The new CEO of Omani contractor Al Hassan Group, Steve Scott, knows that the job he has taken on is less than straightforward or conventional.
After ex-CEO Peter Hall departed from the post in January 2014, his replacement lasted just three months before stepping down in April. The role remained vacant until Scott stepped in two months ago.
And though the company continued to manage a string of new contract wins throughout 2014, it declared a full-year loss of OR1.4m ($3.7m) despite a 22% increase in revenues to OR76.3m ($198.2m).
It is, therefore, perhaps understandable that when asked by Construction Week why he wanted to take on the role, Scott answered, “the challenge”. Scott has spent almost 30 years in the industry, albeit with some of the larger engineering consultancies directly servicing the oil & gas market.
After a 28-year spell with Foster Wheeler in various divisions in Europe and Africa, he spent just under two years with KBR as vice-president of its downstream business for the company’s Europe, Middle East and Africa region.
He said the roles he had enjoyed most within Foster Wheeler were those where he was directly running its trading, or profit and loss (P&L).
“The role I had with KBR was [for] a business line, rather than a P&L role. So, to be honest, I felt it wasn’t quite giving me the challenge that I was looking for. When the opportunity here was identified, I thought, “that’s interesting”.
“So I had some discussions with the owners, came on a visit and did a bit of due diligence. I’ve got to say that the company has had some challenges in terms of execution, but it is fundamentally a very solid, well-respected company in Oman.”
For instance, in its accounts for 2014, the firm blamed its loss on delays to some of the big projects it is working on, which have meant that clients have rescheduled completion dates and delayed final payments. Despite this, it still managed to grow its revenues by 22% and the amount of business it has carried forward into 2015 stood at a record high of OR145m ($376.7m).
“What I saw was an opportunity to come and take the reins of a company that has strong foundations, a very good reputation but needs to move up the development curve from being a good construction contractor to a good EPC contractor.”
The company does get involved in EPC contracts, but usually as a subcontractor for major multinationals in Oman and the UAE.
For instance, it is currently working on a subcontract at the Musandam Gas Plant being built by Hyundai Engineering & Construction (E&C) in northern Oman. It is also working for the same client on two contracts at the Satah Al Razboot (SARB) offshore oilfield in Abu Dhabi.
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Al Hassan currently makes around 25% of its revenues from the UAE market, where Scott says the company has “a broad spread of customers”.
“We’re working with the ADNOCs (Abu Dhabi National Oil Co) and the Gascos (Abu Dhabi Gas Industries) of this world, as well as some of the bigger international construction or EPC contractors. It’s a good, solid marketplace for us and one we will look to develop as time goes by.”
However, despite the fact Oman is more reliant on oil & gas sales for its income, Scott sees greater opportunities in his firm’s home market.
“The Oman marketplace is very solid – even with the reduction in the oil price. The clear message that I am getting from our clients here is that capital investment will continue. There will be sensible cost reduction by our clients but they are going to continue with their capital programmes.”
Jason Tuvey, an analyst with Capital Economics, said that Oman’s economy has performed well over the past 12 months, but is “vulnerable” to lower oil prices.
“The economy might be able to muddle through for a year or two. However, spending cuts will be needed sooner rather than later,” he stated.
“I think the market is fine,” Scott argued. “If I look at the hydrocarbons sector here, there’s lots of gas. A lot will be exported and a lot of it will be used to generate power.”
He said that Oman needs power for its infrastructure development and that state-owned Petroleum Development Oman has a programme to develop a number of gas-fired plants in the coming years.
“So the power market for us is an opportunity – we are working in it today. If we’re looking in the downstream sector, the current major investment in Sohar by Orpic, the Sohar Refinery Improvement Project, we are working on that and we expect to continue until next year.”
He points to the proposed Duqm refinery and Liwa plastics facility as other opportunities, and said that the infrastructure market remains active.
“I look at the next five-year horizon for Oman and just in those areas, for a company like Al Hassan there will be major opportunities for us to secure business.”
His big focus will be a move into the EPC market serving oil & gas, petrochemicals and power projects. He
acknowledges that this will require the company to strengthen several areas of operations – most notably its engineering capability, its project controls, project management and supply chain management functions.
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“We’ve talked with the board about this and there is clearly support for us to do whatever is necessary to move in that direction,” Scott said.
He also believes that if successful, Al Hassan could become the only truly local EPC company in the market, which offers it a big advantage with the Sultanate’s initiatives around Omanisation and In-Country Value.
The company currently has an Omanisation rate of just over 20% but the Ministry of Manpower has set a target of 30% for the sector.
“That’s quite a challenge, I’ve got to say. We sit at nearly 21%, which I think in our peer group is good. It will have to get better. There is no doubt about that.”
Its proposed move from general contracting into EPC is risky, though, as anyone who has followed the fate of Saudi Arabian contractor Mohammed Al Mojil Group over the past six years can testify. Yet Scott believes it is one worth taking. “It’s the nature of the beast.
“The reality, in the Gulf, is that you can’t avoid EPC. “That’s not to say that all of our business [will be] EPC. We want to get a balance between the higher risk, higher return type of business, which would be EPC, and the more traditional construction business that Al Hassan has engaged in over the years. In order for us to execute EPC successfully, it goes back to strong supply chain management [and] in-house engineering capability, because engineering drives everything on a project.”
He says there are three routes open to Al Hassan for building these skills. One is organic growth, another would be to acquire an existing business, and the third would be to enter into a “real” joint venture, as opposed to one that is created for a specific project.
“Something will happen, we just have to decide what it is going to be. And it has to be the right thing. I would rather slow down our ambition to make sure we get the right solution than put forward taking business that we then have challenges in executing because we haven’t got our arms around the engineering.
“This is a good company. It’s developed well, up to a point. In order to develop further, it needs to be further professionalised. There needs to be an enhancement of the organisational strength, of the tools, systems and processes that it uses, of the risk management systems and we need to ensure that we retain good talent. None of that is rocket science – it’s just doing it.”
