A production services page turner
  from: Offshore Engineer
  by: Darius Snieckus
  Friday, May 16, 2008

In 2007, a year after cutting the cord from parent company KBR via a management buy-out, Aberdeen headquartered Production Services Network set itself the target of establishing three new international businesses inside 12 months to push revenues past the $1 billion mark – a target broken less than nine months later. As the fast-growing global service contractor turns two, Darius Snieckus sits down with CEO Bob Keiller.

The plot is quickly thickening in the Production Services Network story. Two years ago this month, led by chief executive Bob Keiller, the Aberdeenheadquartered services contractor set the seal on a $280 million management buy-out from then-parent company KBRHalliburton (OE July 2006); on its first anniversary, having amassed new contracts totalling more than $700 million, it set the bar even higher, pledging to create three new international businesses inside 12 months; by January of this year – with PSN KazStroy in Kazahkstan, Sakhalin Technical Services Network (STSN) in Russia, and PSN Grasso in the US Gulf all bedding in – the contractor had ‘smashed’ its own targets four months ahead of schedule, underpinned by turnover of $1.3 billion, an orderbook worth $2 billion, and work secured through to at least 2013.

Success that this first two years has unquestionably been however, it tells only half the tale. ‘The challenges initially were about getting through the transition to becoming an independent company, making sure we were profitable and that cash flow was positive as well as delivering to our customers and to our staff – and that was just the first few months,’ offers Keiller. ‘There was also the matter of removing ourselves from the legacy support systems – financial, procurement, HR – so we had to effectively rewire the whole of the backoffice too – a process that had to be done in six months.’

‘None of this was visible to the vast majority of staff or to our customers of course, but still meant that we were paddling hard beneath the surface – hopefully while giving the impression of a swan gliding along the top,’ he adds. The legwork paid off. After a year, Keiller underlines, ‘PSN had grown, won new customers, never once been in overdraft, and had no-one seriously hurt while in our employ, so had met all our primary objectives – in fact had done somewhat better than we had hoped and all of the customers which had contracts up for renewal during this time elected to renew with us.’

The ‘second chapter – 2007’, as the PSN chief puts it, has been ‘about building on what we had achieved to this point’. To extend the metaphor, the last year has been something of a page-turner, with strategic acquisitions central to the plot. So while the contractor added key brownfield contracts to its orderbook through a breakthrough three-year assignment with Origin Energy in Australia for engineering modification design activities for the onshore Lang Lang gas processing plant in Victoria and the offshore Yolla gas production platform in Bass Strait, and a three-year ‘portfolio strengthening’ deal with Centrica Storage in the UK as a providers of mechanical, electrical and instrumentation design services at the Rough gas storage facility and Easington terminal, takeovers and joint ventures have moved the PSN narrative ahead.

Last August, PSN got the wheels turning on the JV with TransStroy Sakhalin, STSN, securing an engineering services contract with ExxonMobil that together with a technical support services deal signed earlier in the year with the Sakhalin Energy Investment Company are seen as ‘firmly establishing’ PSN in the far eastern Russian market. The contractor next acquired Gulf of Mexico contract operator Grasso Production Management via a $22.5 million transaction with Bristow funded from cash reserves, the November takeover ‘expanding PSN’s footprint, giving us critical mass’ in the US offshore market. As 2007 turned into 2008, PSN put the final touches to the last of its ‘pledged’ new business-establishing moves: formation of PSN KazStroy, a JV with Kazakhstan’s largest engineering, procurement and construction company, KazStroyService.

And while all this was going on, the contractor reported its first financial results – for its first eight months of independent operation, with chief financial officer Duncan Skinner announcing 2006 revenues of just under $800 million and earnings before interest, tax and exceptional items of just under $42 million – equal to growth of 35% on revenue and 34% on EBITDA (earnings before interest, tax, depreciation and amortisation) compared to 2005. Year-end results for 2007 are due out this month, and Keiller is ‘quietly optimistic’ that PSN ‘will be able to continue the good news story that we started with the figures reported last year at this time’.

