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Interview

with Klaas Wester, President & CEO, Fugro

12.01.2010 / Energyboardroom

When we talk about the Dutch Service Providers sector, we refer in many ways to Fugro – by far the biggest Dutch player and widely known throughout the world by its geotechnical lead and expertise. Where in its development curve did Fugro start to differentiate from its other local counterparts and, briefly, how did the company manage to become Netherland’s number one player?

The differentiation started right back from the beginning of Fugro’s history in the late 1960s when the first gas fields were found in the Netherlands. At the time many pipeline routes needed to be laid and Fugro was very successful in its geotechnical investigations as well as survey investigations to clients such as NAM and Gasunie.

During the early 1970s the North Sea started to develop rapidly and Fugro established a number of contacts with the Oil and Gas industry in the Netherlands both for the land base distribution network and for the growing offshore industry. Therefore, when the first companies decided to go offshore – since they also needed geotechnical and survey activities for platforms and pipelines at sea – Fugro instantly became their trusted partner of choice thanks to our expertise already developed on the onshore front.

From then on, Fugro went increasingly international and has been able to maintain its technical lead in a growing number of areas to this day. This is based upon the success of the in-house technological development as we accumulated experience over time. Now the new technical frontier is in deepwater activities, where we have to adapt the same technologies once developed for onshore studies.

Nowadays, Fugro provides the Oil and Gas industry with all the relevant data needed to find oil and gas and to make the suitable structures to extract it. Even though we are not a drilling company, we give all the support needed to develop new fields. This also means that a big part of our client base is made of big and small oil companies – the first thing they need is data on the locations before they can decide what type of design or what structure they want to build. Obviously, they have no contractor or designer at that time so they engage with Fugro at a very early stage. Transferring the experience Fugro has on a global scale creates a platform that we can continuously expand.

More specifically, how has Fugro guaranteed its continued growth over the years and reached revenues of more than EUR 2 billion in 2009?

Fugro has considerably expanded its range of services to escape from market volatilities and to spread risk. We have adopted a strategy to develop complementary agency services over the years and that’s where most of our growth has come from.

For instance, in the last two to three years Fugro has invested considerably in ROV activities because more and more installations will be put on the seabed in deepwater rather than on the platforms – which requires challenging new operational technologies. Fugro’s experience of working in those places has brought this growing market to the company and spread our name and success worldwide.

A substantial part of the services is now concentrated on the exploration phase – mainly seismic studies. Fugro’s data is focused on finding oil, hence 20% of our activities are done for exploration works. Another growing niche – with great potential in the North Sea – has been the abandonment of fields, in which Furgo plays a prominent role.

Since almost everything needs measurements knowledge, Fugro has a quite broad array of specialist services that it can provide to the Oil and Gas industry. The fact that the company has constantly expanded its activities and worked hard to be the leader and frontrunner in an increasingly number of areas explains Fugro’s international success.

When the Oil and Gas Financial Journal interviewed Mr Edward Heerema, he explained us how being part of a private company allowed Allseas to make important long term investments – such as the world’s biggest platform installation/ decommissioning and pipelay vessel Pieter Schelte – something that other companies couldn’t afford. As the CEO of Fugro, how do you balance the need to satisfy the short-term demands of your shareholders with the necessary long-term investments of the business?

I believe that a balanced approach is the most sustainable of all. In the short-term, you have to take into account that certain actions may have an impact. But my experience is that by clearly explaining your long-term vision to investors, they will also understand that the long-term approach should be the norm, which has been the case of Fugro for more than 30 years. The secret is to run the company with the long-term view while creating constant growth.

Having said that, it is important to remark that it is also good to have some pressure from the outside. This avoids responsible companies engaging in overly risky investments at the expense of its shareholders. Hence there is a balancing act, but clearly the long-term approach should be the norm for each relevant decision of the company and Fugro’s shareholders completely agree with that.

Fugro is a purely international corporation where its home market represents very little of its revenues and sales – less than 5%. Hence, in terms of geographic growth and new markets, what are the most promising areas for the expansion of the company?

In general, there is a growing trend towards deepwater, an area where Fugro has a leading technology and has been extremely successful. This leads us to frontier areas such as the Chukchi Sea in the north of Alaska. These are typically challenging circumstances in which Fugro’s knowledge and capable people give the company a significant competitive edge.

For instance, in 2010 we have to deliver a big seismic study for Statoil’s important exploration works before the summer – with a relatively short weather window to do it in. Hence we need a high capacity vessel that can do a lot of work in the short-term and it has to be “ice class”, since not every vessel is allowed to go there. All these combinations of special technical features make Fugro the leading player in new frontier areas.

In our previous reports of Aberdeen and Norway, we have witnessed a number of prominent local service providers that manage to compete hand in hand with international players like Fugro. As such an international player, how do you manage to beat the competition of players who have a wider experience and edge in their local markets?

Fugro’s success is mainly driven by the special technology developed in-house. Besides, by being a neutral player we service all oil companies and all contractors, not competing with our clients in any way.

