Lamprell has reasserted its dominance of all things in oil rigs with a bumper 2011 order book and the acquisition of MIS. Oil & Gas Middle East catches up with CEO Nigel McCue to discuss the company’s renewed focus on the Middle East
2011 has been a great year so far for Lamprell. The specialist engineering services firm completed a game-changing acquisition of Oslo-listed neighbor Maritime Industrial Services (MIS) in July, and has won $316 million of new contracts, with a healthy order book of $869 million as of June this year.
The company recorded a gross profit of $79.7 million on revenues of $503.8 million at the end of 2010, having been through a period of higher volume, lower value rig refurbishment work in the aftermath of the financial crisis.
Lamprell also did well in the aftermath of the Macondo disaster in the Gulf of Mexico, as companies saw increased value in having up-to-date rigs with higher capacities and greater efficiency that can cope with harsh conditions.
In addition to its core refurbishment and fabrication businesses, Lamprell has diversified into the construction of wind farm turbine installation vessels. The firm is currently building two 14,000-tonne installation vessels bound for the North Sea and a third for Seajacks.
Lamprell also closed its Asian operation in Sattahip Port, Thailand last year, and is now focusing more heavily on winning work within the region. As CEO Nigel McCue puts it, Lamprell is “very well placed locally. We want to develop here now as two thirds of the world’s oil reserves are within the region, so simplistically two-thirds of the capital expenditure will be within the region.”
MIS
Lamprell made it known early this year that it wanted to put its supportive institutional equity backing and $136.8 million net cash, debt-free balance sheet to use by making a tactical acquisition in the region. The company only had to look to its neighbor in Sharjah for a suitable candidate.
Lamprell’s acquisition of MIS is one of the trade stories of the year so far. The purchase, completed on 13 July, seals the company’s dominance of the regional rig refurbishment and fabrication market while putting it at the heart of key markets in the Middle East’s EPC sector.
Lamprell is an established name in the construction of LeTourneau designed Super 116E rigs, whereas MIS has concentrated on a different design, the Friede & Goldman F&G Super M2. “We will be one of the few yards in the world that can offer both designs,” explains McCue.
MIS is a diversified engineering and contracting group focused on the energy sector. The firm has built businesses in the key Middle East markets of Saudi Arabia and Kuwait – both considered difficult to enter from scratch – and has a foothold in the nascent onshore services market in Iraq and Kurdistan. Despite this, the company has seen below-par contract wins, which made it an ideal acquisition target for Lamprell.
Once integrated, the new business will boast over 10,000 employees and more than double Lamprell’s current headcount of skilled engineers and staff. McCue says that the acquisition “provides a significant increase in our engineering capabilities, which we require for getting engaged in large projects.”
“We will also be getting increased capacity in the form of extra yard area: 900,000 square metres and 2.2 kilometres of frontage, which is important for refurbishment of jack-up rigs and for load-outs,” explains McCue.
But there is more to the purchase than simply bolstering engineering capacity: in many ways, the two companies – once competitors in some markets – are a perfect fit, which is why McCue is confident MIS will deliver value to shareholders almost immediately.
Lamprell dominates the offshore rig fabrication and refurbishment market, whilst MIS has significant strength and expertise in a number of onshore operations. MIS currently works in refurbishment – mainly refineries and onshore – EPC, operations and maintenance, fabrication and safety training.
Put together, MIS and Lamprell form a regional oilfield services giant with the potential to business across the spectrum of onshore and offshore engineering services work.
“As far as refurbishment is concerned, MIS has traditionally been an onshore refinery and process part of the business, which complements what we do offshore,” explains McCue. “We want to develop the refinery and upstream processing aspect of the business within the region,” he says, noting that this is a small component of MIS revenue streams to date.
In addition to MIS’s core business, Lamprell takes on Litwin PEL, an Abu Dhabi based EPC and PMC firm acquired by MIS that boasts recent local wins from Gasco and Borouge, and a joint venture with Kavin Engineering, an engineering services supplier to both onshore and offshore markets. McCue says the additional engineering capacity and capability is “important to some of the work we will be doing going forward.”
Lamprell has traditionally looked to international markets for customers. McCue now sees orders within the region as being a key source of growth. MIS has a “much more developed regional presence, in Saudi Arabia, Kuwait and Iraq, and are also very strong in the UAE onshore” says McCue. This allows both Lamprell and MIS to pitch for a wider scope of work, confident that there is little overlap between the customer bases of the two businesses.
Consolidation
While McCue is “very keen that both companies will become fully integrated,” and aims to have the companies integrated in three to six months, Lamprell are not going to be swallowing the valuable MIS brand any time soon. “‘MIS’ is a very strong name in many markets, so we will continue to use it,” McCue explains. “All the businesses will be globally branded ‘Lamprell’ but MIS will keep its identity.”
