Topaz Engineering is recovering from a torrid year with a new structure, a laser focus on the UAE market, and a new head of Oil & Gas, Tony McKay
Tony McKay is just eighteen months into his job at Topaz’s oil and gas engineering business, but he has already made big changes, and is bullish about the firm’s ability to capture a unique slice of upstream EPC work from the region, as demand remains high.
A former Petrofac man with over 35 years’ experience, McKay is confident Topaz‘s oil and gas engineering division – now organized into EPC (50%), fabrication (20%), rig repair (20%) and maintenance (10%) – has something unique to offer, and is set to break even in the next year.
Priority number one for McKay was rationalizing the business. “We needed to make it clear what we could deliver and define our service offerings, from a previous amalgam of what we were doing. Now we have done that, we see that each offering has a good future,” he explains.
“Clients want two things: quality and delivery,” he says. “You can be a low-cost provider, but that doesn’t get me out of bed in the morning. I don’t think it’s sustainable. Instead, we have advantages in terms of our location and our track record of delivering complex projects,” McKay says.
The company has also developed a new HSE ethos which has already dramatically reduced incidents. “I see LTIs and healthy and safety as a key metric for any company,” says McKay. “To me it’s a measure of a good business. If you’re organized, you’ve got good safety, you get good productivity, and you make money.”
EPC
“We’ve identified a niche in the EPC market,” says McKay, “nestling below the big players, specializing in what I call incremental projects.”
McKay says a lot of companies shared the kinds of problems Topaz’s engineering business suffered with in 2011, partly as a result of a clogged bid pipeline. “It’s not been an easy two years to be in the Middle East,” he says. “Despite high oil prices, there’s reluctance at the moment to spend the money. That said, there’s no shortage of projects.
“The bid pipeline is phenomenal. It’s full but we still have an issue of projects not being awarded. I’m expecting a sea-shift when the next major offshore project is awarded. Once this is approved, I can see the sea doors opening, because there are incremental projects which have not yet happened but which are required for it.”
Under McKay, the business has streamlined and improved its bidding operation. “We’re now much more confident about what we can and can’t win,” explains McKay. “Our EPC target range is $5-50 million, and we think that we will pick up a good basket of those. The effort to bid on a $150 million project is probably more than tenfold what it is to bid on a $30 million project, and the cost is a lot more than tenfold.
So we reflected on our offering and thought, where is our best target market? We now see our niches in the $5-50 million and $0-1 million brackets, with the latter getting approved quicker and our track record in that area.”
McKay sees a lot of promise in brownfield projects. “It’s been a part of our business for the last seven years. We are now looking to tackle bigger projects, focused on Abu Dhabi,” he says. “Indeed, apart from fabrication, we see ourselves as a UAE business. We don’t see ourselves for many years being outside the UAE. If we do, it would be to Oman and Qatar. They are close and we have a track record there.”
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Fabrication
“We see fabrication as two offerings,” McKay explains. “First, as support to the prime EPC contractors, where we are bidding to the likes of Petrofac, Fluor, Saipem and Technip.
They don’t have a full capacity for fabrication, and certainly not in the region. So those companies are a primary source of work. Second, because we have a skilled workforce with experience offshore, we can do construction alongside them too, and provide an integrated offering.”
While fabrication is currently running with spare capacity, and McKay reports it has been quiet across the region for the last two years, this is poised to change, predicting the regional sector is “going to go from dearth to surfeit in the space of 18 months.”
“The longer-term backlog prospects are looking phenomenal,” he says. “With the EPC contracts coming, the level of fabrication is immense.” 240,000 tonnes of fabrication demand is coming into the market in 2013-2014, between UZ 750 (140,000), Umm Lulu/Al Nasr (40,000-60,000) and SARB (60,000) alone. McKay sees that regional fabrication capacity will need to expand.
“There’s an expectation that all the fabrication is going to be done in Korea – that’s just physically not possible,” McKay explains. “Korean yards are very busy already doing major LNG projects for Australia, so other than shipyards they are quite saturated. We may even start targeting Australian LNG projects that are coming on stream, and are looking for a partner to bid with.”
McKay also sees Topaz doing work for the Iraqi market before the next two years are out. “We believe that most assets going into Iraq will be built outside the country, and will be modular, maybe 50-500 tonnes, for loading in and installation in-country,” he says.
“We are less than three day’s sail away, and can do highly complex work, so I think we’re perfectly located for Iraq. “All in all, fabrication is set to become one of the jewels in the crown, even though it is quiet now.”
McKay says the company’s maintenance offering is profitable, and he envisions the business doubling in size after an investment in new capacity. “We also see it a major business opportunity for the future,” McKay reveals. “Most places have outsourced their maintenance work – the UAE hasn’t. We know that Takreer and ZADCO have been looking at outsourcing recently.”
Rig Repairs
The company, having once dropped rig work, is back in the game, with the capacity to work on rigs onshore and do work in situ. “Because of the continued boom for the oil price, and the amount of rigs out there, we know there’s work,” McKay says.
The firm had two bookings last year, with McKay predicting a total of four in 2012. The division, headed up by industry stalwart Willie Duff, is getting back into the market by developing a reputation for reliability.
“We’ve been working to get our rig reputation off the ground with lots of small projects and are now getting approached for work, because we are more responsive than others for small projects and have a fantastic reputation for safety and getting things done on time since we re-started nine months ago,” McKay explains, “and as people have become wary of the stability of other facilities, we are well positioned.”
“There’s $200 million up for grabs offshore Abu Dhabi with its five-yearly SPS rig-recertification programme this year, with 12 rigs coming up. We’re expecting to get at least two and have played it cautious and budgeted for one,” McKay reveals.
Prospects
One project in particular exemplifies Topaz’s recent past, and its current process of renewal. Last year an 18-tank projects for Gulf Petrochem was caught up in a ferocious storm, threatening to derail the project and set Topaz back 3-4 months.
“We’re just reaching handover now, and the client is really happy,” says McKay. “We took a month to appraise things, and drafted in specialists from [UK firm] Motherwell Bridge. It actually turned into a success story: there was a problem, people came together and we got it done without a single safety incident.”
Come what may, McKay says Topaz is ready for new challenges. “I absolutely believe that this business has got a huge future,” he beams.
