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Interview

with Mel Fitzgerald, CEO, Subsea 7

18.09.2008 / Energyboardroom

Subsea 7’s roots go far back: the company has gone through different phases of development and today is one of the leading global players in the subsea industry. How has Aberdeen been tied to Subsea 7’s success story?

Subsea 7’s roots are a combination of UK, American and Norwegian cultures. The company came about as a result of a merger between Halliburton Subsea and Norwegian company DSND. Halliburton Subsea was an American business that was very successful in developing Subsea technology. DSND was one of the oldest Norwegian shipping companies which believed in vessels and was keen on investing further in the Subsea sector.
While I was heading the Subsea business for Halliburton I met with Kristian Siem, a charismatic entrepreneur and the owner of DSND. Kristian quite rightly saw the opportunities in the Subsea sector but he also recognised that DSND did not have the right engineering and project management expertise required to develop the business at the time.
I explained to him that together we could turn Halliburton Subsea and DSND into a top-class Subsea engineering and construction company, and that vision was effectively put in place in 2002. I remained in Halliburton looking after their Energy Services business in Europe, being a director of Subsea 7 at the same time.
The first couple of years for the newly created company were very difficult, especially in bringing two cultures together and coping with the market, which was not that great, but the long term opportunity and vision for Subsea 7 was still sound.
Then, in July 2004, I decided to leave Halliburton and take up the role of CEO at Subsea 7. I knew that with its strong board and the chairman being really committed to developing the company, Subsea 7 still had the potential to become one of the leading global players in its field.
The whole experience for me has been very positive right from the start. From the day the Board demonstrated its long term vision and commitment to growing the company by approving expenditure of $200m on the rigid reeled pipelay vessel, the Seven Oceans, even though the company was not generating positive returns, it has been a hugely exciting time.
The Seven Oceans was delivered in the summer of 2007, less than two years after the decision to invest in it. By 2010 the company will have added a total of 11 new vessels to the fleet bringing the core fleet to over 22; this demonstrates tremendous endorsement by the Board in the longer term opportunity for the company.
The vision behind the creation of the company was to become a niche player in the subsea business. In this regard the North Sea and the UKCS in particular were an ideal starting point, with the existing infrastructure and 25 billion barrels of oil still available, much of which through Subsea tie-backs. However, the initial plan was also to expand into other geographic areas and in particular the emerging deep water oil basins of Brazil, Africa and Gulf of Mexico. Subsea 7 has been successful in its strategy of using Aberdeen as a hub of expertise and capability to help expand abroad. The biggest risk was probably the development of the African activities; but every single project in this area has been successful and resulted in a turnover growth from $80 million in 2004 to over $500 million in 2007. There has been a significant investment in Angola, with the commitment to develop local people and employ Angolan welders on our pipeline spoolbase and fabrication operations in Luanda. Subsea 7’s expertise has been brought to them and we are very proud to see that now, the performance and quality of these welders is equal to any welders here in the UK, in Brazil or in any other region globally.
Subsea 7’s philosophy is to be a global organisation but play regionally, developing indigenous businesses and getting local people to manage the business – and in this regard, the UK is the export hub, where expertise is developed, and where the specialist training is supported from. We bring engineers to Aberdeen to train them in the various skills required to work in our industry. Once they have developed enough experience, the intention is for them to go back to their countries and give them the opportunity to become the future leaders of the company in places like Nigeria and Angola. Brazil is another good example of that philosophy. We have built DNSD’s original Brazilian activities from 200 people to about 1000 people today, 98 % of today’s workforce being Brazilian and the Region is headed by a Brazilian.
Therefore, when Subsea 7 creates value in a country, we also give this value back by helping its people to develop through training and education.

The company’s initial regional focus was in the North Sea. How much does this area represent today for Subsea 7?

The North Sea is a very significant part of Subsea 7’s business; it used to represent almost 90% at the beginning and still accounts for over 1/3 of our activities.
As I have already said there is no doubt that the North Sea is an export hub to develop expertise to help expansion in other regions. When an operator is investing over $1.5 billion in a major project with us in Africa, experienced engineering and project management skills are key elements required to be able to deliver such projects successfully. Currently such resources are very hard to source locally. Therefore, there is a need to rely on the expertise that we have developed in the UK, being able to export it and use it to manage the initial projects while at the same time taking the time to train the local people. As we develop that local expertise who knows they may become exporters in their own right.
Looking specifically at Subsea 7’s background in the UK, I would like to highlight the work the company has been doing West of Shetland with BP over the last 15 years. In order to place very small structures in very precise spots, up to 500 metres deep, it was necessary to develop new specific robotics and tools. Most of this deep water technology has been developed by Subsea 7 in the Aberdeen office which has then been successfully exported into deep water bases around the world, to water depths up to 3,000 metres.
It is also in the UK that Subsea 7 has developed its expertise and first class reputation for leadership in safety performance. We have taken this expertise to all corners of the world and we will continue to do so, working with our clients and partners, building on our collective track record as we go.

