McDermott International is moving on to ‘greener pastures’, and I mean so quite literally. The American company, which has enjoyed a formidable presence in the Middle East’s oil and gas market as a top-tier engineering, procurement and construction (EPC) contractor, is now looking to diversify its business and venture into the renewable energy domain, its regional leader told me during an exclusive interview.
For a company that has thrived in the Middle East for more than 60 years now, on the back of its core strength in offshore oil and gas engineering, venturing into a space that would test its competencies, does seem ambitious however. It won’t be naïve to think that the decision to foray into the clean energy sphere was not taken overnight, but may have been the result of a larger thought process to secure McDermott’s future in a changing energy landscape.
“I think we did think about it (getting into the renewables sector) a couple of years back. We have come to a point, where we have done a lot of thinking and need to act now. Renewables themselves have gone through a transformation in the last 36 months, which has changed the story about why a company like McDermott would consider getting into that space,” Linh Austin, the vice president for McDermott in the Middle East and Caspian regions, says.
“Over the years we entrenched ourselves into the offshore EPCI market. We are looking at energy from a broader perspective. Most people would not expect McDermott to go into onshore renewables, but we are taking a look at that,” Austin reveals. “We are looking into the broader energy space, in terms of how to grow our footprint in the Middle East and the Caspian.”
The key question I felt an urge to ask then was what led the management to be convinced in favour of foraying into an energy domain where operations are fundamentally different to conventional upstream engineering, and where projects McDermott has had no experience working on. Austin says the company does have a plan to balance both, consolidating its core business, and doing the groundwork for its new venture.
“We are looking at how our skillset complements the renewables business. We perform engineering and fabrication. In terms of onshore renewables, there are elements that are the same [as performing the logistics for an offshore EPCI job]. Renewable projects are usually out in the middle of the desert, so how you get the logistics to support that and build that are important.
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These are some of the functions which we are really good at, and those are the [skills] that we will take into the renewable energy space as well.”
The prevailing downturn in the oil and gas segment has harshly impacted every stakeholder serving the sector, coercing industry players across the board to experiment and take bold steps to maintain profitability. Business diversification has become more of a sustenance strategy than a choice, and one wonders if McDermott deciding to step into the clean energy space has to do with the EPC contracting business not proving to be as profitable as it used to be any more.
Austin clarifies: “Actually, as you can see, whether it’s Mubadala in Abu Dhabi, or (the renewable energy initiatives) in Saudi, there is a real push in the GCC on renewables. You have to consider the announcements in terms of the amount of investments in renewables. For us, we don’t see oil and gas going away anytime soon, but it’s about how we grow with both (upstream oil and gas and clean energy).
I think our view in the long-term is that the oil and gas offshore space is robust at $50 a barrel (oil price) in the Middle East. In the next five to six years, we see the Middle East offshore EPCI sector to be busy. But how do we diversify, because projects are very cyclical; and I think this is more about how do you underpin that cyclicality with other work? In many ways, renewables are counter-cyclical as compared to oil and gas. It’s all about creating that long-term stability for clients.”
He continues: “The renewable energy sector is small. If you look into it, considering available data, renewables will account for a small percentage of the energy mix, up until 2050. But its share in the energy mix is growing. And, for us, either you get into it now and learn the lessons along the way, or you may be left behind.”
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Operational excellence at the forefront
In an era when ‘doing more with less’ has become crucial to the very existence of oil and gas companies, consolidation of the business for achieving the larger goal of cost optimisation assumes paramount importance. If branching out to the renewable energy sector is McDermott’s plan to preserve profitability, then the ‘One McDermott Way’ is a well-devised operational excellence measure for integration of its global business.
So what is this strategy all about? Austin explains: “The ‘One McDermott Way’ is about us demonstrating to our clients that no matter where you meet McDermott globally, the execution that you see is going to be the same. Whether we do a job for a client in the Middle East, or if we are getting it fabricated at another McDermott facility, you are going to get the same schedule, cost and quality that you would expect if this were to be done at Jebel Ali (in Dubai, McDermott’s regional base).