Tartan day

Despite its rapid advance into new markets and regions, the acquisition trail, as Keiller underscores, has not gone cold. ‘We committed in our pledge in May 2007 to create three new business but we didn’t intend stopping there. Since then, in March, we acquired Tartan Engineering in Calgary which is a hugely exciting acquisition because western Canada is a brand new market for us. Where the Grasso acquisition was about consolidating and building new services in an existing market, we had no one working full time in western Canada and now we have a new team – and what a great name for a Scottish company to buy!’

‘Just as we keep our ear to the ground for new contracts, we also want a steady stream of acquisitions to look at,’ he continues. ‘Not that we plan to do them all but we do want to look at strategic acquisitions as a way of supplementing the organic growth of the business.’

Taking over Tartan, a 30-year old private Canadian-owned company specialising in engineering, procurement, construction and management in the energy and utilities markets, will also double the headcount at PSN Canada, which until now was represented by a 150-strong ‘engineering hub’ office in St John’s, Newfoundland that was chiefly engaged in handling engineering, procurement and construction (EPC) services for the giant offshore Hibernia development.

The Canadian market is mushrooming for PSN at the moment, states Keiller, though it is one where the contractor is finding ‘selectivity’ is likeliest to pay dividends. ‘A company like ours that is built on a networking philosophy must be able to provide solutions for a good number of the projects in a market like Canada’s. Some of the opportunities involve massive investment in massive projects and we are not going to pretend we are in a position to carry out billion dollar projects, but for every major project there are going to be several smaller, chunkier projects that we think we are going to be able to provide solutions to, especially where some of the other engineering teams are occupied with the bigger pieces of work.’

One of those ‘chunkier’ brownfield assignments came PSN’s way as it was hammering out the Tartan takeover. In January, PSN Canada was awarded a fiveyear contract extension to provide EPC services for all of PetroCanada’s East Coast Canada operations, with a ‘primary focus’ on the Terra Nova FPSO, where the contractor has been ensconced since 2002. The deal is felt to be ‘positioning [the company] well in Canada for continued expansion’ of its regional business.

Another plum assignment came back on its home patch, with the March award of a pair of contracts by Canadian independent Nexen for continued operations and maintenance support for the UK North Sea Scott/Telford and Buzzard fields, along with offshore modifications, hook-up and commissioning services for the operator’s new Buzzard Enhancement Project. Together worth some $100 million, the latest Nexen contracts are viewed as a reinforcement of ‘similar values, such as corporate commitments to operating ethically and investing in people’ that the two companies share. They also mean extending a relationship that began with the Buzzard design process in November 2004 through to ‘2010 and beyond’.

‘Our core values of relationships and quality of the people have been central to these two contracts,’ suggests Keiller. ‘A lot of the systems and processes being used on Buzzard are being supplied by the client, so we couldn’t differentiate ourselves there. But we could differentiate ourselves by how well we worked with Nexen on a dayto- day basis and the quality of the people we put forward for the job.’

Speaking to OE in 2006, Keiller made the point that greenfield developments changed into brownfield as soon as they came onstream. As PSN has evolved, he says, this approach has led the company to ‘avoid replicating what others are doing by building a huge greenfield capability – which brings with it a substantial risk profile’.

‘Ours is a service business rather than project delivery and investment business,’ Keiller stresses, ‘and, so far at least, I believe this has helped our people to stay focused on what we do well – and avoiding the temptation of thinking: “Now that we are independent we can become what KBR used to be.” So thinking of ourselves as somewhere between greenfield and brownfield has been helpful is this way. It has helped maintain focus and direction – and helped with the visibility of future business.’

‘When we were effectively a department of a large US multinational we behaved in a way befitting that; after the MBO when we were new-start, if not upstart, we behaved accordingly; now we are established and steadily growing the business we are adopting a different way of working and there is a long story ahead of us,’ he concludes. ‘We are not working from a six-month plan, we are thinking 10, 15 years into the future and how we can build PSN sustainably.’ OE

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