How are you faring at a time of skill shortages affecting all parts of the value chain in the global oil and gas industry?

As a result of the growth in the market and our own development, the workforce has grown a lot in recent years, with around 5,500 people now working for Subsea 7 compared to 2,500 three years ago.
The pressure this has placed on retaining existing people and getting the right new resources into the organisation has been a major issue not just for Subsea 7 but for the industry generally. However we recognised that having the right people and teamwork in place was one of the key strategic areas that would enable us to grow to become the Subsea Partner of Choice. We have put a lot of additional effort in to the development of our people in the last three years; the company spends about $2-$3 million a year on training courses covering a wide spectrum of activities.
Everybody talks about the lack of experienced project managers and engineers in the business and how difficult it is to hold on to them. To our credit only a few people have decided to move on, as inevitably some companies that found themselves short of Subsea engineers tried to attract new ones through salary inducements. But at the end of day, it isn’t all about money, it is also about the job people do and their enjoyment about the value they can bring. That is why we have managed to hold on to our people, by making them feel a part of something very exciting and offering them the opportunity to develop their careers globally.
There has always been an important need to recruit young and bright graduates – but the company also needs engineers with 10-15 years experience. So we looked at companies from other industry sectors and have created unique conversion courses, giving them the skills they need to be able to work in the Subsea sector. The whole process has proved to be a huge success. The engineers are very enthusiastic about joining a company that gives them an opportunity to add value and to work globally, and they are fully dedicated to Subsea 7.
Regarding the young graduates, we support them through their four year academic training to get their certifications as chartered engineers. Some of them leave after only two years of training to other companies offering a better salary; but the problem in this case is that they are then only able to focus on the little bit of knowledge they acquired over those two years and when the downturn comes – like it does in every business – they won’t have as much to offer and won’t be able to support the lifestiles they get themselves used to. So my advice to young engineers, who, like in Subsea 7 are getting more responsibilities earlier than they would normally do, because of the skills shortage, would be to pick up all the learning they can: of course they will make mistakes at the beginning of their careers, but the most important thing is to learn from those mistakes.
The same problem applies to the offshore staff. Our core fleet will soon reach 22 vessels, and as the amount of marine vessels throughout the globe is currently growing, there is going to be a huge shortage of marine offshore people. Once again Subsea 7 has been very fortunate in this regard: with the expansion of the fleet, the company has been able to give opportunities to most of our marine crew to rise into more senior positions, including superintendent and captain. As the new vessels join our fleet, they already have an assigned staff working on building them onshore, that will then keep working with the same vessels when they are ready to go offshore. This process creates an exciting bond and allows us to hold on to our people and their expertise.
Interdependence is another important point about the company: even though our operations cover a wide range of locations such as the North Sea, Brazil, Africa, Far East and the Gulf of Mexico, the company works as a team and everybody depends on each other. When you have a fleet of vessels that travel between continents, it is essential that all parts of the global organisation work together so that we can meet the commitments made to all our clients.

What do you think Subsea 7 stands for in today’s worldwide oil and gas industry, and where is there further room for improvement in terms of the company’s image and recognition?