“Recently we’d taken a client’s job and executed it from the Batam (Indonesia) facility, and I think the client was very impressed in terms of both delivery and schedule. So it’s all about creating the sense that we have a global reach, and that delivery is consistent and uniform.”
He continues saying: “At the end of the day, projects are won on the cost and schedule factor, in the Middle East. I think our track record of 60 years speaks for itself.”
Austin however concedes that there can’t be a one-size-fits-all approach to all oil and gas projects globally, and clarifies that the ‘One McDermott Way’ implies that the company is pooling in resources from its global network to deliver work for its customers, thereby making its supply chain efficient and economically viable.
“When we talk about the ‘One McDermott Way’, we refer to the back-end. How we engage with clients, how we do the actual work, is very specific and local. But the end-product that they receive is going to have a consistent standard of McDermott. For example, if you look at the jobs we are bidding for right now, the expertise might be at another McDermott location from the engineering standpoint. Say for instance, we are performing a job presently in the Caspian (region), for which we are drawing on resources from our London office due to a certain expertise that they have in order to execute the engineering. But in the end, what we build will have a uniform McDermott look.”
Digitalisation of operations has become imperative for oil and gas players, not just from the technological relevance perspective, but more importantly as a way of weeding out inefficiencies in operations and effectively utilising human resources. McDermott has thus been making earnest endeavours to adopt digitalisation and to constantly refine various aspects of its business to meet the needs of the modern day – a corporate policy that manifests in the Houston-based company’s recent clarion call ‘innovate or die’.
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As part of this push towards digitalisation, McDermott has developed ‘Gemini’, a project lifecycle management system for its clients, which simplifies the rather complex work processes of an offshore project, into a software-based engineering platform. “‘Gemini’ or digital twin, is an example of both innovation and technology.
“Today, when we build a facility for a client, we perform all the tie-in and commissioning functions. As part of this work, we hand over the 3D model and walk away. What digital twin all about is, we are here for the lifecycle of the facility. All the data can be stored in one location, and we are able to support you for the lifecycle of the operations, that can be 25 years plus,” Austin mentions.
He further says: “I used to be on the operator’s side. A significant challenge for us [operators] used to be, that even though the EPCI contractor gave us the entire dataset, we couldn’t manage all that data for future use. We used to go to the EPCI contractor and say “we need that drawing that you did ten years ago.”
By way of ‘Gemini’ we are creating a platform for the end-user where all the data is available. You also have the option to update/upgrade it.”
‘Gemini’ was an in-house brainchild that was developed in collaboration with another software developer, although the digital effort is being led internally, Austin reveals, adding that ‘Gemini’ is not just another project visualisation software. “It’s about enabling ‘how do we give you an asset and and help you to make it better over time?’ As you upgrade, it gives you the option to make your operations more efficient,” he says.
It is evident that McDermott is quite ardently pursuing its digitalisation objective, as the implementation of artificial intelligence for corporate functions would suggest. “It is early days of us using artificial intelligence,” Austin says.
“This is a recognition that AI is out there and can help us do our work better. Are we exploring, testing and challenging ourselves with respect to the power of AI, that is what this adoption is all about. We are very much in the infant stages, and we want to test it and challenge ourselves in using it.”
“We are looking at AI for analytics to see if we can make better business decisions. We are using it more for the corporate aspect, but why can’t we use it for things like marine, engineering and fabrication. That’s a question that we are far from answering at this point, although I absolutely see the role of AI growing in the business.”
Incorporating digital elements into operations was only a matter of time for McDermott, according to Austin, who feels harnessing the power of digital technology has given wings to the enterprise’s ambitions. “Our technology goals reflect the reality of where we are (in the oil and gas industry). It’s like: ‘You either get on the digitalisation train, or get run over by it.’ Gemini is just an example of how we have embraced digitalisation.”
