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Interview

with Steve Gordijn, TEK-Ocean Energy Services

03.05.2011 / Energyboardroom

TEK-Ocean was founded 3 ½ years ago with nothing but a blank piece of paper. What have been the main factors that enabled you to double your growth every year for three years and reach this current point of critical mass?

SG: Diversity, flexibility, and having a true intent to provide value to our clients, all of which was our intent right from the start.

KT: To give a little bit of background to TEK-Ocean, the company has 12 equal shareholders and five directors, two of whom are Steve and myself. The majority of our shareholders come from a drilling, subsea, completions, and construction background in the offshore industry with Steve joining us from the finance sector. Six of us had worked together in some form overseas before getting together in Australia. Collectively, from our offices in operating companies and consultancies, we saw a lack of value going on amongst oil and gas service companies in Australia. There were a lot of companies exceeding their profit margins a little too far while providing very minimal value for their services. We wanted to create a little more value in the industry, particularly in Melbourne because of the paucity of industry service providers here.

Three of us then kicked off the dialogue to get some value back in the marketplace. We looked to create a facility in Melbourne or Gippsland and entered a partnership with a local landowner. While that particular project is still to be finished, out of it came the building blocks for TEK-Ocean energy services. Two things happened. First, one of our shareholders involved in the marine side identified a potential Dubai-based vessel for sale which could provide strong value for supply runs. We put some cash into the port, kicked off the company with the vessel – the Yarabah –, and in conjunction took on the logistics arm of the company. Our first contract was for Apache and ADA. Parallel with that, we all continued with our consulting positions at various operator offices such as Woodside, BHP Billiton, and Santos, and fed our expertise into the company to identify opportunities and help it grow.

SG: Essentially we consolidated the consulting operators through TEK-Ocean and used our network of 12 shareholders to build on our structure. The consulting, marine, and logistics arm kicked off at that point. From that base we developed our own in-house engineering capabilities of design right through to fabrication. We are starting to bring projects back in-house rather than consult in the field in clients’ offices.

The place typically associated with the booming marine and subsea oil and gas industry today in Australia is Perth because of its relative proximity to large-scale offshore LNG projects. Yet here we are in Melbourne. What makes this the right place for the business?

SG: We also have a lot of guys in Perth, Singapore, and Africa. Our office is here in Melbourne and we have on occasion tossed around whether we have it the wrong way. But in a global industry the location is less relevant. Keith, for example, is in Perth every fortnight meeting with operators. We have a large work scope with BHP Billiton, Santos, and Woodside that we are carrying on as we speak.

KT: The business started here in Melbourne but our consulting base is primarily in Western Australia (WA). We also have a share of workshop facilities in Bibra Lake, near Perth, and we are about to expand into our own stand-alone facility very shortly.

An area of the business we have not thoroughly explored yet is asset management. We have the technical capabilities to operate our own equipment to carry out full cycle maintenance for subsea drilling completion. Currently, we are storing equipment at Bibra Lake but not rounding it out with the full service offering that we know we are capable of, perhaps because our engineering department has lacked a certain size. That has since changed, however, because we have put extra personnel in place to get our ISO/ISM accreditation. Having spent the last 12 months mapping out a defined syllabus for accreditation, systems are now more fully developed than when we started off 3 ½ years ago

Parallel with that, our intent is to round off the market with asset integrity solutions for Esso and Nexus in Melbourne and BHP Billiton, Woodside, and Santos in Perth until the TEK-Ocean name is recognized without hesitation. Again, the key is to give clients value in the service. Having worked on the operator side we know that there is a lot of wastage that can be cut out of the process if you take this business model to a “one-stop-shop.”

Of your various business lines, which currently occupy the largest scope in your portfolio of activities?

SG: Consulting, logistics, and maritime are probably evenly split. Our logistics and maritime services are purely Victoria-based at the moment and we are also looking to expand them into WA. The consulting part of our business and each individual stream is able to carry its own weight. A strength of our growth has been not having to rely on just one business line.

The same year that TEK-Ocean was founded the global financial crisis unraveled and tremendous volatility shook commodity markets. In Australia, however, ongoing LNG project developments insulated many marine service companies from any serious downturn. Can the same be said for TEK-Ocean?

SG: The consulting part of our business did carry us through, with most of our work being done for Woodside and BHP Billiton. Our marine and logistics part did suffer however since it was project-based. We also had some cancelled commitments for drilling operations. Although we were insulated to some extent with consulting, the strategy for developing other parts of the business required a little bit of rewinding.

The Northwest Shelf is known for rugged offshore conditions: deep waters, high temperature wells, an uninviting seabed, and a steep continental shelf. Can you give us a sense of the offshore and subsea conditions in the Bass Strait that operators and service providers must cope with?

KT: Conditions in the Bass Strait can be quite similar to the North Sea. Weather conditions blow up within a very short time period and are completely different than the Northwest Shelf. The seas off the Northwest Shelf do get up, but the periods are longer and you do not get the same downtime issues as in the Bass Strait. The downtime in the Bass Strait can be quite severe for installation and development operations that occur close to winter. Australia is a very diverse country with rather placid conditions across the Timor Sea, apart from cyclone season. We have all different conditions to deal with right around the coast of Australia and you really see the full range.

In terms of deployment operations and water depths, the Northwest Shelf operations that we deal with have all predominantly been in deep water conditions which entail completely different circumstances. Rigs have higher specifications and vessels carry more expensive day rates. The clock therefore ticks with every minute of downtime. It is in this area where you have to innovate, constantly improve on time, and help operators think outside the traditional square.