Subsea 7 has been very focused on its initial vision of being a top-class niche Subsea player and becoming the Subsea Partner of Choice. The income generated from all the good performance over the last four years, in excess of $1 billion, has been reinvested into the company; no dividends have gone to the shareholders and I think they appreciate that by allowing the company to grow it will become the partner of choice for this industry, creating long term value in the process for all its shareholders.
The feedback from our clients all over the world is great: none of the National Oil Companies and major international companies would be reluctant to give any project to Subsea 7, mainly because we continue to deliver and the company is very particular about safety and people’s protection. All the workforce has easy access to the management team and I don’t see myself being any different to anybody else in the company, as I believe that everybody has got a role to play in order for the company to be successful. There has been a huge investment in people and a lot of communication with the teams about the company’s ambitions and the part they play, as well as giving them great opportunities to develop and to travel around the world.
Subsea 7 has changed a lot in four years and it is getting closer to where we want to be, but the company still has work to do if it is to become the Subsea Partner of Choice. It is through our relentless pursuit and focus on efficiencies and continuous improvement that we will get there. In this context, a few specific initiatives have been developed to ensure that the processes, systems and standards we use reflect best practice globally in order to help us to continue expanding, and provide the framework that holds the company together.
One such initiative is an upgrade to our Information Management System (IMS). The new IMS is aimed at making the company more efficient as an organisation by improving access to information and providing an enhanced working environment to help with improving collaboration between projects and support functions across the company. The new IMS will allow us to capture the knowledge from our operations around the globe and to make sure that the lessons learned in one region or discipline are taken advantage of in another. As an example, if engineers can avoid losing time reinventing the wheel or put another way if 800 engineers can improve their productivity by 10 – 20%, they have the potential to be as productive as 80-160 extra skilled engineers.
But in order to share knowledge successfully, it is necessary to recognise local requirements and cultures and work together to achieve a stronger whole. We firmly believe our success as a global organisation will only be achieved if we develop strong indigenous businesses in all the regions we operate, while at the same time we are trying to enhance the regional working practices with global best practice and standards.
To facilitate this we have just completed the first phase of a major refresh of our Business Management System. This will help to ensure that a new engineer working in the company will be able to get the right information about all the processes and procedures that he or she needs to become familiar with in order to do his or her job; whether they be in Brazil for one job and Africa for the next, and that these processes and procedures are consistent globally.
Another major initiative has been to build strong relationships with the critical supplier networks. We rely on companies providing services and products such as pipes, valves and coatings in order to be able to deliver on time for the clients. Therefore the supplier relationship is as equally important as any part of the chain. Subsea 7 is conscious of the need to work closely with the senior management of these companies, to make sure that when there are problems we can work together through these and still be able to deliver on time. Subsea 7 delivers a number of major services and Engineering products, whether it is pipe welding, engineering or design. We have created 13 Centres of Excellence (CoE’s) covering various individual product areas or expertise. In each of these there are one or two key people that own the centre of knowledge, and anybody in our company that has a query or needs support can go to these people for help, during the design or installation phase of a project. Like all our managers and engineers these CoE Leads are just as equally important; we rely on all of them for our success.
A major difficulty in implementing these initiatives is to manage change without disrupting the business: shareholders expect returns each quarter, so everything cannot just stop for change. I learned through experience that it is all about staying focussed, especially when the company is successful, and people are stretched. In order to remain successful, even when the market is weaker and times get tough, with the right systems, standards and processes in place, this can help drive efficiency while at the same time allow scope for innovation.

How do you see the future of Aberdeen as a centre of excellence for the subsea oil and gas industry?

I personally find that it has been a great opportunity to be able to select the industry I wanted to be in, to invest in it three or four years ago and to know that this industry is going to keep going forward: there is huge growth potential in the global Subsea business and for the UK to be a major part of that growth.
We have been here when the oil prices were down to $10 a barrel, and looking at the current financial volatility it is difficult to forecast in the short term, but longer term I cannot see the barrel price getting much below $60 – there will always be a need for oil and gas. There are concerns about increased taxing of the oil and gas industry. I believe the Government in the UK is slowly coming around to the view that this would be the wrong thing to do. A major reason for global investors to be interested in the North Sea is the political stability, but they won’t invest if they are concerned about the fiscal stability, and feel they cannot rely on the tax regime. So everybody has got to work together if we want to get that extra 25 billion barrels out of the North Sea, and the supply chain has got a huge part to play in this process.
In this regard, the creation of Oil & Gas UK has been a major milestone. The large and small operators are now working together with the service companies towards one common goal: to ensure stability here in the North Sea. There is no reason for the government to leave the country’s valuable assets in the ground – even if it might generate a 5% or 10% extra tax on the short term, it is important to have a long term vision and stimulate investment through fiscal stability.

How much potential is there for increasing business with the new breed of independents taking over assets and optimizing production in the UKCS?

Working in partnership with the new entrants provides Subsea 7 with huge opportunities.
A good example of such a partnership is the work that we started three or four years ago with Venture Production Plc. This company was having problems facing the high demand for the service industry and they needed to have security of supply. Their CEO chose Subsea 7 to be its Subsea Partner of Choice, from among many different companies, and made a commitment that if we provided the right services and brought value to Venture then Venture would make sure that we would get the highest returns back. Both companies now work together as an integrated team and the result has been fantastic: each one has benefited from this relationship, brought value to the other one and delivered on promises.
I would like to see more of that risk and reward system in the industry. Subsea 7 truly believes in its people and its operations and is prepared to offer something back if it does not deliver – but if it does deliver the company deserves to get part of the added value it created, as it does with the Venture partnership.
This is a high risk business and a lot of things can go wrong when there are 22 vessels working offshore 24 / 7. Because everyday is a challenge, it is necessary to get security for the operations and confidence in the company’s ability in meeting the deadlines, and therefore to build efficiency to become more competitive and bring more value. I believe that if we get Subsea 7 to where we want to bring it, and deliver first time every time, then even more clients will be confident in their ability to work with us as their Subsea Partner of Choice and get their first oil on a given date, which is a huge value to them. But as a result of the benefit we bring I want to get part of the value we have created back through higher returns.

