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Interview

with Steve Jones, CEO, Plexal Group

15.09.2010 / Energyboardroom

The company began in 2002 a little before the current resources boom took off. What were the origins behind the founding of Plexal Group? Did you foresee this growth taking off or was there, perhaps, a niche that you were targeting that you felt Plexal could provide?

The reason we founded the company was more because of a personal journey. We wanted to bring together an exceptional group of people and give them the opportunity to deliver outstanding projects. The niche that we targeted was predominately brownfields, expansions, and upgrades, initially focusing on control and safeguarding systems.

We went for about a year and struggled a bit before the boom. We could see the resources boom coming, but we had a lot of trouble getting clients to engage us to take on packages of design because of the mere two-person ownership of the company. Clients were concerned about robustness and possible delays in delivering projects. So we restructured and brought in eighteen additional shareholders, who took a 40% stake in the company between them. We targeted individuals who we thought the oil and gas industry recognized as being exceptional in their areas of expertise and who were closely aligned with how we like to do business. Knowing that we eventually wanted to provide a full multi-discipline capability, we targeted the full spectrum of process, mechanical, electrical, and instrument people.

We had a 100% take up from the individuals we approached which flipped the company overnight. We then went to Woodside to show them how we had restructured and they told us that two weeks earlier they took us off a list of possible contractors for a North Rankin Platform project because of the very concerns of robustness, depth, and expertise. But when they saw the restructuring they put us back on the list and we eventually won the job. Four years after the restructure we had grown from 2 to 100 employees. We also successfully opened an office in Bangkok and now we are gearing up to open an office in Brisbane.

Did that restructuring and first Woodside contract put Plexal on a higher pedestal and ahead of the game for when the boom did come circa 2004-2005 and similar companies were only then just forming?

Absolutely. By that stage we were awarded a massive contract from Woodside to upgrade the Goodwyn A platform safeguarding system. While our annual turnover was just $2 million at the time, that contract alone was worth $7 million. That was just as the boom was starting to move. Furthermore, it allowed us to grow because clients had confidence that shareholders were running the project. We were able to grow because each of our people knew four or five other really good people in the game. When it came to finding people at the height of the boom, we did not have any issues.

During the boom we had one of the highest retention rates in Perth at around 97% per annum. In the eight years that we have been going, we have mainly serviced directly to operating companies. We find that we have more success understanding our clients’ expectations directly rather than via the sub-contract model. As such, if things are not going well, which in brownfields is very possible, you can get together with the client directly and work in a collaborative manner to get the job back on track. We have about thirteen or fourteen master service agreements with operating companies. We have not lost an operating company client in eight years.

Once you contract directly with the operator how does your value chain spiral out from there? Is most of the work done in-house or do you engage in a lot of margin-to-margin contracting?

We do all design engineering in-house, unless it is something specialized like subsea pipelines or completions. For small brownfield projects we do procurement and we will sub-contract fabrication. We do not do construction but we will manage construction from a technical perspective. We do hands on commissioning and ongoing operational support.

Plexal prides itself on setting and meeting its five year targets. Five years after the founding of the company came the global financial crisis. The silver lining of a recession can often be the opportunity to re-strategize or reassess R&D priorities. However, in servicing a robust resources sector in Australia there was perhaps minimal stagnation in operations. How did you utilize any downtime that you saw during the recession?

One of the luxuries of being a private company with a supportive shareholder group is that we were comfortable dipping into cash reserves to keep our people. If you keep on retrenching people to maintain bottom line all of a sudden you start losing clients and going back into competitive tendering mode which will slaughter your margins. Maintaining our people has positioned us well in front of like competitors as the economy turns around.

We carried people and we used that to develop a lot of in-house software systems. We have quite a heavy technology slant with employee software developers and have developed a very advanced project controls system that allows our clients to monitor the progress of their project from their desktops from anywhere in the world. No matter where the client is, as long as they have a secure internet connection, they can view within a week exactly what costs have been allocated to the project versus what was planned. Basically, the client can electronically approve the progress of the project. As soon as it has been approved it becomes a committed cost and it gets added to the S-curves of the project. The system is also purpose designed for controlling inter-office projects across our locations in Perth, Bangkok and Brisbane as well as the Client which could be anywhere in the world and the site which is certain to be in a remote location.

