with Satpal Singh, Managing Director and CEO, DOLPHIN OFFSHORE ENTERPRISES INDIA LTD.
Dolphin Offshore Enterprises Limited was created by your father, a war veteran with a distinguished record in the Indian Navy. You joined one year after the establishment of the company, in 1980, and you had a chance to see the evolution of the Indian offshore industry since its inception. Could you start by giving to our readers an overview of what you identify as the key milestones of the development of the Indian offshore industry?
In 1979, when the company started, the Bombay High field development was in its infancy. There were handful of rigs operating in India. At that time one of the drill barges, Gettysburg owned by M/s. Atwood Oceanic was hired by ONGC for a period of two years and it was on this rig that we commenced our operations. In addition to the drill barge Gettysburg, ONGC had its own jack up rig Sagar Samrat, The extent of operations was very small as compared to recent times. All the services were being provided by International companies. There was no indigenous expertise in most of the services, including the supply vessels, the rigs, or diving services. There was some support for helicopters services, but it was more Air Force driven.
The Oil and Gas (O&G) discovery in Bombay High took the country by surprise. There was no expectation that India had offshore oil resources. We had historic findings in Assam and Gujarat, which had been found during the days of the British presence in India. The entire production of oil – hardly any gas was restricted to that source. There was no development of O&G technology; there was no trading institution over here, although after a period of time, ONGC started to develop certain institutions.
The growth and development of the Bombay High field provided tremendous opportunities for Indian Companies to start new ventures and over the next 2 decades the country grew towards self reliance in being able to meet the requirements of the Oil & Gas industry.
Talking about Dolphin Offshore Enterprises, the company today is very diversified, but when your father started it was focusing exclusively on ship repair. How did the company evolved into the diversified entity that is today?
After his retirement from the Navy in 1977 at the age of 51, my father decided to start a new career in partnership with two other retired Naval officers and one businessman. They started a ship repair business in Mumbai. Unfortunately the shipping industry itself at that time was going through an economic downturn, as a result of which the market for ship repairs became very tight. It therefore became apparent to him that the Company had to look at other viable business models to continue. Following discussions with ONGC he was advised to explore the possibility of entering into the diving and subsea business for oil and gas services so as to develop indigenous capability in deep sea diving. In the absence of local technology it was imperative that he form a technical / joint venture collaboration with an International Company having the requisite expertise and knowhow.
Following a difference of opinion between the partners my father decided to separate and start Dolphin Offshore Enterprises (India) Limited independently. In 1979 he proceeded to Houston to attend the Offshore Technology Conference where he met with Taylor Diving International, a subsidiary of the Halliburton Group. Following these meetings they decided to join hands in pursuing subsea work in India, initially on the basis of technology transfer and later leading into a formation of a joint venture company.
Ultimately the JV was not formed because any JV had to be approved by the government of India; and it took almost six years for us to receive a decision, which was eventually negative.
In a way this negative outcome turned out to be beneficial for us. We ended up in a ten years cooperation agreement with Taylor Diving, with a total transfer of technology; we were able to train all our Indian manpower and build up a track record. For the first four years, we worked as a subcontractor for Taylor Diving. Years after, ONGC qualified us as a diving contractor and we hired the equipment from Taylor, until we finally provided the entire diving team ourselves.
After 10 years the collaboration with Taylor came to an end following their merger with the Wharton William Group and we then entered into an agreement with Oceaneering International.
This company was formed with very little initial capital: 800 dollars. The first year, we generated revenue of close to 1.5 million rupees. Our operating costs were 1.45 million rupees. But two years later we faced a major problem, as ONGC delayed the award of a contract by almost six months. By this time, we had increased the diving workforce from initially 6 people to 16 people. We found ourselves in a situation where we had manpower on our payrolls but no contract from ONGC.
Hence we decided that we had to expand the range of services we were providing. Around that time, ONGC had started talking to existing Indian shipping companies to invest in offshore supply vessels. The Ministry of Service Transport decided that half of ONGC fleet requirement would be Indian, the other half would be chartered from outside. Out of the Indian half, ONGC would invest 50% and the Indian private sector companies would provide the remaining 50%.
By this time we had just started providing some of the marine crew on a few vessels owned and operated by Jackson Marine (another Halliburton group subsidiary) in the Middle East. On the strength of our experience with Jackson Marine, ONGC qualified us as a marine operator. We started by taking delivery of two of ONGC new vessels in Singapore which were operated and managed by us. After 2 years ONGC increased the number of vessels to 3 and then again after a further 2 years to 6 till we became one of the leading Operating and Managing Operators for ONGC.