Which recent projects would you highlight as an example of the scope of work that Subsea 7 is ideally placed to carry out for today’s demanding oil and gas industry?

All of the major projects are challenging, but the BP Block 31 programme is a great flagship award for Subsea 7; the first job itself is worth $450 million and there are potentially three other projects on the back of that in the frame agreement. It is exactly the type of job I want for the company, because returns depend on productivity and value creation. Subsea 7 does a lot of work for BP around the globe and they are a key client.
Subsea 7 also works a lot with Shell in the UK and Brazil. Both our new flagship pipelay vessels, the Seven Oceans and the Seven Seas, which was just commissioned in the summer, have just commenced operations on BC-10 in Brazil.
In the UK, the Inspection, Repair and Maintenance (IRM) side of the business has continued to grow, as all of the major production hubs also have to be maintained – and it takes a lot of engineering expertise and Subsea technologies to maintain an infrastructure that is up to 500 metres deep. As the North Sea is getting more and more mature we do a huge amount of repair and maintenance, and I see no reason why this part of our business is not going to expand globally. For example, BP just awarded Subsea 7 with a “Life of Field” IRM contract in Angola, and more and more of that should happen in the future.

Which markets do you consider offer the most potential for Subsea 7 Operations to grow overseas towards the future?

Subsea 7 is looking to develop in all the high-value deep water basins globally. In this specialist market the barriers to entry are higher because of the need to have the right resources: not only vessels, but also people who know how to run these vessels. I would not be able to sleep at night if I did not think that the offshore staff is capable of making decisions in the middle of the night when things are not going to plan. Some people might think that they can easily get into the offshore business with a vessel, but they don’t realize the need to have experienced offshore people coupled with project management, engineering and supply chain expertise with a track record of safety performance and proven execution.
There is huge potential in Asia Pacific, with Subsea 7’s particular focus on the deep water side of the business. We already had some activities in Asia Pacific but it is such a huge geographical area that the company could not afford to have all of its fleet over there and had to be selective about which projects it took on. That is why in 2006 an incorporated joint venture was formed in the region with Technip in order to put resources together and operate there more efficiently. There is sizeable operation already in place in Perth, Australia, but due to the need to cover the whole region the plan is now to open a main office in Kuala Lumpur and maintain our office in Singapore.
The business is also expanding to the Gulf of Mexico. Subsea 7 has just invested in a new spoolbase in Port Isabel, very close to the Mexican border, that will be commissioned in Q2 2009 and enable us to work in the Mexican deep waters as we see it as a large potential growth area.

What are the main challenges and opportunities you see for the Subsea 7 over the next five years in the UK and global arenas?

I expect Subsea 7 to continue holding its market share in the North Sea, and Norway and the UK to be very strong markets. There is no doubt that thanks to the initiatives of Oil & Gas UK and its relationship with the government, we will manage to extract the last drop out of the North Sea: I think it is of everybody’s interest and this prospective gives a long term future here for Subsea 7 and its people. That is why Subsea 7 has invested in new premises in Aberdeen for 1100 people, and is currently building a new office in Stavanger to house 700 people.
It can improve its market share in the Gulf of Mexico; there is also still a lot to do in Asia Pacific and in Africa.
The company won’t expand to other geographical regions until it is ready to do so. There are growth opportunities out there but we have to be patient and wait until we have the right resources available and in place.
I see nothing but excitement and I see some great opportunities for our people. Having the vision of being the Subsea Partner of Choice, Subsea 7 really wants to be a leader in safety and let people know that they will be looked after. A lot of work is also done on improving the communication between the offshore and the onshore people, which is a key to making them feel a part of the company.

Final message from Mel Fitzgerald, CEO of Subsea 7, to Oil & Gas Financial Journal’s readers.

A company can have all the tools and all the equipment, but success is about engaging people and making them feel part of something great. If you can do that, you can do anything.
I could not do my job without the people and teamwork. I recognize that everybody is important and I honestly believe that everyone at Subsea 7 does not work for me, but with me.

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