23 July 2009
Innovation and operational restructuring constitute a part of the larger strategy of energy services companies battling the impact of erratic oil prices, said Kevin J Hudson, Managing Director of Dubai-based Maritime Industrial Services Company (MIS).
Hudson joined the oil and gas services company, which manufactures products and offers services for the energy sector, in October 2008 when soaring oil prices provided a cushion for the industry. As prices dropped in later months, MIS had already begun rethinking its strategy. The results, he said, have been impressive.
MIS marked targets for each employee and is aggressively trying to ensure they are met through a scorecard system.
Several other factors contributed to MIS "being fortunate" in posting a significant rise in first-quarter performance, said Hudson. The company earned revenue of $147.2 million (Dh541m) in the first quarter of 2009, 80 per cent higher than the same period last year and 18 per cent higher than the last quarter of 2008. Net income stood at $10.4m for Q1, a 246 per cent increase over the same quarter last year and 29 per cent ahead of the previous quarter.
Hudson spoke to Emirates Business on why the company is continuing to perform well. Excerpts:
How has MIS performed in the last six months?
We moved into 2009 with seven contracts in our new-build value stream and a backlog amounting to about $1bn. With two rigs delivered, this value stood at $612m at the end of the first quarter. In fact, we performed very well in the first quarter of 2009.
What accounts for this performance when most other energy and related companies in the sector have suffered?
We have a backlog of work orders from the time when oil prices were at their peak. They should see us through 2010.
Since the drilling-rig market is currently oversupplied, how will MIS manage to remain profitable?
Rig manufacturing is only a part of our business, one that we entered just three years ago. Besides building new rigs we are into rig refurbishment, general fabrication, EPC [engineering, procurement and construction] site projects, technical services and sour gas safety services. The sour gas related business accounts for 10 to 15 per cent of our revenue and has been growing. It's an attractive business proposition in the region where this type of gas is abundant. We provide this service through our Sunbelt H2S Safety Services segment.
What changes has the last six months, of a rather gloomy business scenario, introduced into your company?
We are now choosing projects for which we tender. We put our resources into projects that we have a serious chance of winning. As for improving our human resources and other organisational areas, we have introduced the balanced scorecard system, which is a performance management tool. It may not be our invention but it certainly has helped us a great deal. We have decided where we want to improve and have set a measure to rank achievements of each employee. Every individual, from the company's managing director to the employee responsible for the photocopy machine, is incentivised on this scorecard. We have done a lot of work on communication.
What changes have emerged as a result of these measures?
We are substantially more cost-effective now than we were before. Our conversion ratio - the ratio of projects we tender to the number of projects we are awarded - has improved by 50 per cent. We have been able to cut costs substantially.
Do low oil prices impact companies like MIS?
There is definitely a link between oil prices and exploration activity. Though oil prices may not have an impact on our cost of operations, whether the end-user wants that product depends on the oil price. We saw a slight impact when the steel and copper prices dropped during recession. We use steel in construction and copper in cables. We get workers from the Indian Subcontinent and that cost has not dropped substantially.
Oil companies were making decisions based on oil prices of $70 a barrel about 24 months ago. It's strange that two years later, the decisions are not being made as much at the same prices levels.
Considering you are located in a region where national oil companies (NOCs) hold all the oil reserves, would it be correct to say that NOCs drive your business?
Yes. Most of the businesses in the region are driven by NOCs. They may award work to subcontractors and it may finally come down to us. These NOCs continue to have work and they are still tendering. Interestingly, the Abu Dhabi National Oil Company (Adnoc) will give more orders this year than it did last year. They are trying to benefit from the low construction costs.
The company is listed in Norway when almost all of its operations are in the Middle East. Why?
It's because the Norway stock markets understand the oil and gas and associated industries very well.
Any new products that MIS has introduced as a result of the global financial crisis?
We are looking to build vessels that could be used in the installation of wind energy equipment. We see a demand for it in North America and Europe. We are also focusing more on EPC contracts (on land).
Do you see demand for such vessels in this part of the world?
I think that with the establishment of International Renewable Energy Agency (Irena) in the UAE, we will see such technologies being promoted.
But has not the focus largely been on solar energy?
Wind energy is prominent for this region, especially during winter months. The contours of the region are flat and that's very good for generating wind energy.
PROFILE: Kevin J Hudson Managing Director of Maritime Industrial Services Company
Hudson, 50, has been the Managing Director of MIS for 10 months.
In his career spanning 34 years, he has held various positions in the shipbuilding industry from that of a Design Engineer to the CEO.
He is a graduate in naval architecture and shipbuilding.