We also developed a new document control system. We are in the process of developing a hazardous area management system as well. These are more efficient systems that we felt better positioned us as the economy came out of the cycle by optimizing our client relations. During the boom we resisted growth for the sake of growth and maintained our principle of high value consistent delivery. When the downturn came, that loyalty was returned. Now on the upturn we feel that we are in a very strong position, hence the opening of our Brisbane office. We are now doing business in Bangladesh and are looking to do business in Vietnam as well.

Given the growth of the Australian oil and gas market many engineering companies have their work cut out for them on the domestic front. What triggered the internationalization of Plexal’s operations and particularly its special interest in Thailand?

Some of us in the shareholder group worked in Thailand with Chevron previously. Chevron Thailand contacted us with a complex upgrade that they wanted us to look at. We did about 18 months of work from Perth, but the tyranny of distance played too much on Chevron and they told us that we needed to be closer to continue the relationship. We compiled a business case and sought approval from 51% of our shareholders to open up an external office in Thailand. There are quite a number of majors and minors in Thailand that are international companies. We already had established a level of comfort with internationals and since being in Thailand we have come to understand the local market. Nationalising our office has also helped with developing business with National companies.

We not only do upstream oil and gas but we are also are very strong in gas transmission. We have alliances with APA and DBP for the Dampier to Bunbury pipeline. We do work on the East Coast with APA and Epic in gas transmission. We also have exposure to State based water utilities. This is part of our recession proof business plan. A company can get hammered with exposure to the minerals and mining sector in an economic downturn, but energy and water sectors are essential services. Even though the economy may slow down, you still have to deliver gas to stoves and heating systems. Regional diversification within our core competency of oil and gas engineering gave us an added level of stability. For example, we would sign some contracts in Thailand that helped carry us when the Australian market tightened up, or we would sign in Australia which would help support the Thailand business. A core part of our diversification is to give some levelling to maintain robustness through the downturns and even upturns.

It therefore seems that Brisbane and coal seam gas (CSG) is an ideal diversification being that it still fits into your regional market and deals with both greenfield and brownfield oil and gas based projects.

Absolutely. Queensland has all the elements that we need. CSG has massive water issues and our treatment and handling expertise will be useful there as well as our upstream and downstream oil and gas capabilities. There is no risk for us from a technical delivery perspective. However, the coal seam gas industry will have its own life in the Queensland market compared to the Western Australian LNG market which is very internationally based.

Where would you rank your level of expertise in greenfield projects? Having come mainly from brownfield upgrades, how are you adapting to the learning curve of greenfield work?

We do a lot of marginal field developments with small and medium operating companies. Size matching for us and our clients has been a massive success. We are not in the same league as the Technips, Kelloggs, or WorleyParsons of the world. We cannot take on LNG development and that is not our business plan. We do not want to be a 10-15,000 person company. We enjoy the fun of delivering exciting projects. We work with ROC Oil China and ROC Oil Australia on tight fields that are difficult to produce from which might only have 3-40 million recoverable barrels. The crude might be incredibly complex or it might not have any natural lift. This requires a different level of engineering. Designing wellhead platforms and lean production facilities on an FPSO or a jack-up rig is our exposure to greenfields.

Plexal does not aim to be megalith company yet it is growing in Thailand and rapidly expanding to Brisbane, Bangladesh, and Vietnam. How do you reconcile that disparity? How large would you like to grow?

It took us four years to set up the Thailand office and three years just to identify an exceptional person to take over as general manager there. He is a Thai national and he is an absolute gem. We have grown that office to about 40 people at a pace that suits us and our clients. It has the foundations now so that it can grow to 60-80 people without losing its identity.

The Perth office is in the position to grow to 150 people without losing our identity. The new Brisbane office will be similar to Thailand. We will have people on the ground in Brisbane, but where possible we will funnel work back to Perth and Thailand. The Thailand office does high end technology work like production reporting systems and data management. It is a cost-effective approach to send work there for greenfields such as the Queensland CSG market.

