Wood Group is an icon of the North Sea success story and an Aberdeen company that blazed a trail internationally, to boot, initially led by its founder and chairman, Sir Ian Wood and now CEO Allister Langlands.
Langlands believes Wood Group is well placed for future challenges, but that the breadth (and depth) of engagement might not be fully noticed.
The company has changed a lot over the past decade alone, from 20 or 40 quite small businesses to a cadre of significant names – such as US acquisition Mustang Engineering which alone employs more than 4,000 people.
The group employs some 25,000 and achieved sales of $4.4billion in 2007. There are three umbrella businesses – engineering and production facilities, well support and gas turbine services.
Of these, the most familiar brand, in many ways, is Wood Group Engineering & Production Services, whose portfolio is split roughly 40% upstream, 30% pipeline and 30% downstream.
“We now have a very broadly based engineering business … strong upstream, including in deepwater, subsea and offshore pipelines,” says Langlands.
“But we’ve also grown quite a strong onshore pipeline engineering design business and do a lot on the downstream and process side, though that may not be as visible to everyone sitting here in Aberdeen.”
While engineering is especially strong at home and in the Americas, Langlands sees a big emphasis on the Eastern Hemisphere.
“That’s where we see the growth in the next three to five years … focused on areas like the Middle East. We’re working to organically build the resources we have on the ground out there; we’d also love to do acquisitions.”
He sees Abu Dhabi and Saudi Arabia as particularly important, but doing more in North Africa is also high on the agenda.
“I think Libya will open up for significant new projects over the next two to three years. In Egypt, we do quite a bit of pipeline work and we’re also active on the well support side. It’s probably a market that we don’t know as well as we should; it’s one we’ve said we need to do a bit more work on. Of course, it’s a mature market and there are players who have been there a while.”
While in Africa, Langlands sees Equatorial Guinea and Angola as dominant, with the possibility of adding emerging energy players such as Ghana. Continuing the look east, he wants to build on existing positions, especially Australia and Malaysia – and India as an engineering hub. Notwithstanding Eastern promise, Langlands is clear about just how important Wood Group Engineering’s Americas business is as it generates 50% of unit revenues (40% North America; 10% Venezuela). While much of that is within the Americas, there is also a feed into Africa.
Says Langlands: “It varies. With JP Kenny, we probably look at Africa from a UK perspective, and London looks after that. With Mustang, we tend to look at West Africa from a Houston perspective. Our US clients often want to manage their projects out of Houston. But we have been building our London office for Mustang and we’ve got about 200 people now based in Woking and they’re doing quite a bit of work on Middle East and African projects.”
Burrow deeper and one finds a company succeeding in most places. Look at JP Kenny and the major subsea trunk-lines. This subsidiary has probably been involved in more than 60% of those globally.
But where does Langlands see the Wood portfolio in five years?
“Today, the mix is 40% North America, 30% Europe and 30% rest of world. Looking ahead, I think we’ll see the rest of the world growing and both North America and Europe coming in lower as a percentage.
“But that depends not only on what you do in those countries, but also how successful you are in the rest of the business.
“I think a third in North America, maybe 25% in Europe and the balance rest of world is the most likely scenario. Within rest of world, we shouldn’t forget Latin America – that’s 10% of sales globally today.
“The most significant areas of growth we see are Middle East, West and North Africa and Asia-Pacific, with a bit in the Caspian as well.”
With all the rhetoric about Western oil majors (IOCs) being shoved out of the way by NOCs (national oil companies), it is important that companies like Wood Group take account of such changes.
And Langlands does: “If you look at our client base, we have a good mix of IOCs and reasonable business with the NOCs. In reality, we probably work with all the NOCs today. For instance, with our valves and wellhead business, two of our biggest clients are Pemex and Saudi Aramco.
“The NOCs are very important long-term targets. We all know that the majority of reserve outwith Canada are held by the NOCs, and they will become an increasingly important part of our portfolio.
“But I certainly don’t write off the IOCs and major independents. They will continue to be a very significant part of our overall business for many years to come.
“Look at the large complex projects, like Shtokman with Total involved, or West African projects with Shell, BP, Chevron and Exxon participating. I think we’ll continue to see their significant involvement in large complex projects, which fits well with our market-leading positions in deepwater and subsea engineering.”
Turning to gas turbines, another very large chunk of the group, Langlands is frank that not everything has worked out. By this, he means engagement with aero-engines, an aspect that has been all but wound down in recent times.
Nevertheless, Wood Group is strong in industrial applications (mostly offshore and power generation) and results tell us that.
“It’s on a very strong growth footing with revenues up 34%, profits up 69%,” says Langlands.
“Overall, the business today is roughly one-third oil&gas and about two-thirds power generation and industrial.
“We’ve taken the view that we’re not going to be a significant player in aerospace and that, really, the customer mix and drivers are too far away from what we know in oil&gas.
“In December, Dundee was shut down; we only have one significant aero-engine overhaul business and we’ve said for some time that it is going to be sold. We hope to make a sale H2 this year.
“We still get involved in some other things that are compatible with what we do in the industrial business, but it’s not going to be a major push going forward. We’re going to stick to oil&gas and power generation.”