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Interview

with James Tsang, Operations Manager, Wood Group Kenny Indonesia

01.08.2012 / Energyboardroom

Wood Group is undergoing a process of global restructuring. Would you present briefly the group to our readers and how your operations look in Indonesia?

Wood Group’s acquisition of PSN in 2011 represents the largest change for the group. Previously, the Wood Group was structured around four business units: engineering, production facilities (PF), gas turbines and submersible pumps (subsequently sold to General Electric). The PSN business mirrored that of PF with their core business centring on brownfields, and the maintenance of oil and gas facilities. Therefore these two companies complement each other and now fall under the title Wood Group PSN.

Concerning the engineering business unit, Wood Group accommodates as a whole slew of engineering companies: JP Kenny (specializing in onshore and offshore pipelines as well as subsea systems, along with a division focusing on renewables), Wood Group Integrity Management (WGIM whose core business is in materials, welding, metallurgy, corrosion management, and asset integrity., MCS Kenny ( flexible riser system), MSI Kenny (specializing in process and flow assurance), Mustang which is largely based in Houston, Alliance, and one and a half years ago Wood Group also acquired company called SGURR Energy based in Glasgow, whose expertise lies in wind power and renewable energy and who are currently doing a lot of work in China.

Over the last 6-9 months the engineering division has been consolidating its various subsidiary engineering companies. Wood Group is in the process of restructuring its engineering companies into two principal brands: Wood Group Kenny including JP Kenny, WGIM, MCS, MSI and Sgurr. These five names will be rebranded as Wood Group Kenny. The second group, Wood Group Mustang will comprise Mustang, Alliance and some other engineering companies owned by Wood Group in South America.

Wood Group Indonesia was set up in Indonesia in 2002 as a group rather than by establishing subsidiary companies as individual legal entities. This umbrella structure was designed to allow other Wood Group engineering companies to quickly establish themselves under the Wood Group legal entity without start-up delays. The primary business functioning under Wood Group in Indonesia is Wood Group Kenny (WGK). Under this brand the businesses J P Kenny and Wood Group Integrity Management (WGIM) have a signicant presence comprising over 100 people. However, there is definitely a market for other members of Wood Group Kenny and Wood Group Mustang to enter Indonesia. The Wood Group companies operate in the more niche areas of the engineering business and offer value-added engineering. Mustang and J P Kenny already have strong brand awareness among many of the international operators. Indeed, because J P Kenny has been operating since 1977 where it started in the North Sea its brand has grown significantly. This is why these two names have been preserved in the restructuring and rebranding.

The Wood Group Indonesia infrastructure and corporate level is set up so that we can assist all of our engineering companies to bid for work here: administration, contracts, proposals, project services, HSE and so on can all be shared. On a personal level, I was responsible for the growth of JP Kenny and WGIM to some extent, but with this reorganization, my role as President Director will also now include assisting other Wood Group engineering companies to do more business in Indonesia.

How can JP Kenny’s success in Indonesia serve as an example to the other Wood Group engineering companies looking to establish here?

It was very important when establishing our operation back in 2003 to already have a strong brand among the international operators. These operators have a strong presence in Indonesia as a result of the PSC model pioneered by Indonesia back in the 1960s. As such, Wood Group has benefited in Indonesia from worldwide client relationships with companies like BP – probably our strongest partnership globally – Total, ExxonMobil, Hess, Chevron, ConoPhillips and so on. J P Kenny builds on these relationships through its 15 offices located around the world, which provide numerous points of contact with the same international operator. In Indonesia, JP Kenny has grown from 2-3 people in 2003 to over 100 staff in less than a decade.

The organization is moderate in size and we are not a large facilities type company. Wood Group Kenny has 2,400 people across the entire globe, when Wood Group has over 38,000 people with 8,000 in the engineering stream. However, in terms of our client-base, the company has grown quickly in Indonesia with the strong demand for specialized oil and gas engineering, including subsea and pipelines. Other companies in Indonesia will have the majority of their staff engaged in facilities related engineering, but in terms of specialist materials, subsea and pipelines Wood Group Kenny is by far the largest specialised oil and gas engineering company in Indonesia. Around 90% of Wood Group’s employees here are Indonesian graduates from the best universities in Indonesia. We source our engineers from the most respected universities in the country including the Bandung Institute of Technology (ITB), the Surabaya Institute of Technology (ITS), and the University of Indonesia (UI). In addition, we offer a strong training program for our people both internally in Indonesia and internationally whereby we encourage our staff to experience working overseas. This is reciprocal with Wood Group Kenny offices around the world with their staff also coming to Indonesia, offering their experience and in return learning how to work in Indonesia. Therefore the two pillars of our success in Indonesia over the decade have been very strong brand recognition and a retinue of talented people working for the company: our intellectual property.

