with Scott Cummins, Senior Vice President & General Manager, McDermott Asia Pacific
Would you begin by outlining the importance of Batam to McDermott in Asia Pacific over the years?
McDermott acquired the Batam facility in 1970 in order to capitalize on a significant market opportunity arising from the expanding oil and gas sector Indonesia, which at that time was leading Southeast Asia in terms of activity. Over time, other countries including Malaysia then started to become more aggressive in oil and gas upstream operations and this gave impetus to expand the Batam facility’s capacity because it was the perfect location to support the growth of McDermott’s operations across the Southeast Asian region. For example, there are huge logistics savings brought through Indonesia’s strategic location and proximity to fast growing oil and gas production in countries like Australia.
The Batam facilities have steadily expanded through investment over the last 40 years thanks to the availability of land and labor. This expansion has allowed McDermott to attune to the increasing scale and complexity of projects in the Asia Pacific (APAC) region. In 2011, McDermott’s workforce in Batam peaked at 9,000 employees and although the cyclical demands for labor rise and fall, we have a very strong base level of engineers, 98% of whom are Indonesians. This high level of local participation makes the operation very competitive at the same time as providing jobs for Indonesia.
We expect that Batam will be the major center for fabrication in the Asia Pacific region, given the commendable track-record of this facility. However, McDermott now also has a joint-venture in China for fabrication. McDermott has just completed the investment in this facility and it can service Asia-Pacific as well as other facilities in the world.
Regarding McDermott’s marine equipment, such investments are made on a global level. It just so happens that in the Asia Pacific deepwater Subsea, Umbilicals, Risers and Flowlines (SURF) market McDermott has seen some significant wins recently. For example, we are now awaiting the arrival of a new subsea construction vessel “Lay Vessel North Ocean 105”, constructed in Spain and due to spend 1.5 years working on deepwater projects across the Asia Pacific region.
APAC represented $1.9 billion of McDermott’s revenues in 2011 but there are also exciting developments off the coast of West Africa and Latin America at the moment. How do you see the importance of this region?
Asia Pacific has always been a very important market for McDermott in the past and this looks to continue. The company’s experience in the region has given us time to develop a thorough understanding of what it takes to be successful here. As the APAC markets have developed McDermott has developed and responded accordingly. By comparison, McDermott faces a greater learning curve with some of the other emerging world oil and gas markets.
McDermott still sees tremendous growth opportunities in the region as the trend across APAC is towards deeper water and major subsea infrastructure and floating facilities for which McDermott, with its technology leadership in floating and subsea systems, is well positioned to deliver on our client’s needs. The region has undergone an immense transformation and the type of projects we carried out 40 years ago are immensely different to those that we are doing now from the perspective of scale and complexity. The important thing is to stay relevant in technology and expertise and be able to support our customers’ evolving requirements, and this is what I feel we have achieved.
How do you see the various individual markets, particularly Indonesia, evolving in their contribution to McDermott’s performance in APAC?
The success of McDermott’s operations in individual markets across the region changes significantly over time. At this particular point in time, Australia is an extremely large part of our market in Asia Pacific, last year contributing $1.3 billion to our revenue base, although it has not always been this way. Earlier this year, McDermott was awarded the $2.1 billion Ichthys URF contract by Inpex, the largest single subsea project ever awarded to McDermott. McDermott is also involved in Chevron’s Gorgon project and the company has just finished work on a major project for Woodside in Australia.
Malaysia’s transition towards deepwater projects also makes this a very important market for us. McDermott is currently executing the Murphy Kikeh project and the recently awarded Siakap development.
In Indonesia, significant attention is also being directed towards deepwater offshore developments, including a number of major prospects such as the Chevron Gendalo-Gehem project, ENI’s Jangkrik and the Inpex-led Masela FLNG development. The country has had waves of heightened activity in the past and we are now expecting there to be another wave of development in the near-term future.
Having worked in the Middle East in the past, how would you assess the main differences of working in the Asia Pacific market?
Each market has its own characteristics and in Asia Pacific the main difference is the high level of diversity in the range of clients and operations that we serve. The region is also geographically and culturally diverse. Responding to these requirements demands a more flexible and horizontally structured organization. When I was working in the Middle East all the management was located in one place. The Asia Pacific team is spread out and much more tailored to the markets in which it works. Certainly bringing the management teams of Southeast Asia together is much more challenging.
Given this diversity McDermott has established a local infrastructure in each of the main oil and gas markets in Southeast Asia which helps us to understand the drivers behind these markets. Our offices are located in Perth, Australia; Kuala Lumpur, Malaysia; Jakarta and Batam, Indonesia; Vietnam; and our engineering office in Singapore serving the rest of the region. The company is therefore fluent in the local rules and regulations.
How would you sum up McDermott’s main contribution to projects in the region?