The Brisbane office will have about 15 people. We intend to send people either from Thailand or Perth in order to get the critical mass right and to ensure that the culture and identity of the firm is not lost. Then we supplement with new local employees. Once we have those foundations, we reach our current target of 200-300 people while still maintaining our identity.

How do you want this company to be branded – as an Australian company exporting its expertise abroad? An international company using local content and local knowledge? Or an amalgamation of the two?

It is an amalgamation of the two. Plexal is an Australian company taking technology globally to regions such as Thailand, Vietnam, and Bangladesh and training the national workforce with our expertise so they can sustain themselves. It is totally appropriate that if you are going to go out and work in someone’s country you have an obligation to give back. We feel that we can contribute by training the local national workforce with our skills and learnings. Yes, we make some money along the way but that is not really what drives us. It is the outcome that drives us.

Since its foundation, Plexal Group has abided by a Carbon Neutral Policy as one of its core company pillars. How did this commitment come to define the company?

My father ran his own commercial and industrial building construction business for 57 years. He had exceptional vision. Twenty five years ago he foresaw the skills shortage that we have today because the industry stopped training apprentices and started sub-contracting. That was not just the case in the building industry, but across all industries right though. When governments started privatizing industry like power and gas they also stopped training hundreds of graduates and apprentices.

I received my MBA at the breakfast table with dad at a very young age. He would say to me many times that in his lifetime we have cut down too many trees, caught too many fish, and hunted too many animals. There was a level of general ignorance at that time. We did not have the level of information that we needed and we thought that you could just keep acting unconscientiously. I was only 15 or 16 years old when we began these discussions, but he told me to be very careful about the choices that you make in life because your grandchildren are going to judge you very harshly. Your generation is definitely going be well informed and know that you cannot just keep taking without major environmental impacts coming back to haunt your grandchildren.

Plexal’s policies are in a way dad’s legacy of telling us to be careful how we run our lives. When Plexal Group was founded it was really important for us to understand that we want to build a lasting legacy. Some of that has come by bringing on graduate engineers and trainees over the years and providing people an opportunity to grow without initial industry experience. We have them drafting and over the years we have moved them into designing. I would love to see some of the young people that we have employed go and start their own businesses in 10-15 years.

I do not want my grandchildren looking at me and saying “nice one pop, you made a lot of money, but look what you left us behind.” Plexal Group runs deeper than a money making organization. All of our employees are passionate about this. Being carbon neutral is one thing that we could actually do that shows that we acknowledge that we are having an impact on the environment. We work with an organization to calculate our carbon emissions per year, we donate money to them, and plant trees in return. There are a lot of added benefits to it as well. Western Australia has a growing salinity problem. We are losing arable land which produces food which worsens the global food shortage problem. So we are helping to combat salinity but are also restoring biodiversity by planting native trees.

The breakfast MBA ties very much into the personal journey that you had referenced earlier.

Absolutely. I am also blessed to have fellow directors who hold the same values that I do. I can say to you very genuinely that we have not had any serious arguments. We have had debates, but they have been more about how to get the job done better; but no clashes. That has been a fantastic part of the journey as well.

We have a lot of people who want to get involved in alternative energy, water recycling, and water treatment. Water is as precious a commodity as gas. In the medium term, we would like to grow a lot of this technical expertise that we are developing and get ourselves involved in geothermal energy, tidal power generation, or concentrated solar power. There are massive water and power issues up in the northwest so it is rewarding to be involved in sustaining that massive cornerstone of the Australian economy in a way that has a lower footprint on the environment.

You just need a good regulatory framework to push the industry in that direction.

Yes, and it will come because it has to. One of the things that Plexal Group is frustrated with is, from an Australia perspective, we have this unbelievable LNG energy source from which we hope to be number two provider in LNG. But it is a finite resource. Where will it be for our grandchildren in 50-60 years time when these fields are either fully or seriously depleted? Where is Australia then?

