Seeking a new future

Seeking a new future
Published: 10 October 2017 - 5:41 a.m.
By: Indrajit Sen

When as CEO you are invited to be part of a delegation led by a US president seeking to strengthen bonds with Saudi Arabia, you are not just any business leader but essentially a stakeholder in America’s scheme to foster new socio-political and economic partnerships with the kingdom. This honour is representative of the laudable records your company has achieved in its six-decades-long presence in the Middle East, and as someone leading the organisation globally you can only feel proud about it.

McDermott International was the only EPC contractor present in the leadership gathering presided by His Highness King Salman bin Abdulaziz, Custodian of the Two Holy Mosques, and US President Donald Trump, during the latter’s first foreign visit in May. An even bigger feat was the fact that McDermott was one of the few companies from the 50-strong American business delegation to sign a Memorandum of Understanding (MoU) with Saudi oil giant Aramco, during the Saudi-US CEO Forum.

“One way of looking at that,” David Dickson tells me, “is that there were 50 US CEOs present in that meeting in Saudi Arabia. If we look at the size of all those companies and if you look at the size of McDermott on a market cap basis, one of the things that makes me so proud is that we have come such a long way to be included in that group (of blue chip companies); which is a fantastic reflection of what the company has done.”

“All those names were big, some of the biggest companies in the world. I think from oil and gas (industry), there were only nine companies. So to be a part of that (delegation) was good, and to be recognised in the form of signing an MoU, because not all those companies signed an MoU, obviously made me feel proud. It is also a reflection of how McDermott’s name is quite strong in Saudi Arabia,” the McDermott CEO told me during the exclusive interview in Dubai, where he arrived after his moment of glory in Riyadh.

Of the 60 years that McDermott has been operating in the regional oil and gas industry, the Houston-based company has been performing offshore EPCI (engineering, procurement, construction and installation) work for Saudi Aramco for almost 55 years, and hence has “enjoyed a very strong presence and reputation” in the kingdom. However, McDermott’s relationship with Aramco has not been without complications. “I would tell you this that three years ago, I went public in saying that our relationship with Aramco was not good. I think we had treated the relationship with a lot of complacency and lack of respect,” Dickson admits.

Ever since, Dickson says he has “made a big effort to further strengthen our relationship with Aramco.” The campaign he has led, since becoming the president and CEO in December 2013, has not just been centred around improving McDermott’s standing with the Saudi energy behemoth, but has been more vitally focussed on transforming the business model – that has included making structural changes to the organisation and modifying the approach and performance on offshore projects – with an eye towards the future to cement McDermott’s operations in the Middle East.

“Now I think we are talking about a transformation to say ‘how do we take the business to the next level?’ Dickson says. “So you will see things coming out around digitisation. We are being involved more in early engineering (stages of a project), in terms of pre-FEED and FEED. That’s how we take the delivery of these projects to the next level. When we look at our customers’ procurement models, we look at a change in the market, in terms of factors like technology and low oil prices, etc. We want to make sure that we are ahead of the pipe. Coming through this transformation, we’ve had quite a bit of change in culture and quite a bit of leadership in the region.”

The business reforms have started to bear fruit, so also have the measures taken to improve ties with Aramco, if the projects McDermott has undertaken for the oil giant in the recent past, are anything to go by. “So we have the original LTA II (second phase of the long-term agreement) which is a contract worth more than half a billion dollars. Since then we have had Safaniya 5 and Marjan and a bunch of other projects. We get all these projects because we involve significant amount of engineering and fabrication and marine installation; we tend to manage these projects like a portfolio,” Dickson mentions.

“One of the things that we do provide for Aramco, which has proved very helpful to them, is a significant amount of flexibility. Since we manage these projects like a portfolio, they can come to us if they have a change in their priorities, in which developments they want first. We have created that flexibility for them, which our competitors have struggled to do. One important thing for us is that we are permanently present locally. So we are here all the time, our marine assets and our yards is here, so we are truly vertically integrated,” Dickson explains.

A demonstration of the advantage of local presence that McDermott enjoys has been the recent completion of the load-out and installation of the first jacket fully fabricated by the company at its 10-months-old fabrication yard in Dammam. The Safaniya 264 jacket is part of the LTA II scope of work with Aramco, and has been installed in the Safaniya oilfield – the world’s largest offshore oilfield, located 200km north of Dhahran in the Gulf’s waters, by McDermott’sDerrick Barge 32vessel. The current scope of work being done at the Dammam yard covers four jackets, eight bridges and more than 70 subsea pipeline spools, as well as onshore support work.

“I think over the years we have shown that, of all the (competing) companies, we have the better capability to take on more complicated projects. I think you see that from the various stages of Safaniya for example – we have done most of that,” Dickson comments. “The LTA II which was awarded to us had a lot of complicated elements in it. We have shown Aramco that we have a really good track record on shutdown periods which is extremely important for them. A lot of these has shown that McDermott is very strong operationally. The biggest and boldest of innovations in project engineering have happened throughout our history in the last 55 years here (in the Middle East).”