Local engineering companies are looking to get more involved in higher-value chain elements of engineering such as FEED and conceptual design. How do you see the competitive landscape unfurling over the coming years?

Although this is no doubt the direction of local engineering companies, the main competition in the near future when looking at the high-end niche engineering fields will still come from established international players. On the whole, Indonesian engineering companies are more suited to EPC contracts, facilities and detail engineering because there is more availability for work and it is dependent on a lower cost model. Wood Group Kenny recruits the top graduates from prestigious universities but it is generally harder to find Indonesians with the high-end skills required to break into high-tech engineering. When such engineers are available, they are typically working for an international company, an operator or have taken their talents abroad. It is primarily for a human resources reason that international engineering companies with the bredth and depth in resources will continue to dominate the Indonesian market for high-end engineering.

How is the policy of national empowerment shaping the engineering landscape?

It is true that one element altering the playing field relates to local content regulation. Since your last visit to Indonesia, 4-5 years ago we have seen the implementation of PTK 007 which pushes local content requirements all the way through the procurement chain. The same is true for operators, who are pushed to employ Indonesians in senior positions at high cost as it is often hard to entice them back from the UK or Houston. As with most regulations, the intent is good. Increasing local content, improving the technical competency of Indonesian companies is what this country should be striving towards. However, in reality there are plenty of grey areas within the regulation and scope for subjectivity in its implementation. However, for Wood Group in particular, local content did not present a challenge in growing the business here. We soon recognised when we first arrived that it was impossible to simply implant foreigners into this industry and expect results. The social, cultural and linguistic barriers and mismatching ways of doing things would create problems. The only realistic solution has been to employ Indonesians and train them up. This fits with our global strategy of transferring management to the indigenous population. Certainly, I do not see myself running Wood Group Indonesia 5-10 years down the line and although we have a largely Indonesian management team, I am looking forward to the day when I can pass this organization on to a complete Indonesian management team.

What is the key challenge for your operation?

The key challenge for Wood Group relates to another element of procurement. We have to convince the country that there are flaws in the procurement rules whereby companies which can add great value to projects are not given credit for that value creation. In the Indonesian tendering process, for the majority of bids it is simply a case of bidding on the lowest price provided that the proposal is technically acceptable. This means that if the pass mark is 70 it does not matter if you score 71 or 99, it is just a case of choosing the lowest price. In our case, J P Kenny has undertaken so many projects around the world that it has the expertise and technical superiority to design and engineer the best value added projects, but this is not recognised in the tendering process. This is what makes it difficult to compete against domestic companies. Of course, track record is very important and we have many repeat customers. There are special circumstances where clients come to us under a direct appointment, but this condition is under exceptional circumstances.

Which of your projects would you say established J P Kenny’s track record here?

The breakthrough project for J P Kenny Indonesia was BP Tangguh. It was a project which involved J P Kenny in Perth and it was the project that convinced the company that Indonesia was a worthwhile market for the company. Subsequent to this, Wood Group set up in Indonesia. I was in fact working on the other side of the fence for BP Indonesia at the time.

What do you see as the opportunity for the company in 2012 and beyond?

Wood Group Indonesia has seen the expansion of the oil and gas industry as a whole from engineering studies through to EPC and detailed design support. The construction industry is growing and the trend had already begun at the end of last year. Wood Group Kenny is engaged in detailed design in support of EPC contractors in the country. This business will continue to grow over the next two years. The other area in which to expand for Wood Group is in the niche engineering areas in deepwater. This market was kick started by Chevron with Gendalo Gehem, but there are other deepwater developments coming up including Inpex’s Abadi Field, ENI Jangkrik and Terang SirasunOf course, growth is not just in Indonesia but across the region. For example J P Kenny was recently awarded the Greater Sunrise deepwater pipeline project by the government of East Timor. For this project we are collaborating with J P Kenny London and having all these offices around the world adds to the strength of our offering. Wood Group uses its sister companies to overcome resourcing issues. We are currently carrying out a project in Turkmenistan where the client, an EPC contractor, is stationed in Dubai so we are working with our sister organization in Abu Dhabi. We also work closely with J P Kenny Kuala Lumpur, Perth and Melbourne. A significant portion of our sales are from the South East Asia regional and it shows that Indonesia can act as a centre of engineering excellence for other regions and that Indonesians have the talent to work on high-end projects around the region.

What is your ambition for the next 5 years?

I would like the Indonesian office to have a strong Indonesian foundation so that Wood Group sister companies can come and do business here. I would like to see Wood Group Kenny regarded as the contractor of choice for niche deepwater subsea developments. Moreover the Wood Group Indonesia office should become a strong regional player and we will concentrate on growing this side of the business.

What would be your final message?

Indonesia is a friendly and welcoming country. There are still many things to be fixed by the government but there is a lot of potential. It is after all one of the fastest economic growing countries in the region and it won’t be long till Indonesia is regarded as a ‘developed’ nation.

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