Shipyard toughened by pace of its growth

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The growing QGM shipyard in Hamriyah, Sharjah. The company has been through a substantial expansion process since acquiring the lease for the yard, going from 75 employees to 1300 within the space of just a few months.

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A drilling rig being prepared for installation on the reconstructed Thule Power.

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Thule Power arrives at the QGM shipyard for a programme of reconstruction and upgrades to make it commercially competitive.

A few years ago QGM was a small company. Based in Jaddaf, it had a small client base, 75 employees and specialised in rig repair and maintenance. Now things have changed. A move to the Hamriyah free zone, a pivotal contract for reconstructing a jack-up rig, additional contracts for two new-build rigs, and the small matter of hiring about 1,300 people, have transformed the business into a fully functional and maturing shipyard in just two years.

"QGM's owners made a prescient and gutsy decision to take the lease on our current site in the Hamriyah free zone," said Jake Schimberg, the company's CEO.

"They recognised the potential of the site and how rare this kind of land would become. Then they took on the lease, despite not having the work contracted to justify the outlay.

"We now have 150,000 m² of prime property in an advantageously positioned free zone, which is developing explosively. The shipyard is beautifully placed in terms of access through the channel. We also have plenty of space for what we want to accomplish."

The yard is spread out over three blocks of land, located close together, incorporating a main yard, a secondary fabrication area and a materials storage area. The work to make the space worthwhile appeared too. It came in the form of a contract for the total reconstruction of a severely damaged jack-up rig. Thule Power is being rebuilt for Thule Drilling - a Norwegian drilling contractor - and will ultimately end up in the hands of Saudi Aramco.

"The rig was a total constructive loss," said Schimberg. "The company developed plans to reconstruct it, financial resources were brought in and ownership of the unit was secured."

This was the beginning of the formal deal with Thule Drilling.

"Thule recognised the limited capacity of yard and was willing to fund its development, through the contract," said Schimberg. "As the engineering required became more clearly defined, the scope of the work increased, leading to greater requirements for developing the yard's infrastructure. So we were a bit behind the eight ball to start with.

"A business that had a couple of portacabins and a few pieces of its own equipment, had to reinvent itself quickly. Late in 2005 Thule decided to grow further and committed itself to two new jack-up rigs, despite the fact that QGM was not a fully developed shipyard.

"Thule recognised it could not get the units for a sharper price from anyone else: we had to take on new projects to fuel the development of the yard. Our pricing was lean and our schedule aggressive."

The company embarked on an explosive programme of growth. It grew from 75 people to its current employee level of 1,300, within the space of six or seven months. Along with that growth came the requirements for equipment: everything from personal protection, cranes, fork trucks and welding equipment.

"The enormous burden of renting equipment was no good for us," said Schimberg. "So we embarked on a capital expenditure programme where we took every cent generated and ploughed it back into the company.

"This has, in truth, been a hand to mouth existence for us. But we have managed an extraordinary amount of change in a short period of time. We didn't have the benefit of a leisurely planning cycle, we couldn't take a time out; we just grabbed the opportunity and ran."

The reconstruction project turned out to be bigger than first thought and it has had its delays. However, the rig is being developed beyond the specification of the original design. The new higher specifications have given the rig the latest equipment and enhanced its depth capability, enabling it to compete with new-build rigs. Delivery is now expected in April.

The reconstruction project and the early work on the two new build rigs - due for delivery in 2008 - has been done in tandem with the development of the yard itself. Increasing the head count to 1,300 has also necessitated the development of a management team and appropriate systems to keep everyone working smoothly.

Schimberg describes the process of integrating a diverse work force, while getting the discipline and performance in place, as challenging. That said, he is proud of the progress both the work force and management team has made.

"We've built an experienced group of supervisors who have marshalled the work force effectively," he said. "We brought in roughly 600 guys in one two month period: it was pandemonium. Getting them to function as a team was a big effort. Now we have a far more mature yard and we're seeing constant improvement in productivity.

"By the end of 2007 this yard will be through its development phase and firing on all cylinders, then it's just a question of applying unremitting effort to continuous improvement and refining every process to maximize efficiency."

QGM is in the process of building extensive infrastructure, including accommodation for its workers; eventually all of the labour force will live on site. Schimberg says QGM wants to control the quality of life of its work force by making sure the facilities they have are ‘as good as, if not better, than anything in the UAE'.

"There's a management commitment to this and we all feel strongly about it," he said. "We all earned our stripes working jobs like this for 20 years or more"

While Schimberg acknowledges there have been plenty of challenges, these challenges are also what have made the growth of QGM possible.

"I don't think anyone entering into this business in the Middle East can anticipate the endless impediments you encounter at every phase of development," he said. "From a commercial point of view it has been an incredibly daunting task to build a yard while building three rigs.

"But remember, if we hadn't taken on the contracts, there wouldn't be a yard. There was a window of opportunity with a long buoyant period ahead of us. We committed ourselves to a challenging and painful experience because we wanted to get the yard up and running, to avail ourselves of the opportunity.

"We'll come as close as we can to meet our client's expectations. You just have to get your head down and work like crazy, there's nothing fancy in that equation. Obviously our client is frustrated by the delays, but Thule is committed to the projects."

Schimberg sees the future for the business as being pretty bright. World demand for jack-up rigs is on the rise and the age of the existing fleet is another critical factor. With an average fleet age of 25 years, QGM expects to see continuing opportunities for repair and maintenance of existing rigs.

"There will be an ongoing requirement for new build rigs, to fill the void left by those culled because they can't meet the demands of the industry," said Schimberg. "The least capable rigs will not be able to command the day rates to justify repair costs: owners will be making carefully calculated decisions."

Schimberg predicts the bubble of activity over the next five to eight years will provide enough work to keep the QGM yard full. He is aware the unbridled growth won't last, but thinks the fully developed yard will be successful in the competitive market that will emerge once the number of available new-build contracts declines.

"In this region there's not too much established competition," he said. "There is a significant barrier to entry, as we've found out. I find it difficult to believe that what we've accomplished could be done faster by anyone else, especially with the scarcity of skilled manpower and the long lead times for certain equipment.

"Controlling costs is a key aspect of being competitive: we run lean and mean, we have to. We are well positioned to compete with anyone worldwide on a cost basis and the major yards really are at capacity already.

"However, our first priority is to deliver the Thule Power, and in short order thereafter concentrate our full energies on the two new build rigs and get more work in the yard.

"There are opportunities on all fronts and we have the appetite for them. I don't want to tempt fate here, but in a couple of years we're going to be a very successful outfit."

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