By virtue of its firm grip over the regional EPC market, McDermott has in March this year taken a leap ahead of its rivals to grow in stature – as manifested by the signing of an MoU with Aramco. In a bid to enhance its engineering and project delivery capabilities for the Middle East and Caspian markets, McDermott entered into a long-term land lease agreement with Aramco to build a new, modern maritime engineering and fabrication facility at the Ras Al Khair industrial area, currently being developed by Saudi Arabia in the Eastern Province.

Once ready, which Dickson expects to happen by 2020-21, the Ras al Khair yard will become McDermott’s new fabrication facility. Presently, the Jebel Ali fabrication facility, which has been McDermott’s regional base for over three decades and where this interview took place, is designed to deliver 8mn man hours per year. “What we are going to deliver in Ras Al Khair in phase 1 is a yard capable of delivering 8mn man hours a year – the same size as here, but with the expansion capacity to double the size of it (to deliver 16mn man hours a year), which will be done over a period of time. Therefore, this will help us increase our capacity in the Middle East. At the same time we want to develop a yard that is using state-of-the-art technology and automation,” Dickson reveals.

“The MoU that we signed was a result of over a couple of years of negotiation and it wasn’t an overnight deal, and through those negotiations the relationship (with Aramco) grew stronger,” Dickson states. “I think that ultimately the relationship would become stronger because our performance on all the projects have been excellent. All our projects are on time and on budget and high quality, with an outstanding safety performance. We are not going to comment on the performance of our peers, but I think it will be challenging for them to outperform us.”

What this new venture in Ras Al Khair also promises to McDermott is an opportunity to exhibit its commitment to the In-Kingdom Total Value Add (IKTVA) programme – a part of Saudi Arabia’s ambitious Vision 2030 plan for economic transformation. Dickson stresses on the fact that sourcing local content and labour has been a hallmark of McDermott’s business globally – citing that “we are 99% Mexican in Mexico.” Of the 700 people working for McDermott in KSA today, 35% are Saudi nationals – a figure that the contractor intends to raise to 40% by 2030 in adherence to its IKTVA pledge. The Ras Al Khair complex, after the completion of its first phase, is expected to employ about 5,000 mostly-local staff, thereby creating considerable job opportunities for Saudi nationals, Dickson mentions.

“So we are already ahead of the (roadmap outlined in the IKTVA) plan. We have been working with Aramco in various ways. I want professional labour for the engineering jobs, and we have been working on that. It hasn’t been an issue as there is a lot of great talent in Saudi today,” says the offshore engineering veteran, who has had an experience of 24 years in the industry. “On the craft labour side of fabrication, we have already been working with Aramco for a couple of years now – on a few in-country initiatives to develop local labour and will continue to work with various Saudi groups to jointly work together to develop that expertise or craft. We are not concerned about it (IKTVA commitments); we just see this as a plan forward and so far I feel we’ve done okay.”

The impetus it has provided to the local economy and the commendable initiatives it has undertaken to nurture and absorb more Saudi talent has earned McDermott the ‘platinum status’ – a benchmark issued by the Saudi government based on a foreign company’s IKTVA performance, and has led Aramco to view the company as a trusted partner on its journey to attain the goals of Vision 2030. As Dickson mentions, McDermott was also chosen by Aramco to sign an MoU during the forum in May, under which the contractor has committed to a nine-point plan to increase its contribution to the country’s localisation efforts and aid Saudi Aramco in meeting its 2021 objectives.

Considering the oil and gas work it is performing for Aramco, and the major investments it has already made – both in terms of capital (Ras Al Khair facility) and social (IKTVA commitments) – it wouldn’t be hard to imagine that McDermott is planning to shift the fulcrum of its Middle East business towards in Saudi Arabia and envisaging a future in the kingdom. As a natural corollary then, the management’s tendency would be to shift the company’s core operations as close as possible to its biggest customer of the present times – Saudi Aramco. Indeed, Dickson says McDermott has embarked on a journey to relocate its Middle East headquarters to Saudi Arabia by 2025, where its developing yard presents it the prospect of operating out a facility that has double the project delivery capacity than its Dubai complex. Does that mean McDermott is abandoning its home of 31 years, I asked the CEO.

“Over the years, (ADNOC group company) ADMA-OPCO has been a part of our business, but it hasn’t been a major part of our business,” Dickson states. “So we will still be here to serve, but we will have a bigger focus on Ras Al Khair.”

In light of the fact that the offshore segment of the oil and gas industry has taken harder blows from the decline of oil prices than the onshore sector, due to its cost-intensive nature, does it not make him worry, as the leader of an outright EPC contracting firm, about the future prosperity of his company, I can’t resist asking Dickson.

“I think if you look at from where the reserves are going to come from, the longer-term future is the offshore segment versus the onshore, for the simple fact that access and recovery of onshore reserves are simple, so typically those would be exploited first,” Dickson says nonchalantly. “You see more of a shift, and Aramco has been an example of that shift from onshore to offshore in the last 10 years.”

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