Innovation and operational restructuring constitute a part of the larger strategy of energy services companies battling the impact of erratic oil prices, said Kevin J Hudson, Managing Director of Dubai-based Maritime Industrial Services Company (MIS).
Hudson joined the oil and gas services company, which manufactures products and offers services for the energy sector, in October 2008 when soaring oil prices provided a cushion for the industry. As prices dropped in later months, MIS had already begun rethinking its strategy. The results, he said, have been impressive.
MIS marked targets for each employee and is aggressively trying to ensure they are met through a scorecard system.
Several other factors contributed to MIS "being fortunate" in posting a significant rise in first-quarter performance, said Hudson. The company earned revenue of $147.2 million (Dh541m) in the first quarter of 2009, 80 per cent higher than the same period last year and 18 per cent higher than the last quarter of 2008. Net income stood at $10.4m for Q1, a 246 per cent increase over the same quarter last year and 29 per cent ahead of the previous quarter.
Hudson spoke to Emirates Business on why the company is continuing to perform well. Excerpts:
How has MIS performed in the last six months?
We moved into 2009 with seven contracts in our new-build value stream and a backlog amounting to about $1bn. With two rigs delivered, this value stood at $612m at the end of the first quarter. In fact, we performed very well in the first quarter of 2009.
What accounts for this performance when most other energy and related companies in the sector have suffered?
We have a backlog of work orders from the time when oil prices were at their peak. They should see us through 2010.
Since the drilling-rig market is currently oversupplied, how will MIS manage to remain profitable?
Rig manufacturing is only a part of our business, one that we entered just three years ago. Besides building new rigs we are into rig refurbishment, general fabrication, EPC [engineering, procurement and construction] site projects, technical services and sour gas safety services. The sour gas related business accounts for 10 to 15 per cent of our revenue and has been growing. It's an attractive business proposition in the region where this type of gas is abundant. We provide this service through our Sunbelt H2S Safety Services segment.
What changes has the last six months, of a rather gloomy business scenario, introduced into your company?
We are now choosing projects for which we tender. We put our resources into projects that we have a serious chance of winning. As for improving our human resources and other organisational areas, we have introduced the balanced scorecard system, which is a performance management tool. It may not be our invention but it certainly has helped us a great deal. We have decided where we want to improve and have set a measure to rank achievements of each employee. Every individual, from the company's managing director to the employee responsible for the photocopy machine, is incentivised on this scorecard. We have done a lot of work on communication.
What changes have emerged as a result of these measures?
We are substantially more cost-effective now than we were before. Our conversion ratio - the ratio of projects we tender to the number of projects we are awarded - has improved by 50 per cent. We have been able to cut costs substantially.
Do low oil prices impact companies like MIS?
There is definitely a link between oil prices and exploration activity. Though oil prices may not have an impact on our cost of operations, whether the end-user wants that product depends on the oil price. We saw a slight impact when the steel and copper prices dropped during recession. We use steel in construction and copper in cables. We get workers from the Indian Subcontinent and that cost has not dropped substantially.
Oil companies were making decisions based on oil prices of $70 a barrel about 24 months ago. It's strange that two years later, the decisions are not being made as much at the same prices levels.
Considering you are located in a region where national oil companies (NOCs) hold all the oil reserves, would it be correct to say that NOCs drive your business?
Yes. Most of the businesses in the region are driven by NOCs. They may award work to subcontractors and it may finally come down to us. These NOCs continue to have work and they are still tendering. Interestingly, the Abu Dhabi National Oil Company (Adnoc) will give more orders this year than it did last year. They are trying to benefit from the low construction costs.
The company is listed in Norway when almost all of its operations are in the Middle East. Why?
It's because the Norway stock markets understand the oil and gas and associated industries very well.
Any new products that MIS has introduced as a result of the global financial crisis?
We are looking to build vessels that could be used in the installation of wind energy equipment. We see a demand for it in North America and Europe. We are also focusing more on EPC contracts (on land).
Do you see demand for such vessels in this part of the world?
I think that with the establishment of International Renewable Energy Agency (Irena) in the UAE, we will see such technologies being promoted.
But has not the focus largely been on solar energy?
Wind energy is prominent for this region, especially during winter months. The contours of the region are flat and that's very good for generating wind energy.
PROFILE: Kevin J Hudson Managing Director of Maritime Industrial Services Company
Hudson, 50, has been the Managing Director of MIS for 10 months.
In his career spanning 34 years, he has held various positions in the shipbuilding industry from that of a Design Engineer to the CEO.
He is a graduate in naval architecture and shipbuilding.
By Shashank Shekhar
© Emirates Business 24/7 2009
