. However, I suspect any downturn will be more of a temporary correction because the fact is that the world is going to need significant fossil fuel reserves to be exploited over the next 40 or 50 years. There are bound to be other cycles, but our philosophy is not to overreact.. We are able to react quickly, but the important things is to maintain your key people resources for the time when the cycle upturns again.
Was it a difficult decision to float Wood Group in 2002? Do you have any kind of regrets in this regard?
We had been considering going public since the mid-1990s to ensure access to finance to allow us to continue the successful growth. A parallel objective was to begin reducing the family connection with the company, because I had not seen Wood Group as a family business for a long time. Wood Group was being run by an extraordinarily good management team and, inevitably, nepotism creates uncertainty, and there are many examples of businesses weakened by it. The trigger was our heavy investment programme in 2000 and 2001 and thus the 2002 flotation changed some things about how the company was run. In the formative years in the 1970s and 1980s, a lot of decisions were gut feel and opportunistic. Decisions were made by a small number of people and agreed on very quickly. But really, from the early 1990s, the company had begun to assume the organization and decision-making process of a larger company. We had restructured into three Divisions and had a strong Board of Directors, including some very good non-executive Directors, and our processes and procedures matched up to that of a public company, although we had maintained, and I believe still do, the minimum level of bureaucracy and maximum speed of decision-making. The fact that the first couple of years after the flotation were rough didn’t change the validity of the underlying rationale of going public. We have now settled down well as a public company and today are not constrained by money for growth. The ethos of Wood Group has been growth from the very beginning, and this is what allows us to continue attracting the right people, so it was of absolute importance to have the financial capacity to move our vision forward.
How much more can the Wood Group grow?
If I had tried to answer that question on various occasions over the last several decades, I never would have guessed the levels of growth that we actually achieved. So I can’t really answer that, but what I can say is that our appetite and capacity to grow are stronger than ever with a new generation of very capable, committed and skilled younger people. About 700 Wood Group employees are shareholders, some of the senior management having significant equity in terms of value. So you can bet that the ambition is every bit as strong as it was 30 years ago.
What is it about the Wood Group’s structure that makes it a different type of company from its global competitors?
Wood Group is a very decentralised company. The key functions such as Finance and HR, are coordinated, but our subsidiary companies have a great deal of autonomy. The Group agrees the strategy and specific budgets, but the ball then is effectively passed to the company management who enjoy that level of accountability and responsibility. It’s a system that has worked well for us, but it is not without some disadvantages, and I would never argue that it is the best for all. Some of the great companies in our industry today are extremely centralised, but manage to make this a real strength. The Wood Group is on the other end of the scale.
How have you adapted, after so many years in the driver’s seat, to your new role as Chairman of the Wood Group since 2007?
Stepping back was one of the more difficult decisions I have taken in my life. When I handed over the position of Chief Executive to Allister Langlands in January 2007, he had already been working very closely with me as Deputy Chief Executive for a number of years. Allister is now in charge of all operations, and the Group executive directors report to him. Allister and I continue to work very closely and I am very involved in taking the major decisions to the Board. As Chairman now, I do a lot of travelling and play more of an ambassadorial role, meeting with various Governments all over the globe.
Despite the obvious challenge of handing over the operations of a company I had grown from a standing start, I have achieved two of my key objectives. The first was to step back at a moment when I could still control the change, which was the case. The second was to get the management succession right and finish up with an even better management team after the change. I really believe we have achieved this with an exceptional new Chief Executive and an outstanding management team. I am now the coach and mentor and the senior ambassador.
After its humble beginnings, the Wood Group is now a leading player in the global oil and gas industry. Where has this left Aberdeen and Scotland?
I used to be very parochial, born and brought up in Aberdeen. Though I had already travelled somewhat by the mid 1990s, my canvas of the world still had Scotland at the centre with tentacles spreading out to all the areas where Wood Group was active. This changed quite suddenly when I attended Wood Group’s first international conference in Kuala Lumpur in 1995. I travelled with other directors based here in Aberdeen and we met with about 30 of our local colleagues, of all nationalities. On the first morning, as I was sitting at the table listening to them talk about how proud they were of belonging to Wood Group and their clear sense of responsibility for our activities, I realised my model was wrong. Wood Group had no real centre; it was a matrix in which every part was as important as the other. Today, Wood Group is a genuinely global company in every sense and our mindset reflects this..
Scotland, combined with Houston, provides the global headquarters, but with such a decentralised business model, our headquarter presence in both is very small. I know this is the model that Allister and my colleagues like and I’m sure we will continue in that way
Having the task of travelling to different parts of the worlds and identifying new opportunities for the Wood Group in today’s dynamic environment, what do you find most exciting in the global oil and gas industry?
Quite honestly, this is a very exciting time for the oil and gas industry all over the world. There are some great business opportunities in the traditional oil & gas areas and in the new emerging territories and, of course, there is the challenge of doing business in often difficult political and economic environments. The IOCs are still very important internationally with, of course, the National Oil Corporations assuming more and more dominance in their key areas of operation. Additionally, there are some very strong global independents, particularly from the US. All three of these constitute our customer range.
