Baylocq – Deputy CEO, Geostock – France
The Deputy CEO of Geostock, an engineering group specialized in the design, construction and operation of underground storage facilities, reviews his company’s performance in 2014. He provides insight into the development of the international subsidiaries and discusses what the future holds for the European activity amid continued economic uncertainty.
2013 was a very good year for Geostock with revenues reaching over 90 million USD, the highest in its history. How did the company perform in 2014, and what were the most notable facts of the past year and the most important projects?
Geostock is an International group, and our subsidiaries’ performances vary across regions. We have Geostock in France, with 220 people; Geostock Asia in Singapore; Geostock Iberia in Madrid; and Geostock North America in Houston. We also have UGS in Germany, with 300 people, and Geogreen, which is a company specialized in CO2 underground storage.
Overall, 2013 was a strong year for the Geostock group. Likewise, 2014 was a very good year for Geostock as a whole in spite of certain difficulties in the US and Germany.
Over the past three years, Geostock has and will continue to draw a significant portion of its growth from its Asian activity. Our largest projects are in China, where our clients include CNPC PetroChina, Sinopec and Beijing Gas. We also have ongoing projects in Sri Lanka, India, Singapore and Japan. Moreover Geostock has three relevant markets: the Asian market, which is performing well; our European affiliates, which are mainly working within Europe, but are also providing support to our subsidiaries in North America and Asia. We have maintained a decent level of activity in Europe, mainly due to aging facilities that need to be upgraded and maintained on a regular basis. Finally, in the US, we are confident that soaring shale oil and gas production will foster opportunities for significant growth.
The European continent, historically the company’s “playground” especially France and Germany, is facing sluggish growth, and results have not been so good over the past few years. What is the future of your business in Europe?
In regards to hydrocarbon underground storage, meaning gas, LPG and crude oil—few projects will emerge in Europe. There will be some but our activity in Europe will generally not grow significantly. However, as I mentioned earlier, there are some aging facilities in Europe that need to be upgraded and maintained on a regular basis. In light of past events and incidents, these aging facilities are compelled to comply with stricter European legislation and safety standards.
Geostock is an engineering company that designs and builds underground storage facilities. We do not own the facility; rather we design and operate it on behalf of our clients. The future activity in Europe will therefore be correlated to the operation and maintenance of these underground storage facilities, rather than new construction. In contrast, the services we provide in Asia lean more towards designing, engineering, building and operating. This is why it’s very important for Geostock—we are the only one among our competitors who delivers the full range of services from engineering, construction, through operation. If you look at Geostock’s history, it was created in 1965 following the Suez Canal crisis when the French government asked the four major oil companies of the time to build strategic underground storage for France. Since the Suez Canal crisis in, Geostock has maintained a steady level of activity because we are operating underground storage with recurrent activity and sales. You can therefore understand that Geostock’s success stems from this duality between engineering and operation of underground storage. Getting back to the question, in Europe won’t host several new greenfield activities, whereas in Asia we are looking at many new greenfield projects that we are currently building, and that we want to operate in the future using the same model.
In 2012 the company opened an office in Singapore and has since announced quite a few new projects. What has been the impact of the opening, and how much business is now coming from Asia?
In Asia, we secured a 20 year contract in Singapore to operate an underground storage on behalf of JTC in partnership with our partners JCPL and VOPAK. Our new projects in Asia almost exclusively consist in greenfield projects, where we work on engineering, construction and operation. Currently, roughly 10 percent of our business emanates from Asia, a figure that should reach 20-30 percent in the near future.
You are in charge of the US market, another of Geostocks’ big areas of focus, symbolized by the acquisition of Sandia Technologies in late 2012. Surprisingly, 2013 was not such a good year. How do you explain this, and is the US delivering as you expected?
We are pleased with Sandia Technologies’ performance, although it’s not only underground storage. The underground storage market is expected to be dynamic and in order to grow, Sandia Technologies must recruit new employees/engineers, which usually implies long training periods, and no foreseeable benefits in the near future. Our profitability may have slightly declined but market opportunities are expected, and Sandia Technologies is perfectly capable of seizing them. Regarding Geostock US, there are some new opportunities; we earned success with outstanding performances in our engineering activities. We also recruited some senior employees locally. Drilling activities however produced mixed results in the last 2 years. Last year was not our best year, but there is definitely a significant market so we have no doubt that we will grow in the US as well.
As president of this US subsidiary, what is the potential of the US market for Geostock?
The development of shale oil and gas has led to high quantities of LPG and crude oils being dispersed on the market, which in turn will require additional underground storage. We therefore expect new storage projects for liquids and refined products in coming years.
How has the drop in oil prices and this uncertainty impacted the company’s strategy and results so far, and how do you see the company performing in 2015?
There are many uncertainties but it is difficult to properly assess the impact of low oil prices on the underground storage market. At this stage, we haven’t observed an impact on our activity by this drop in oil prices. I doubt that it will affect our activities in Asia either. Even if oil consumption slightly decreases, Asia is till subject to a clear lack of adequate underground facilities. In Europe, as I said before, we are in a slack market, however, aging facilities still need attention. In the US, continued shale oil and gas activities will necessitate greater underground storage capacities.
The company offers a wide range of services and a complete solution to its clients: consultancy, engineering, design, construction management and operations, and maintenance services. How have you seen its core business evolve in the eight years you have spent there, and do you see the offer changing in the future?
As I expressed earlier, our Asian market will evolve significantly. I don’t think there will be that many major changes, though. The European market will continue to be slack. Due to the existing problems with Russia, several countries are looking for another corridor going through Turkey, a market that holds important potential for underground storage in the future. The boom of the oil and shale gas industry will likely have an impact on the demand for underground storage facilities. Historically, we have been operating underground storage mainly in France and Germany, but we now aspire to operate beyond Europe. We are now starting in Singapore, in Japan and have promising prospects in North America.
Another thing we are looking at is energy storage. With the development of renewable energies, the need for storing energy is becoming increasingly important. In the past few years we have been conducting research into what we call compressed air storage and hydrogen storage, which are the two major energy storage options linked to underground storage. In order to be ready for the first compressed air or hydrogen storage, we have entered several partnerships conducting R&D.
What does the future hold for your Geogreen subsidiary, which specializes in storing CO2 emissions, in relation to the fight against global warming?
Geogreen, which specializes in the storage of Co2 emissions, was created in 2008. The beginning of the first year went very well, but with the onset of the crisis the price of Co2 emission storage has decreased constantly since. Today, if you look at the Co2 market, it is practically nonexistent, because the return on Co2 is very low, and therefore financially unsustainable. At the same time the government has no funds to subsidize Co2 projects. So, for the time being, the market is slack. However, in the coming years it could return to being a sizable market because it’s among the different possibilities to reduce Co2 emissions.
What is the importance of innovation to your business, and how do you balance innovation with the necessity of ensuring HSE, especially environmental?
First of all, France is renowned for the quality of its engineers and engineering programs. At Geostock we pride ourselves in the high quality of our services and technologies we employ. If I compare our services to our competitors, we always try to be on the cutting edge and to provide high technical services. We can be slightly more expensive, but our clients want to have the Geostock label. We are constantly involved in R&D and in developing new tools and technology in order to increase the safety, integrity, and the performance of underground storage. We are constantly trying to improve our tools and our services. One thing that differentiates Geostock from our competitors is that as soon as there is a market, we look at the opportunity to open a subsidiary locally in order to be closer to our customer as accessible in the country. This allows Geostock to combine the most valuable aspects of all the different affiliates, customers, countries and cultures. This allows us to be innovative and is has become an unfailing asset.