We feel really passionate about this. There is an opportunity for Australia, Western Australia in particular, and for the premier and successive premiers to implement visions; the same vision that Sir Charles Court had 30 years ago to bring a pipeline from the northwest to Bunbury which produced massive opportunities. He was right. That was such a visionary bit of leadership.

What I would like to see is successive governments showing the same type of leadership by recognizing that the LNG business is going to produce a lot of revenue, but that it is also going to bring in a lot of technical expertise. Government should encourage the major operating companies here in Perth designing these LNG facilities to start building our base of energy engineering excellence so that over time technical IP can be shifted into renewable energy production because the world is going to need it. For me that is the next export of Western Australia. When the gas is gone and there are a few million people out here, what are we going to do? Do we risk becoming the Victorian gold rush boom of the 1800s where towns swelled to the thousands but then populations shrunk a hundred fold? I have genuine concern that in 80-100 years time Perth runs that risk of being one of those classic boom-bust resource towns. That may sounds a long way off but it will be in the life time of my grandchildren’s generation.

If we can really leverage off this industry maintaining an energy production or delivery focus to the world, that will be our next fantastic export. Maybe that technology will be fabricated in China or wherever the cost-effective centre is; but for heaven’s sake at least let us be the leader in developing that technology and securing an ongoing reason for Western Australia to prosper.

How would you describe the culture here that incorporates these values and that would lure top level talent in a resources boom that we are currently in?

What we consistently find is that employees either like to work for SMEs or like to work for the majors. You are either one or the other type of person. The management team here sees itself as being facilitators. We have a management style that is not scared to take our hands off the wheel. We target and attract exceptional performers in brownfields which are well sized match to SMEs like us. Our people will determine what they need to get the job done and our role as managers is to make sure that we get to them what they need in a timely fashion.
The attraction of working with Plexal Group is that you can be a engineer only constrained by regulatory and statutory requirements which gives you a degree of independence. At Plexal Group, you have permission to say on every project, “this is how we did it last time, but this is a new opportunity. Each project has its differences, so how can I do this one a bit better and a bit smarter?” I would use the word empowerment to describe our culture, although that is a bit of an overused marketing word. Our people are really given independence and respect.

What I enjoy and what our employees enjoy is that we can celebrate at the end of the project and everyone is proud to have their names on that job. We follow the project to site and are there standing next to Operations when they press the start button. You are either the type of engineer who thrives on that interaction with the Operator or you are an engineer who moves from one mega-greenfields design to the next. There is no right or wrong to it, just different styles/preferences. If you are the type of engineer that likes an element of freedom to just get on with the job, challenged by the uniqueness each brownfields project brings and not be constrained by prescriptive and repetitive practices then you will love working here.

A key difference that comes with working in an SME is that you are very visible. Each and every individual’s performance and contribution is highly visible. Some people thrive on that visibility and the very direct recognition from directors of their personal contribution and that they have done an absolutely amazing job.

Is there a single project that embodies the work of Plexal and sticks out as one that you are most proud of?

It is always a cumulative process of achievements and I am hesitant to single out one project because it is the efforts of everyone here that keeps us going. To say one project was fantastic is to infer that maybe the rest were not, and that is not the case. However, as a founding project, Woodside’s Goodwyn A Safeguarding Systems Upgrade will always stand out not only as the one that got us going but also a model project of international standing because of its complexity and sheer size. We showed Chevron Thailand who underpinned our expansion into Thailand, that we had just upgraded a massive gas platform of 3,500 safety devices and transferred under full production conditions with no dedicated shutdowns. There are very few companies that have done that on such a scale. Especially for only a two year-old company to do that from conceptual phase right through was definitely one to remember.

What is your long-term strategic direction for Plexal and what are the new business relations that you are looking to foster?