In the global context, you have to learn to do business in the indigenous way. I would say that today only 50% of Wood Group’s success depends on the quality of our products and services and the added value we provide to our clients, and the other 50% comes from adapting to the local culture and business practice and developing strong local relationships. Understanding the political environment and the complexities of doing business internationally, are at least as important as our industry knowledge and capabilities, and that’s what being a global company means.
Another key issue for the oil and gas industry is the importance of assuming responsibility for the wellbeing and infrastructure of the areas in which we do business. If we want the advantage of global trading, we also have a part to play in making this a more equitable world. The major oil companies generally do this well both in terms of developing the infrastructure and support in the new areas of operation and also setting up large charitable foundations focused on the developing countries. My family has recently established a charitable trust which is concentrating most of its efforts on sub-Sahara Africa. What is interesting is that we are talking to countries like Uganda, Tanzania and Ghana about economic and social projects, but at the same time watching with great interest the development of fledging oil & gas industries in each of these areas.
International leaders and analysts seem divided on their explanations of the main reasons for the soaring oil prices, with some considering it is due to fundamentals while others point to speculation. Where do you stand on this issue?
There are surely several causes, but the single biggest factor affecting the energy price over the last 2 or 3 years has been the huge annual per capita growth of energy consumption in China and India. And the strong economic growth in these countries looks set to continue, despite a slowdown in the West. Even if the developed economies do all we can to conserve energy (and we haven’t done very well so far), there is still going to be increased demand growth from the East. These are pretty strong fundamentals.
There are still some very large oil and gas resources in the world, but there are serious environmental issues to deal with and it is becoming extremely expensive to develop fields. People are talking about 50 billion dollar projects now. So there are huge costs and long timeframes to consider, even if the rewards are massive. In any case it is not as easy as opening and closing the tap. LNG will eventually turn gas into a commodity similar to oil, with its own global price. We are already seeing gas, originally slated for Europe or America, being sent to Asia-Pacific where the price is higher, with a number of impacts including gas in the UK costing 40% more this winter than last.
Even though I am not naturally bullish, very much in the Scottish tradition of worrying about what may go wrong, there are strong fundamentals to suggest that the oil and gas markets will remain buoyant for a long time.
In the 1970s you had a vision for Aberdeen to become a mini-Houston, what do you feel today when you see what the city has accomplished and maybe the missed opportunities?
Aberdeen is a mixture of good and bad news. Twelve years ago, most UK service companies were still focused heavily on the North Sea. The oil price dropping to single digits in the late nineties had a similar effect on many companies as the 1986 crisis had for Wood Group, driving them to participate in the international market. The result is that many of the indigenous service companies have now got a significant international base.
In addition to internationalization, Aberdeen has been able to position itself as a preferred location for many overseas service companies’ eastern hemisphere headquarters. Major service companies such as Halliburton, Schlumberger and Baker Hughes have set up large facilities in the city in order to service many countries in the eastern hemisphere. In the long-term, this is what Aberdeen will need in order to be a major hub for the global oil and gas industry.
My nightmare is that in a few decades, when the local production is no longer able to sustain a major oil and gas industry in Aberdeen, my grandchildren will look back and lament our 60 to 70 years of prosperity. We need to ensure that the oil and gas industry is able to create long-term benefits for the future of the city. One of the opportunities is with renewable energies, which are starting to be developed and promoted in the region. Unfortunately, for some inexplicable reason, the recently-announced major UK energy research and development centre will not be based in Aberdeen. The North Sea’s oil capital had the enterprise, knowledge, energy mix and international orientation, so it frankly totally escapes me why the politicians decided to place this energy centre elsewhere.
Will Aberdeen really have a future as a centre of excellence for oil and gas once production in the North Sea becomes irrelevant a few decades down the line, like most analysts predict?
The city stands a much better chance now than ten years ago, because there is a stronger base of internationally-oriented companies. Aberdeen has many other things in its favor, such as a top-notch educational base and excellent quality of life, which are both essential to attracting the right kind of people. It is also a very enterprising and cosmopolitan city. I think that oil and gas in the area will remain strong for at least another 15 to 20 years. We are trying hard to persuade the government that they need to do more to maximize recovery in the North Sea. For sure, there’s another 10 billion barrels to be recovered, but with the right approach by Government and Industry, it could be a further 25 billion barrels – the difference at $100 oil is $1.5 trillion in terms of economic activity in the UK. We are hopeful Government are beginning to see and understand this and will set their fiscal and regulation policies accordingly.
What is the main advice you give the new generation of Aberdonian entrepreneurs when you are addressing them?
As chancellor of one of Aberdeen’s two universities, I enjoy spending time with students and try to pass on some of the lessons I have learned throughout my life. Though there are many suggestions and recommendations, my one key piece of advice to young entrepreneurs is to give more importance to people. Business schools today tend to overlook or underestimate this aspect, which, for Wood Group, has been the key to growth and success. The best thing these young entrepreneurs could do is stop for a minute and take the time to look for a few really good people to take alongside them. This will transform the business.
What is your final message to the readers of Oil & Gas Financial Journal?
The story of Wood Group is not the story of the Wood family, but of an extraordinary group of people with great dedication and talent who have committed themselves to a growth ethos over a long period of time. For these people, the successful growth of Wood Group has been an important part of their energy and ambition and this has been the key to our success.