The view from the offices of Topaz Energy & Marine, high up within a Dubai skyscraper, stretches across the constantly developing metropolis far out to where the horizon meets the Arabian Gulf. It seems an appropriate vista for a company on the rise and with an expanding presence in the maritime sector.
But when its CEO René Kofod-Olsen, a tall, striking Dane with vast experience of the industry across multiple markets, was brought into the fold in early 2012 he was, by stark contrast, looking up at a sizeable challenge to turn around a company lacking a clear route forwards and saddled with financial challenges.
At the time Kofod-Olsen joined Topaz the firm was a “mixed bag” cutting across a number of segments including oil and gas fabrication, shipyards, repair facilities and its main offshore support vessels (OSV) business – a legacy, in part, of having been operating since the 1970s. Kofod-Olsen brought a fresh perspective to where the company was going.
“I think the company maybe needed somebody to come in and say ‘Okay, where are we standing on the chess board? Where are we going to move in the future?’ and probably dispassionately so. I didn’t feel that there was any sort of synergy. I mean, there was theoretically, but practically not at all.”
Soon after Kofod-Olsen’s arrival, Topaz divested the various branch operations, including the oil and gas fabrication outfit, to the UK’s Interserve, and decided to focus on “what we are very good at, that is to run ships” in its core activity − OSV.
“I took a more holistic view and we wrote the long strategy, we called it the Topaz 2020. This was the first time that the company had a long strategy, so we wrote it in parallel with the financial strategy, because you can’t write a strategy without also ensuring that you can finance it. And so those two parallel streams, where we actually put the financial toolbox as an integral part of the commercial strategy, changed the way we looked at how we should recapitalise.”
Topaz refinanced all of its secured debt and established a five-year $350mn bond, which the firm issued in 2013. Kofod-Olsen embraced the process of undergoing scrutiny by “formidable” financial institutions in the capital markets, including being rated by the likes of Moody’s and Standard & Poor’s, as the firm’s disciplines were evaluated.
The company was one of the first in the shipping segment to take out a high yield bond at the time, “pioneering” as Kofod-Olsen puts it, and indeed, whether it is choosing particular financial instruments or its wider business methodologies, Topaz very much regards itself as a game-changer and leader.
In fact, Kofod-Olsen’s ability to stay ahead of the curve was certainly tested right in the middle of Topaz’s re-emergence as a re-capitalised and streamlined OSV model. In 2014, US oil production spiked by more than 16%, representing the highest growth rate since the Second World War, driven by tight oil, or shale, operations.
The subsequent impact of this surplus production led to a downturn in the oil price that plummeted to below $30 a barrel by early 2016. The consequence for many of the independent producers in the US was that they unwittingly became the architects of their own downfall as companies went bust and profit margins disappeared.
But in a severe price recession, all sectors and markets are vulnerable. Many of the companies that went out of business were oilfield service providers, but Topaz’s business strategy provided it with a degree of insulation.
“We were on a growth trajectory, we had our financial plan in place, and we had our commercial plan in place and so our view has always been that we want to be skewed towards production and development. The last leg of the oil and gas industry really is exploration and so we have always been very skewed towards production and development because we like the longer contracts, we like the stickiness with our clients.”
Kofod-Olsen says the firm could potentially have made more money at the time by playing the spot market with short-term deals, but Topaz prefers a longer-term view with “clarity on cash flows”. Kofod-Olsen suggests the firm has taken a more conservative position due to the fact it runs a “billion-dollar balance sheet”.
As the crisis deepened from 2014-15, Topaz held fire on several investment opportunities and, when everything “fell off a cliff”, as Kofod-Olsen describes it in 2015, the firm was better placed than many.
The Topaz CEO rather modestly states the company also just “got lucky”, but the firm’s business plan, geared towards offering specific innovative solutions to its clients, maximising what its vessels could offer across the whole value chain, also set it apart; for Kofod-Olsen, this way of thinking and problem solving, allied to the perceptive prediction that the oil price was going to be “lower for longer”, was a key advantage during the downturn.
Changing the operation
But nevertheless, Kofod-Olsen is refreshingly frank and honest about how the extended period of low prices affected the firm necessitating radical cost-saving measures. The crisis enabled Topaz to move in new directions as it sought to find the edge on its competitors and make the business even more efficient.
“We have changed how we operate. We have gone into a much more digitalised portfolio. We have said ‘we have to reset the way that we operate because we need to be able to deliver services at the right price for the oil majors and frankly we need to survive’.
“So, therefore, we have used the last three years to get through the crisis, which has been an onslaught, I would not say anything different, but the very important part for us was that we continued our strategic transformation that we had already set.”
Digitalisation continues to be a disruptive force for good across the entire hydrocarbon industry and Topaz has implemented a fleet-wide system connecting all its vessels to the same operating platform, bringing the CEO’s office in close, real-time contact with the captains on board his vessels enabling significant efficiency savings.
