In an interview, Thierry Pilenko, Chairman & CEO, Technip, decrypts his method: early involvement in the architecture of projects to optimize costs.
A barrel that is worth less than 50 dollars, what does this mean for Technip´s activities?
Our motto is ´do not panic´. This is not the first time that we have experienced such a situation. In 2009, when the barrel fell to $35, we chose to continue our strategy, to continue to hire and to give the company future prospects. Today, for different reasons, we are in the same situation. Our priority is to execute our projects well.
Will you trim investment in new projects?
No. We have even engaged investments for new pipe lay vessels for example. We will go to the end because it would not make sense to stop everything now. You know, we have an advantage over many of our competitors - we have good visibility. We have a record backlog which reached nearly 20 billion euros at the end of the third quarter in 2014, and after two exceptional years, 12 billion euros of orders won in 2013 and also 12 billion in the first nine months of 2014. We are entering a time of uncertain markets with a well stocked backlog.
The year 2015 will be mainly dedicated to the execution of these projects. For example, we won the Kaombo project in Angola, which is the largest subsea development project ever undertaken. The Technip share is $1.9 billion. And of course, we won a major gas liquefaction plant project on the Yamal peninsula in Russia, for Novatek, Total and CNPC, a contract of 4.5 billion euros.
These large projects were launched with a barrel at $ 110 or 120, will the collapse of markets constrain you to review your plans?
Even during the financial and oil crisis of 2009, no major projects were stopped, outside the strategy changes. Only a geopolitical crisis can really end a megaproject. It is virtually impossible to stop projects that have been launched. This would be extremely expensive. When construction starts, oil and gas companies pay advances to contractors. We then have a commitment to a chain of suppliers to order pipelines, rotating machines, various equipment...if the client stops, he loses out considerably!
Do your oil and gas clients put pressure on you?
With a barrel at $50 or less, our clients will obviously wonder about their projects. They will reduce their exploration efforts as a first step and consider ways to optimize their expenditure.
Then they will look at their portfolio of new projects. Those which will be under the breakeven point can be shifted, as for Canadian oil sands, shale oil projects or some fields in the North Sea. Strategic projects, even if they are not profitable in the medium term, will be maintained. We must not imagine that everything will stop.
Oil and gas companies don´t request you make an effort to save money?
This is not what I say. Even before the oil prices fell, our clients had expressed their wish to see the emergence of cheaper alternatives. Over time, oil projects have drifted: They have become more complex (extreme cold, deep offshore ...) and therefore more expensive. Over the past year, some of our clients have sought new ways of working to find solutions at the right cost. What was true in an environment at $100 per barrel, is even truer today!
Would you say we are entering into a low-cost oil era?
Let´s say we need to find the right cost. We do not need ´gold-plated´ solutions. We can use more standardization. And projects can be developed in a more sequenced way, without taking into account the entire life of an oil field. That may have pushed to oversized installations. More and more small oil and gas companies ask us to deploy standard solutions already deployed elsewhere.
Does it modify the solutions that you put in place?
We have lots of ideas to be more effective. For example, we have worked upstream for eighteen months with one of our clients on a gas project and we have reached a solution 20 to 30 per cent cheaper, integrating the subsea development and production platform, ensuring a high level of safety. This was possible because we worked very early, at the concept stage with our client.
At this stage, we don´t go into details, but we make a lay out of the project. This conceptual design part has been for a long time the prerogative of our clients who told us ´we are the architects, you are the plumbers.´ Except that by seeing many projects, we began to expand our portfolio of solutions ... and we have become also a bit architects.
It is in this perspective that you wanted to acquire the specialist of seismic CGG ... When we are awarded a project, the sheet is not white: there are the wells. Clients ask us to better understand this part under the surface, ie the deposit and drilling, and integrate them in our field development activities. This subsurface skill does not exist at Technip.
We could acquire it through organic growth, alliance or acquisition. When we thought about CGG, our goal was to quickly reach a critical mass on the upstream ... CGG was a way, but there are others.
This means that you keep your project of diversification?
There are two types of companies. On the one hand, those which are pure players, specialized drillers for example. They go into a war of commodities without difference in technology, where only efficiency counts. And there are the companies that are successfully integrated horizontally and create new solutions, such as Technip, Haliburton, Schlumberger....
In my view, the only sustainable solution is to offer a broader spectrum of solutions to our clients. It is the only one which guarantees us not to get into a war of prices.
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