We diversified our marine division by taking on other marine management contracts, such as contracts for manning and operating barges used for offloading cargos, coastal vessels, harbor tugs. When a shipping company decided to resurrect four of their bulk carriers, we were given the contract to operate three of the vessels: one to America, one to Europe, one to the Far East.
At one stage, we were operating about thirty ships. As one of the concerns for us was the quality of ship repair services available in the city, we decided to create our own flying squad for emergency ship repair, our historical initial area of expertise. That business grew substantially, which is why we decided to create a third division at Dolphin dedicated to that, including both piping work and structural work.
In turn we extended the range of these services to maintain the platforms and replace flow arms and pipelines for ONGC’s offshore platforms and became one of ONGC’s main contractors for flow arm replacement on existing offshore platforms.
We also got a contract from ONGC for manning and operating the Dynamic Positioning Diving Support Vessels (DPDSV) and the geotechnical vessels. We were targeting this market because it brought together both our marine and diving capabilities, as we evolved into an integrated diving company. These contracts were round the clock operations; and they offered us the opportunity to further develop our diving division and train more Indians to meet the growing offshore demand.
We decided that the time had come for us to go public: our IPO was for about Rupees 45 million, each share priced at six times the face value. Based upon our track record and the industry we were in, and the market perception of where the oil and gas industry was heading, the IPO had been successful, as we were oversubscribed 3.8 times. We used the funds that came in for the maintenance and refurbishment of our two saturation diving spreads – 5 or 6 million dollars in market value each.
We have had a varied experience in the industry, considering we also provided geotechnical surveys, barges, geophysical surveys; we had worked in harbors and on oil terminals; we had worked with many international players, almost all the international companies that have been operating in India. Through our association with Taylor Diving, we had already worked in Thailand, Indonesia, Brunei, and Singapore. On our own, we worked in the Middle East, in Iran – long before the sanctions came. We also had an assignment in the Seychelles.
Having by now developed underwater, on water and above water capabilities the time had come for us to go after the big EPC projects. Four years ago we approached the government to ask them to allocate us waterfront lands, so that we could set up a fabrication facility for offshore platforms. Unfortunately, till today, we have not gotten possession of the land.
Over the years, we shifted our focus towards EPC, where we could bring in our fabrication top side experience, our marine and diving expertise. We acquired our first vessel – the Ganga Dolphin – about eleven years ago. It was a utility vessel, primarily used for survey work offshore, that we used for diving pre-engineering services and general support. Since then we have expanded the fleet to comprise of 2 utility vessels, 2 workboats, 6 harbor tugs and 1 AHTS. A DP2 construction barge and 1 workboat will shortly be delivered to us.
You personally supervised the transition from a diving subcontractor to an EPC company. Could you highlight what was the driving force behind this diversification?
By the end of the 1990s we had achieved our objective of becoming an O&M contractor for its DP DSV providing both marine and diving services. In 2001, ONGC came up with tenders for these vessels, but unfortunately we were not awarded the contracts. For us, it was a major setback, because that had been our focus, and these contracts were our main growth drivers.
In the end, we were left with no other option than to shift our focus again. By that time we had done a few small projects as a subcontractor for construction work, where we provided marine spread and diving services. We decided that this had to be the next area of development for Dolphin. We started getting Engineering, Procurement and Construction (EPC) work related to brown field projects. Initially, the work we did was to enhance the capacity of existing well platforms by installing new conductors. ONGC came up with a system to add three wells per platform. In this context we have been doing some fabrication and underwater work for ONGC, initially as a subcontractor, eventually as a partner, and more recently independently.
Dolphin Offshore had a long term partnership with the Halliburton group. What were the main benefits for you of being associated with Halliburton and which have been the best lessons learnt?
Let me clarify that the partnership we had was with Taylor Diving, not Haliiburton itself, which lasted for 10 years.
On a personal level, when I joined Dolphin Offshore in 1980, I was sent to New Orleans, where I did my training as a diver with Taylor Diving. It was more of an orientation course for management in the O&G sector – there was extremely cold water in the canal in which I had to do my practice dives. When I came back I went on a lot of offshore projects to monitor activities and learn more about the different types of services we were providing.