“We have formidable people running our ships and the way Topaz looked at it was, if we can entrust them to sail one of these ships in 6m or 8m swells, close to an oilfield, I think we can entrust them to procure their own spark plugs and lubricants.”
Kofod-Olsen remains upbeat about the effect the oil price crisis of recent years has had on Topaz. He believes it has helped “fast-track” its transformation and the way it thinks about the suitability and deployment of its vessels depending on a client’s specific requirements.
Topaz embarked on an ambitious, ground-breaking project just a couple of years ago at the vast Tengiz oilfield in Kazakhstan, one of the biggest in the world, with recoverable reserves estimated at more than 10bn barrels. Kofod-Olsen says the firm listened to the specific needs of the prospective client and then, in a bid to provide the definitive solution, effectively designed an entirely new vessel suited to the oilfield’s shallow river systems.
“We thought we could innovate a ship. We can design a new ship, which we did, together with one of the biggest offshore builders in the world and that was what we presented to the client and it was a new concept, it was an unproven concept, you could say, but after a lot of testing, as you would imagine, and discussion, they said, ‘you know what, that’s great.’”
From this came the rollout of Topaz’s unique module carrying vessel (MCV) and substantial contract awards worth $500mn for the construction of around 20 MCVs. These major deals have helped underwrite the firm’s backlog of orders to more than $1.5bn, which Kofod-Olsen claims is probably the biggest in the entire industry. The MCVs will provide the “logistics cornerstone” of a $35bn project.
Kofod-Olsen says this specifically tailored solution, which is capable of carrying heavy cargo modules in just 3m of water, will be deployed exclusively at Tengiz for at least the next three years but this innovative diesel/electric solution, is globally applicable and can be utilised in other shallow river systems.
Once again Topaz was the pioneer in establishing such a symbiotic relationship with a major client and working so intensively not only to provide the required vessels but also to create a bespoke, specific solution. Kofod-Olsen says he sees other firms in the OSV sector now adopting a similar strategy and following Topaz’s lead.
Topaz has established lucrative connections in its Caspian operations with interests in Azerbaijan and Turkmenistan, in addition to its work at the Tengiz oilfield. But the firm is nevertheless based in the UAE and Kofod-Olsen certainly regards the Middle East as the firm’s home market.
“Frankly, there are a lot of geographical similarities between the Caspian and the Middle East. It’s close. Historically, a lot of the logistics chains have come from here. Just last year, we won a big contract in Turkmenistan – that field is owned by ENOC.
“So, we have a lot of humbleness for our position in the Middle East. We have been working for ADNOC, Dubai Petroleum and Saudi Aramco for many, many years, either directly or via many of their sub-contractors and we certainly expect that to continue.”
But Kofod-Olsen clearly emphasises that the local market has had its issues recent times. New OSV operators, many from Asia, entered the regional sector during the previous crisis and “disrupted” rate levels. The Topaz CEO says rates reached such unsustainable levels that he felt safety, the key criteria for offshore operations, was compromised and he was forced to lay up 12 ships and chose not to participate in the “bloodshed” in 2016.
He believes consolidation would assist the market and feels that local giants like ADNOC or Aramco would not want to deal with firms who are effectively “counterparty risks”, but would rather choose the reliability and reassurance offered by the likes of Topaz.
It is clear that for Kofod-Olsen the need to balance the ability to innovate strategically, and be a bold game-changer in the OSV sector, with more conservative, fiscally cautious and risk-averse decision-making is the acceptable path forwards for Topaz. Such a philosophy has underpinned the CEO’s need to make sure the firm’s future investment policies are backed up by a sizeable order backlog.
For Kofod-Olsen reputation matters. “In a very practical way, the way I think about strategy is that if we were not there tomorrow, in a given market, would we be missed? And it doesn’t mean that people cannot live without us but, actually, would people step up and say ‘hey, I miss Topaz’ – for me, that’s the litmus test.”
Topaz works primarily in less developed, emerging markets, but the firms it works alongside, and whose needs it services, whether in the Middle East, the Caspian or its African operations such as in Nigeria, where it supports the operations of Chevron and ExxonMobil, are some of the biggest beasts in the industry – “they keep you on your toes”, says Kofod-Olsen with relish.
The Topaz CEO stresses that while his firm has received “global approval” from the industry’s biggest players, he is keen to have a “conversation” with the region’s national oil companies and the international supermajors about what more his OSV provider can offer them.
Kofod-Olsen’s confidence stems from his firm belief that Topaz has taken a sector leading position in many key strategy positions as its commercial plan has moved consistently forwards, and it now stands very well placed to exploit its ability to offer its solutions, as well as its ships, leaving many of its competitors in its wake.
“So, the companies who are not moving in that direction − the pure play, ship providers that don’t do anything else than that − they have already fallen off the train, I believe,” he says.