If you look at Fugro as an international structure, you will see that we are extremely decentralized. The operations we carry out in every country are based upon having a local presence. For instance, we currently have 900 people in Brazil, and aside from a handful of engineers from other countries they are all locals. In the same way, we have around 300 people in Nigeria.

National companies have become a much more important group of clients and they have rightly placed emphasis on developing the expertise locally – thus service providers need a local presence. Fugro’s structure has always been like that so we have no problem fulfilling the requirements for local content since we have always trained our local staff in their countries, sharing the expertise that we have on a global scale with them and guaranteeing that the technology we use worldwide stays the same. If I have an operator specialized in a certain tool we can send him to the Far East and he can operate the same equipment because it is our own specially developed standardized tool. This also gives Fugro the flexibility to move around from project to project.

This is certainly in line with the development and requirements of big national companies. If you look at our top ten clients three or four are national oil companies such as Petrobras and Pemex. They are a very important client base not only for their size, but also for their long-term view and stable partnerships.

With such a diversified and international structure, what’s the current role of the Dutch operations compared to the rest of the group – do the Dutch operations still serve as an expertise hub for Fugro’s international activities?

The expertise is developed throughout the company and all the resources we have available internationally are used for that. Nevertheless, we have quite relevant research activities in the Netherlands, especially in certain areas such as cone penetration testing, using a tool with which you penetrate the soil to measure its strength, typically something that was developed by Fugro Netherlands a long time ago. All our global tools used for this matter are still developed and manufactured in the Netherlands.

There are other important technologies that were developed in other development centers – in Houston and Norway, for instance. The centers of expertise are concentrated in the areas where specific technologies are mostly needed. For instance, the exploration of seismic marine is made mainly in Norway because the country is a breeding-ground for this kind of technology.

Besides, in the Netherlands Fugro has its corporate head office where we look after the global strategy. From here we coordinate, facilitate and put people together, with different directors for each business line. Even though they operate from here, they have a very direct contact with our operations on a daily basis, thanks to our very flat structure with nothing in between the corporate office and local operations.

The acquisition of other players has been a constant in the internationalization of Fugro. For instance, you recently acquired Submec in Australia, a very small company of only ten employees. What’s the strategy behind these acquisitions, especially in the cases when they represent so little in terms of size compared to Fugro?

These companies are normally successful local players that managed to develop interesting technologies but are unable to roll them out to international clients due to their limited size, thus their acquisition creates new opportunities for us both.

One of the main criteria for these acquisitions is that Fugro wants that the acquired companies maintain their key management. Indeed, if you look at Fugro’s executive team around half of them are people who joined us through an acquisition.

These acquisitions create win-win situations since certain technology companies can’t keep on growing because they lack the capability either financially or because they don’t have the necessary international networks to expand. The combination of their new technologies and Fugro’s capacities creates an interesting win-win situation for both parties.

Fugro is perceived by many in the industry as one of the best places to work. But how is it responding to the general struggle to find talented young professionals in developed markets which are increasingly lacking in young talent?

The challenge is real, but Fugro has been able to overcome it by providing its employees with a number of internal training programs. We have a system where twice a year we gather the people for three or four days to discuss strategies within the business lines, which creates a lot of contacts between the people leading the different activities we do.

Creating these opportunities and giving the people the chance to share knowledge makes the difference – it gives our people the feeling of being associated with the company. Fugro is currently training around 4,000 of our 13,500 employees on various internal courses, which clearly shows our commitment to our people and their greater knowledge and expertise.

Fugro also has the advantage to work with standardized technologies. Thus, we can recruit people from different places and they get the same training and mix their different knowledge and background.

As the number one player in the Dutch Oil and Gas service providers industry and an international leader in a number of seismic, geotechnical and survey niches, what are your main ambitions for Fugro in the coming years?

Fugro will continue to focus on the technical development in order to maintain the leading position or to reach it in the cases that we are not there yet. The company will continue to widen the range of services we offer with new technologies that we have developed for the oil and gas industry. Besides, Fugro can expand to other industries such as wind energy – where we are already involved with offshore wind farms.

We have also launched a new vessel specialized in exploration surveys for gas hydrates, a promising energy source for the future – very complex to explore but with a huge energy potential, as some studies have shown that its potential on a global scale is equal to gas. Those are the areas in which Fugro wants to be at the forefront.

By extending the services and technologies that we have in areas such as deepwater and advancing in new fields with the hard-earned expertise that we have built will certainly bring Fugro golden opportunities over the coming years.

What will be your final message to the readers of Oil and Gas Financial Journal about Fugro’s role as the Dutch flagship service provider?

Fugro may have Dutch headquarters but it is a truly international organization; it serves its clients all over the world, and due to its staff’s local knowledge and expertise we can always take into consideration the local circumstances and requirements for successful cost efficient operations. This is one of our main strengths.

On the one hand we are able to develop and share all this expertise and on the other we can provide the local emphasis which is necessary in many cases to make these projects successful. Our past successes are indicative of the fact that Fugro is an excellent company to deliver this using our ‘state-of-the-art’ technology.

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