SG: We try to extend that in the Bass Strait with our marine operations coming up with innovative ways to charter a vessel either through sharing or stand-by opportunities to minimize costs and get back to our value focus. Origin Energy is one of our larger clients for our vessel operations and we have come up with an innovative way for them to hire and de-hire the vessel with minimal costs. We have become quite good at filling niche markets and providing solutions.

Because the stakes are so high, the costs are so excessive, and the room for error minimal in the offshore industry, you really have to earn the right to work. How has TEK-Ocean earned that right so far?

SG: Initially it generated from the reputations of our core operational guys who we started the business with. They are all extremely well respected globally throughout the industry.

KT: It is a fair statement in terms of how you earn your stripes. As a company you have no stripes when first starting off since you do not have any runs on the board. Something we identified as a strength is a shareholding structure of 12 highly respected industry guys in Australia and overseas. We have all worked on a global basis for clients such as ExxonMobil, BHP Billiton, and BP on major deep water projects that bring value to the table.

SG: Being only three years young we still face those challenges. But now we have some history behind us of successfully delivering projects and providing quality and value which has gathered momentum.

KT: Over the course of the last year we have seen a slight turn and in addition to us chasing the work we are starting to get invitations to tender for projects that we want to get involved in. It is not an easy process by any means to earn work and it will not suffice to merely announce that “we are here.” We have to put the effort in and show the client that we all have personal involvement and pride at stake.

What do you identify as the main green shoots for business going forward?

KT: There are three key areas that we are focusing to grow on. For the last three years we have had the Yarabah doing anchor handling and supply runs for Origin, AGR, ADA, Apache, and Nexus. There were a lot of expenses involved to get her up to Australian and New Zealand conditions but we now feel that we have her in a condition to expand her services. She is an old vessel, but definitely well worth her place in the Victorian environment as a key provider to companies. We are trying to expand on services such as ROV surveying and drop claw work in Tasmania.

Coming back to onshore operations, support base functions are expanding to include fabrication type services. One is in support of our own operations, another is for client requirements. With the KTT project in full steam we have a fair involvement with McDermott’s work scope in terms of providing personnel to the shore base and various agency servicing operations. Out of that come other opportunities for fabrication and construction work.

Taking this base that we have in Victoria, our next move is to replicate it in Perth and chase the work.

SG: The biggest green shoot, however, is the gap that we see of service providers being able to store, preserve, and maintain operational ready gear. We see the aftermarket as an opportunity to cash in on.

Somewhat similar to Aker Solutions’ newly opened full subsea service facility in Perth?

KT: Yes. Up until two years ago players operating in Perth were providing a reasonable service. However, they have obviously outgrown that area of the market and moved on to bigger fish; we have identified a hole that needs to be filled which we think we can plug up at a competitive rate. Aker Solutions is obviously a big player in this market as well.

When looking at subsea equipment manufacturers, everyone has the same services in terms of provision of assets. The equipment is sold to operators as part of project development phases. Once that phase goes through, any leftover equipment that goes back into storage is normally left to deteriorate. We have been approached by a couple of the main operators with requests for reviving the equipment, yet preventing a multi-million dollar price spike when preparing for interventions since the kits have essentially been left to rot. Having worked with companies in the UK who have done similar things we know how it can be done, but there is a slightly higher base cost for the operators to get to it.

SG: We are always on the lookout for further developing our supply base activities in other parts of Australia. We always have our eyes open, but being fairly new we have to pick out the winnable opportunities.

How do you intend to leverage logistics operations at your Port Anthony base going forward?

SG: Our Port Anthony base is still a largely unfinished project. The concept was for a joint venture partner to build the port which we would operate. But due to certain circumstances the landholder involved has not reached a completion stage. We have since found other work to continue to operate in the region. Although the facility still has a ways to go because of funding issues, the idea of having an operating commercial port facility is still real and there.

KT: Because of the delays in getting Port Anthony operational, we originally took our operations team to Geelong where we operated for 10 months. We then brokered a deal with Esso and BHP Billiton for use of the southern half of a Barry Beach terminal for the duration of the contracts that we had in play, which we operated for two years. Conjunctionally we found a value adding home for the Yarabah at Port Welshpool where she now enjoys unrestricted in and out capabilities. Her unrestricted access definitely has high value for our Origin operations as opposed to if she were based in Melbourne. Coming into a location like Port Welshpool also helps service the local economy; so everyone wins.

You both carry a tremendous sense of pride and humility: pride in how far this company has come in just three years; humility in what it still needs to grow into. What does the road ahead entail for the next 5-7 years?

KT: The consistent doubling of growth every year for three years saw a bit of a halt during the financial crisis. In every period of growth there arise certain challenges and growing pains in which you almost cannot do things organically. We are therefore starting to investigate certain partnering and acquisitive strategies. We are not quite prepared to sit back and wait for the organic pitch to take effect so we are in discussion with other parties for farm-out opportunities.

SG: We have fairly ambitious growth plans. We have sat around the board room table saying that we would like the company to get to the listing stage or to get enough scale.

KT: Somewhere between here and listing, the company will get to the stage in which we have a fully rounded service facility in Victoria and Perth and a consulting service that will provide the backbone for our project team. We would also like to see our vessels grow to 2-3. We have to temper growth with a bit of realism and a lot of effort.

Are there any final messages that you would like to convey to our readers about TEK-Ocean in Australia?

SG: We are extremely proud to be sitting here. We have come a little ways and still have a long ways to go. With the TEK-Ocean name and reputation starting to show it is all about our service offering, what we can bring, and what our point of difference is. We are starting to show it.

KT: Our point of difference is the diversity of our business from consulting, project management, and marine services, through to logistics and supply base operations, and eventually up to asset integrity systems. It is our point of difference and the way ahead for us.

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