Stepping into the ring

The Panel

Tawfiq Abu Soud
Executive director of infrastructure, water and power at Drake & Scull International. He is looking to expand the company’s construction and engineering portfolio into the upstream oil and gas business.

Karim Khairy Nasr
Operations manager, Middle East, TecWell. Nasr spent nine years with Hallibuton as an E-Line engineer, and now represents the Norwegian acoustic logging company from the Abu Dhabi base in Mussafah.

Issam Sharara
VP international business development, Middle East, Cudd Energy Services. Cudd offers a broad range of technical and specialised oilfield services to companies engaged in the E&P activities.
pressure pumping, hydraulic workover, coiled tubing and well control services.

Terry Willis
Managing director of the Energy Industries Council – A UK based trade association. The EIC provides services to help member companies expand their business in the oil, gas and power sectors in the region.

If national oil companies demand local experience as a prerequisite, how do new firms penetrate the market?

Issam Sharara: Where a contract calls for local experience and local services, we have gone into joint venture with a local company or our existing local agent for that specific project. When a local base is demanded we can activate that local joint venture relationship.

Tawfiq Abu Soud: That may work when you already have oil and gas projects on your portfolio, but without that experience it is much harder to even qualify. This means only existing companies will get work, and no newcomers can enter the market. That in itself is bad for competition and ultimately bad for the oil companies. Of course, when you are specialised to the extent that you are the only person in the market that can do what you do, you don’t have a problem entering any markets. They need you. However, if you are in EPC the oil companies can throw up barriers to new entrants because they think there are already enough players in the market.

Terry Willis: A good example here is Petrofac. Having previously not secured any upstream work in Abu Dhabi, despite an impressive regional portfolio, in September 2008 they signed a joint venture agreement with Mubadala. Since then they have secured around $7 billion worth of Abu Dhabi projects.

Essentially, if you have something to offer and something to give, then finding the right partner is the key, and there are plenty of success stories out there.

Tawfiq Abu Soud: We have on our staff a tremendous wealth of experience in the oil and gas industry.

However, in spite of this, the only way we can penetrate the market is to partner with already well established players in the market and the major EPCs. The biggest problem we are facing is with Western companies. The American and European firms seem reluctant, whereas we have been very successful with the Asian companies who are more willing to play ball.

Are agency agreements an effective way to manage regional business?

Karim Khairy Nasr: We have tried several relationships with agents around the region, and speaking from my own personal experience they have been a disaster. Over the last five years I have managed to establish just one good agent presence in Saudi Arabia, and that pretty much covers it as far as good regional agency experiences go in this area.

Issam Sharara: Agency agreements can be problematic for sure, but in many cases in the Middle East you have to be a registered company in that country in order to get work there – particularly in the Middle East, so in terms of actual investment the risk can be lower.

Terry Willis: Every six weeks I am approached by members who want out of agency agreements because they perceive them as failing in their role. I tend to play devil’s advocate and ask “When did you last see him?” More often than not people reply “a few years ago”. It is important to remember these agents have their own business to run, so unless you are prepared to put the effort and time into fostering these relationships they can quite easily fail through a lack of effort. Companies are very happy to sign on the dotted line and then wait for the work to come in, and in this market that attitude simply does not work. It’s got to be a 50/50 relationship.

Are Asian firms carrying out projects at margins deemed too cheap by local companies?

Karim Khairy Nasr: If companies are willing to sacrifice the profits of today for business tomorrow by putting in low bids then it’s a dangerous game. The terms you agree with an oil and gas company set the tone for how your whole relationship with them will be defined. If you go in cheap, you will be forced to stay at that level.

Tawfiq Abu Soud: We are not in the business of losing money, and we aren’t going to bid so low we lose on a project just for the sake of saying we’ve done it. Doctoring entry pricing is not something Drake & Scull engages in. To get into a market we want to do it right on reasonable terms. I have a responsibility to the shareholders of the company.

Are there softer markets to enter?

Terry Willis: Oman is a good example of a softer entry market. PDO put their contracts on line and its open bidding. Once the technical bid has been accepted the next round is online bidding. That’s when the fun starts.

Conclusions:

Organic growth into the oil and gas sector may once have been possible, but today entry must be through strategic partnerships or alliance agreements. When the industry returns to rampant growth this may become the case again.