In the long term, we would like to get involved in water treatment and handling of the CSG industry. It is strategic and there is a feel-good factor in getting involved in these fields. We would like to find a way within the boundaries of Australian corporate law to open up our shareholder group to more employees. For the foreseeable future, we have no interest in floating. We like the flexibility of being private because we are driven more by track record and industry recognition than by institutional investors who are always looking for “more turnover, more profit, more turnover, more profit.” We regard Thailand as a strategic hub to launch us into Bangladesh, Vietnam and Cambodia as it develops its resource sector. We see ourselves staying within the Southeast Asian corridor. I do not sleep much as it is. I do not need to be opening up businesses that are eight hours out and that want to talk to me at 2am. There is more than enough market in the energy and water markets of Southeast Asia and Australia.

Are there any last topics you would like to discuss or final message you would like to convey that you feel have been omitted from the conversation?

The government and industry as a whole are saying that we are having difficulty finding people in resources, but I am not convinced that there is actually a true concerted effort in trying to resolve it other than everyone try to dip into this very limited resource pool in Australia.

We have had issues where mega-developments, via recruiting agencies, try to recruit our people by offering them as much money as what we are able to charge. How do you compete with that? When Gorgon started, many people moved from Woodside to Chevron. Most of the work is being done overseas such as design in the U.K. or fabrication in Asia.

But what really concerns me is that in four or five years time when these massive projects come onstream. If we look at the North West Shelf development, it may have 2,000 high-end technical people involved. Even the tradespeople are highly skilled such as certified welders for exotic materials working in live production hazardous areas.

Then you add planned projects such Gorgon, Browse, Ichthys, Wheatstone, Exxon’s PNG LNG and Queensland CSG/LNG players we are talking in excess of 15,000 O&G people. This is where I am concerned as to the collective plan of both industry and government to be ready for this without driving inflationary wage pressures, the flow on effect to cost of living in Perth and Brisbane from the Government side and production target assurance post start-up for the O&G OPCOs. Once you move into a brownfields environment, virtually all of the work has to be done locally. You cannot readily make changes to an operating plant without engaging a new set of stakeholders after the original Project Delivery stakeholders have moved on.

So in five years time, we have this massive expectation on the local market and we currently have an election where both parties are either saying no more immigration or decrease immigration. So how will the demand be met short and long term? Where is the concerted investment in our local people resources? I have a fourteen year old at home. Are the kids of her generation talking engineering and science? No. Being a lawyer or in commerce is sexy or anything but an engineer or scientist. There appears to be a lack of concerted effort aimed at school years seven and eight (before students get to choose their subjects) to foster engineering and science? Industry as a whole needs to fund positions in universities, traineeships and apprenticeships for the workforce that we will need in four years time and onwards as the baby-boomers continue to exit the industry at a growing rate. Where is this planning? All that I can see is this ever increasing vicious cycle where companies compete on an ever shrinking pool, wage expectations of individuals go up and SME businesses cannot follow.

Meanwhile, the companies that we are trying to service are saying “what do you mean you want to increase your charge rates by 15%?” We are wedged because employees are demanding more and clients refusing to accept that increase. It is a tiny local market. As soon as a mega development starts paying employees a couple thousand dollars a day, the news spreads around the local pub and on Monday morning employees go to management demanding pay rises or they will walk. If people thought the last cycle was harsh, in five years time if all these projects go ahead and immigration is being held back, then where does it take us? If there is an artificially driven spike because proper planning was not done, of course a crunch comes after that. We lost a process engineer to an O&G major when she graduated because they could offer her training that we could not match, as an example. I can try to get another 10% on our charge rates to pay for her training, but it is tough.

This is where the SME end of town needs support from State and Federal Government. I would love this message to get to the State Premier and Federal Resource Minister. There are potentially great schemes that can be put in place to boost training. It will cost something in the short-term, but in the long-term, the dividends will be massive. For example we pay 5.5% tax on the wages of our employees and as an SME competing in the O&G market, our people are on ‘Hollywood’ wages. That is a big bill. To attract and retain young people and trainees of all ages, if we can demonstrate to the government that we have provided accredited training then we could receive payroll tax dispensation to part pay for that training. This is how we can start building intellectual property within Western Australia so that if and when gas starts running out in the state, we have a brain trust that has moved on to help out with the next energy solution. We need a concerted advertising campaign that says “it is cool to be an engineer or scientist.”

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