McDermott brings a lot of experience from the Gulf of Mexico where we have been operating for many years. The technology and know-how from this region has facilitated our expansion in Asia-Pacific. The company has competences in each facet of project delivery through a combination of local and international capabilities. Indeed, McDermott’s projects are often undertaken through regional cooperation and our engineering and marine support functions are global.
This mixture of competencies allows us to bring solutions under one umbrella for the client. Customers are increasingly looking at safety and reliability and there are relatively few contractors in the world like McDermott which can take on these major projects and deliver them with certainty, cost, quality and the safety that customers require. McDermott can therefore contribute by bringing superior expertise, technology, project management experience, and a huge manufacturing capacity to these projects. The integrated nature of our business allows us to provide a very strong, complete solution to our clients.
In terms of the type of projects you wish to carry out, how are you positioning the company in the offshore construction market?
The SURF sector is one of our stated strategic objectives, in conjunction with floating production systems and more traditional fixed facilities. We have invested in new marine installation fleet capabilities including the subsea construction vessel, North Ocean 102 that has been working in the Asia Pacific region and our recently commissioned Lay Vessel North Ocean 105 (LV105). Recently we also announced that we are planning to invest in another new build subsea construction vessel, similar in spec to the LV105. These world-class vessels help to provide McDermott with the ability to lay flexible and rigid reel pipe in water depths up to 3,000m as well as lowering considerable product loads at depth up to 7,000MT.
As well as investing in assets, McDermott recognizes the strengths required in its project management and technical operations teams. A deep understanding of both the design engineering aspects of the projects as well as offshore marine operations is required to ensure a safely executed project. This is where we see McDermott’s competitive advantage – meeting clients’ needs by striving to consistently ensure safe, cost effective, on-time project delivery.
Safety especially is a key focus and one of my main objectives is to ensure that our personnel always return home safely to their families at the end of each day. Our safety record is industry leading, we are vigilant and strive to ensure best practices in our offices, fabrication yards and offshore marine vessels in an effort to continuously improve our safety performance. We are well supported by our clients in this regard and by sharing industry practices with different clients we have successfully implemented a number of recognized best practices to reduce our incident levels.
McDermott has recently undertaken some challenging projects offshore. None more so and successfully executed than an offshore pipeline installation project offshore north-east Russia. This project was awarded the McDermott Global Project Excellence Award in 2011. It was successful in terms of safety – no LTIs – and in meeting all quality, schedule, cost, environmental, operating and client satisfaction expectations. The project is also exemplary in the way its teams responded to significant challenges. Most importantly, the proof of our client’s satisfaction with our performance was that having completed our scope ahead of schedule, we were then awarded an additional work to undertake before we demobilized, prior to the onset of the Russian winter.
McDermott also achieved considerable success in our offshore welding quality on a project for an Australian client. Having established the reliability and repeatability of welding procedures, we were able to perform more than 5,000 welds without a single repair. This was and is an outstanding performance by our team and achieved through rigorous procedures, the latest technology, and highly trained, quality project personnel.
The proof that McDermott provides added value to our clients has come from our clients themselves. Being awarded several customer awards including Chevron’s Global Contractor of the Year for both 2009 and 2010 is a tremendous achievement and one for which we are rightfully proud. It reaffirms to us that we are doing the right things and continues to drive our resolve to improve our safety and quality initiatives to help us deliver certainty for our clients’ projects.
McDermott has invested heavily in its people in Indonesia and we were the first company to create a fully integrated training facility on Batam. We have been training and educating our employees to instill in our staff with the standards that we expect. Having our own training facilities allows us to guarantee the quality and performance of our operations. This is better than inheriting the standards of employees from other companies. One side benefit of these training programs is to create a very loyal workforce and whilst the numbers of staff rises and falls as work levels dictate, many of our employees return when workloads increase.
The company continues to target a wide range of offshore infrastructure projects where we are confident that we can add value. You will see us in our traditional markets as well as the deepwater arena, both in terms of floating production facilities and subsea infrastructure, such as subsea facilities, pipeline and SURF installation.
What would you say was your greatest challenge in developing the business in the region?
I would say that the main challenge is not specific to McDermott. The latest projects are at the front end of subsea, deepwater developments. The challenge facing the industry is therefore being able to have the requisite resources to service this demand. The demand can be at the owners’ level, the prime contractors’ level and the subcontractors’ level. Ensuring that the resources are available over the full phase of a major project is not easy. McDermott offers a degree of differentiation in this area thanks mostly to our process control, operating procedures, quality control and our global assets and workforce.
What would you say to sum up McDermott’s presence in the region?
It is an exciting time to be in the oil and gas industry across the globe and Asia Pacific is a major part of this. If you want to be a leader of a region, then you want this to be a dynamic region, with lots of opportunity and interesting projects to execute. Many of the most interesting and complex projects are in this part of the world and being a contractor with the financial strength, the reputation for reliable and safe delivery and a company investing heavily in its assets and people this is a good place to be.