In a quiet regional deals market for the industry, Lamprell’s purchase of MIS from private equity firms Gulf Capital and Amwal AlKhaleej, is also an encouraging sign for private investment in the oilfield services sector.
McCue explains that the deal came about “partly from some of the founding shareholders who were ready to exit the business.” The sale of MIS to Lamprell for $336 million caps an almost five-year holding period by Gulf Capital and Amwal AlKhaleej, during which revenues and profits went up by 203% and 184% respectively. The shares were sold to Lamprell at a 13% premium over their market price.
Is Lamprell’s acquisition of MIS reflective of a wider trend? McCue believes so. Compared to the Europe and the US, “there is a lot more scope for further consolidation within the region,” he says.
Banner deals
The company is established as the leading refurbishment contractor by number of jackup rigs in the Arabian Gulf. In addition to a steady stream of rig refurbishments and upgrades, high value new build projects have been pouring to Lamprell over the last year.
In July 2010 Lamprell won a $317m contract from Abu Dhabi’s National Drilling Company for the construction of two S116E jackup rigs. The company expects the second of these to be loaded out from its Hamriyah facility by July 2012.
In November, the firm received a $210 million new contract award from Eurasia Drilling Company for the construction and delivery of a completely outfitted and equipped 116E (Enhanced) Class rig. Lamprell is currently building the rig in modular form in Hamriyah for transportation to and completion in the Caspian Sea.
The crowning achievement in Lamprell’s land rig-building business came at the end of March this year, when the company won its biggest ever rig order, from Weatherford. Lamprell is in the early stages of building two 3000HP land drilling rigs, with a total contract value to the company of $41 million.
The rigs have a static hook load capacity of 1,500,000 lbs and 800,000 lbs set back capacity. Lamprell is fabricating the rigs at its yard in Jebel Ali, Dubai, with the project planned for completion in Q1 2012.
When it comes to what gives Lamprell such a dominant position in the regional rig market, McCue is clear. “I have a simple mantra: we deliver on time, on budget and to high quality,” he says. “Many of our clients with large capital equipment wish to contract pre–completion, so they have to have a lot of confidence in our yard. They put their faith in us to deliver.”
“Similarly on rig refurbishment, we are the number one company in the world, we have over 90% of the regional market, and this has been based upon our delivery strengths, which is why we have so much repeat business.”
Hamriyah
That burgeoning reputation has driven Lamprell to acquire more space, both to meet current demand and develop their offering to clients. In 2009 the firm signed a 25 year lease for 250,000m2 of additional land in its Hamriyah Free Zone facility, and the $80 million investment the company has ploughed into the yard is due to result in a complete, state-of-the-art fabrication and refurbishment facility by the end of the year.
This land, when fully developed, will have 1.25 kilometres of direct quayside access and a low tide water depth of 9 metres. McCue says the upgrade will be completed by the end of the year, with five major projects already ongoing in the new facility.
The newly-dredged dock will allow Lamprell to accommodate semi-submersibles and drillships, areas of work which were less practical in its other facilities.
When completed in 2011, the New Hamriyah Facility will be one of the most modern in the Middle East, with a quayside capacity to execute up to 10 jackup rig upgrade and refurbishment projects at any one time.
It will also contain large covered and open fabrication areas that will allow the Group to undertake major new build projects, such as the construction of jackup rigs.
Having succeeded in acquiring MIS and building capacity locally, McCue is positive about the future of investment in the region. “I’m very bullish on the oil price,” he explains.
“Because of this I see investment continuing in the region, both onshore and offshore. The demand for energy and hydrocarbons in the region is going to increase significantly. I think Lamprell is geographically well-placed to exploit that demand.”
Lamprell in a nutshell
Nigel McCue says that if there’s one thing people misunderstand about Lamprell, it’s because of the company’s long-standing pedigree in rig refurbishment, saying “I think there is a belief that we are still a rig refurbishment company, when in fact we have a much broader offering.” With that in mind, here’s a potted history of Lamprell:
1974 – Established in Dubai as a family engineering business, including Lamprell brothers Alan, Robert and Steven (who remains President today)
1989 – First accommodation jackup rig conversion
1992 – First jackup rig refurbishment
1995 – Begins to diversify into oil rig construction
2002 – Completion of new facility in Jebel Ali Free Zone
2006 – Lists on London’s Alternative Investment Market (AIM)
2007 – Wins “Best Newcomer” to AIM after stellar performance in 2006
2008 – Moves public listing to main market on London Stock Exchange, opens Asia facility in Sattahip Port, Thailand
2009 – Acquires new site in Hamriyah Free Zone, group revenue reaches 17 times that in 2000, profit 26 times.
2010 – Closes facility in Thailand due to poor market conditions
2011 – Acquisition of Maritime Industrial Services, Completion of Hamriyah Free Zone facility (expected Q3)