My background is that of an engineer. I qualified as a civil engineer from the Indian Institute of Technology in Bombay, and I was very fortunate that in my batch they started the first elective courses in offshore engineering. My thesis was on the design of offshore oil terminals and Single Point Mooring system. Thanks to the collaboration with Taylor I was able to go offshore on the construction barges, owned by Brown & Root (another Halliburton subsidiary) and it was again more a training exposure for me. Again this is where the benefit is of being associated with a solid group like Halliburton.
We are where we are today because of the support and assistance we have received from our partners, and the time and effort they have taken in grooming us, starting with me. The idea was at that time to form a Joint Venture company, where they would have the major equity holding. Down the line, I would be looking after the operations of this company so I needed to be trained and groomed. It all worked out really good for me.
How much do you think the human capital played a role in Dolphin Offshore success?
Thanks to my father’s knowledge in marine and our recruitment of retired navy officers, our strengths were the caliber of manpower we have been able to bring in the organization. A man can do a lot himself, but an organization only grows on the back of the people who actually make it happen. One of my father’s strength was the ability to gather a group of effective, efficient, creative and independent people around him.
I took over the entire operations of the diving side. I have a cousin who retired from the navy, who took over the marine division. We have pretty much grown to where we are because of the way the company was able to evolve in terms of the range of services due to the manpower that joined our organization.
Two years ago the world was hit by a strong economic downturn. What have been the effects on Dolphin Offshore Enterprises and the Indian industry, and what have been your strategies to recover?
The worldwide economic situation and more particularly the reduction in offshore oil and gas development projects forced international companies to come to India and bid competitively. They started to dump prices to get work in India, just to keep their assets deployed. As a consequence, in the last two years, the rates of construction barges have gone from 455,000 dollars a day to 175,000 dollars a day. It has been very difficult for Indian companies to pick up work.
We have spent substantial sums of money over the years in sending employees overseas to develop the necessary skills and competencies. As a result we were able to achieve our primary objective of making India self reliant in the diving and subsea market. In fact a number of our earlier employees now work overseas with MNCS’s!
Having said that, till then most of the contracts have been awarded to Indian companies because some foreign companies really did not want to have the hassle to work with ONGC. In general international companies have this perception that ONGC is a difficult customer, where the contract terms are very exacting and one sided, and you cannot take exception to these terms, or else you would be disqualified.
Over the last 18 months, all of us have suffered. We have been the second lowest bidder on three contracts of ONGC: but it is all or nothing in this game (in EPC).
We still provide subcontract services, but the kind of growth we had over the previous two years came crashing down in the last financial year. In my view, because of our track record, and the way we have been able to evolve, we are today bidding contracts of magnitude we had not even thought about. We are bidding for five contracts, cumulatively worth 1 billion dollars. It is a question of getting one contract: getting one puts us way ahead of where we were last year.
At the same time, we are looking at different approaches to business. We are looking for an aggressive entry into international markets, and suitable international partners to tie-up with.
Now the company is actively looking to the international markets. What are your future ambitions?
We need now to have a presence in the Middle East. There are certain reasons why we should: in their own backyards, a lot of players in these markets are not wiling to dump prices, because it would affect their long term rates with their main clients. At the same time, the trend in the international markets has suddenly shifted, and Middle East is right now leading the growth. Saudi Arabia will be spending 15 billion dollars over the next four years in enhancing production. Kuwait, Qatar, and Abu Dhabi are spending billions of dollars in development. Some markets should be out of scope for the moment: Iran, Libya, or Egypt, facing political issues.
To make our way into the Middle East, we are in the process of forming a Joint Venture in Saudi Arabia; it is a matter of months before the company is registered. We have already prequalified with Saudi Aramco and with RasGas for two tenders for diving Contracts with vessels over there.
In India you have thirty years of experience, a strong track record; therefore you can position easily yourself as a partner of choice. Abroad, is it a different story?
Everybody knows us in the business. We have credentials from some of the major operators in the Middle East. Aramco came to audit us, our work capabilities, our equipment, our Health, Safety and Environment (HSE) record. Dolphin is a known name also outside the Indian borders. In the entire O&G industry in the Middle East, there is a huge population of middle level or senior management who are Indians, all of whom are aware of us. However, it is not easy for the simple reason that we are entering a market that is already well established, dominated by a few players.
That is not to say that we are turning our back to the Indian market, as it would be foolish. The biggest potential in the near future for Dolphin will come from the EPC contracts in India.
Today, EPC represents 70% of the business. According to Navpreet Singh, CFO, the decrease in revenues for Q4 is mainly due to the lack of EPC contracts coming in during the year. What can be changed to get more contracts and increase your revenues, in order to maintain EPC as the company’s main growth driver?
The important thing is to synergize our resources by sharing contracts with people who have competitive contributions to certain aspects that we lack in our overall contracts. We have the cheapest reliable efficient services as far as our client is concerned, ONGC, but we do lack the heavy lift barges for installation platforms/, pipe lay barges/largest fabrication yard which is why we need to synergize with other players. We tried to gather a group of Indian companies that can work together, bring together resources to build up a more competitive fund. Hitherto, the approach was to take a contract by yourself. Yet this does not work because you can be stuck with prices of assets which are too high. The right approach is to share. Of course, a lot depends on how hungry the other players are and what the perception of market deployment will be.
We are pushing for brown fields and green field projects, looking at revamp of rigs, and even at new areas. For instance, the Gas Authority of India (GAIL) was looking for contractors for its offshore pipeline projects. There is huge business coming up for 6,000 km of onshore pipeline. GAIL asked ONGC to recommend the names of contractors they had who could build pipelines onshore. ONGC recommended two: one was Larsen & Toubro, who already worked with GAIL through the ECC division, the other one was Dolphin. We do not have the track record for onshore pipeline, so again we have to find an international party who has the track record for a consortium.
You mentioned earlier the presence of international competitors in the Indian market. Although the liberalization of the market fostered foreign investment, synonym of more business for you, it means indeed also an increasing competition in your sector of activity. Do you see this rising competition as a challenge or an opportunity?
Leighton was one of the first companies to come onto the EPC market for pipelines. Leighton and Dolphin actually worked together. We were their chosen subcontracts for all the diving work. On one hand, we have been working with them, and some of them are for us substantial clients. On the other hand we are competing with them. The international companies who come to India are the bigger players who look at the EPC contracts. There are global companies who also have a diving division for instance, which have been operating contracts here for 8 to 9 years, use that as a base to fund their office in India and allow them to bid the EPC contracts, and this year they lost a diving contract to us. Therefore I am not so concerned about international companies coming in and competing against us.
In the topside work, we have no international competitor; in diving: competition is limited. It is competition from EPC players that is more difficult to cope with. We have limited control over the high expenditures requirements in EPC. Looking at EPC contracts, the biggest sources of cost are procurement, fabrication, and offshore installations. We do not do these high cost works; we have the other assets. As a consequence, we can control only 20% of the overall contract costs: it does not help in an EPC contract. Even if I were to reduce my cost by 10%, it effectively means it is a 2% advantage in an overall EPC contract. Hence the need to synergize.
Where would you like to take the company in five years from today?
My ambition is that in five years from now, we should be a one billion dollars turnover company. It sounds like a dream but I think it is possible. A lot depends on what will happen in the next year, both with the approaches we have made in the Middle East, and with the new round of EPC contracts ONGC is coming up with. If we pick up even one of these five tenders that we are pursuing on the EPC side, and one in Saudi Arabia, we are set. On the back of those, will com our real growth. The good thing with ONGC is that your financial capability should be 30% of the overall contract value annualized. This year we did Rupees 2700 million; the previous year Rupees 5300 million; In average, about Rupees 3800 million. It means that we can bid a contract of 250 million dollars per year, and there is no limit to the number of contracts we can do. That’s the advantage you have with ONGC in terms of exponential growth.
That is also another reason for us to synergize. It is necessary to tie-up with people who can provide good financial resources as well as the resources that we lack to help provide a competitive edge. Along the way we are going to look at additional resources, as well as looking at potential acquisitions to drive our external growth. There are regions in the world right now which, because of the economic downturn, are not fully using their capabilities. We will examine the possibility of acquiring these companies who have assets to acquire a presence in other markets, to expand our market there, but more importantly to deploy those assets for our Indian requirements.
Who knows, maybe we will go for a merger also?
What investments is Dolphin making to produce long term economic benefits to India and participate in the long term vision of the country?
Dolphin’s role has been and will continue to be as a reliable service provider that the O&G operators can turn to, with strong emphasis on Indian input. I take a lot of pride on nationality, on what we have been able to achieve. Our engineers are excellent; our ethics are good. It would give me great satisfaction to be able to turn around one day and see that the Indian O&G industry is truly self dependent.