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Sun 14 Dec 2008 04:00 AM

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Caspian connection

In an exclusive interview with Marine Oil & Gas ME, Fazel Fazelbhoy, Topaz Energy & Marine CEO reveals how his ship will weather the financial storm.

In an exclusive interview with
Marine Oil & Gas ME, Fazel Fazelbhoy, Topaz Energy & Marine CEO reveals how his ship will weather the financial storm.

Topaz Energy and Marine is one of the region's leading marine and oil and gas fabrication and service providers, and the group is riding high after a bumper 2008.

The company is Dubai-based, but has operations extending throughout the Middle East, Caspian and is growing its presence is South East Asia. At the helm is Fazel Fazelbhoy, former CEO of the Nico International subsidiary and in the top spot at Topaz since April.

Having a good 2008 was critical to delivering a launchpad into 2009, and seeing us through the extremely stormy financial seas we are facing now.

"2008 has been the best year so far in the company's history. All of our business units have out-performed their budgets, and that's set a very strong stage for 2009 as well," beams Fazelbhoy.

The summer spike in the oil price, and a sustained period over US$100, saw many companies in the region out-perform their annual targets, but the CEO says that in spite of the current price drop, and the ongoing picture for the Topaz group of companies is rosy thanks to the nature of the contracts secured.

"65% of next year's target is secured, either as part of long-term contracts or our order backlog." With delivery schedules running to 2010 and beyond, this means the company's performance is not reliant on a sky-high oil price, a luxury many firms will look upon with envy, as the markets seem set to close the year way down from the summer peak.

"Having a good 2008 was absolutely critical to delivering a launchpad into 2009, and seeing us through the extremely stormy financial seas we are facing now," says Fazelbhoy. "Revenue, profit margin and return figures were all above our expected indicators, and what's just as important for us as a company, is that we achieved some very important landmarks that will stand us in good stead going forward."

One notable success of the year was the acquisition of Doha Marine Services, which saw the Topaz fleet swell to around a hundred vessels. The deal was finalised in May, for a reported $124 million.

Crucially, the acquisition gave the company an instant 20% market share in Qatar. "Due to the massive demand for offshore marine services in Qatar, we've actually been moving vessels from UAE waters into the Qatar space, in addition to the vessels we took control of through the acquisition."

The move into Qatar couldn't have been better timed, with LNG and offshore oil developments reaching a zenith. Capitalising on the Qatari boom was a crucial objective, and has enabled the firm to provide additional support to the operations of Oxy and ConocoPhillips, delivering both kudos and profits.

"Qatar's a great example of how we characterise our vessel profile. We have a combined hydrocarbon support fleet - we don't discriminate between serving the oil or gas business because for either operation you need platform supply vessels, platform support, anchor handlers and tugs. This is all our core business."

AdYard also hit a high note this year with the delivery of a floating module for berth five in Ras Laffan in August. "This was exceptional because it is the first of its kind to be used in the region. This innovation is typical of the Qatargas projects and a great endorsement for AdYard to have been selected for the task," he adds.

"The floating module for berth five was another pioneering milestone for Qatargas with the use of the modular topsides rather than building in-situ. By taking this innovative approach we were able to build the marine platforms and topsides simultaneously and reduce the overall schedule by several months.

However, the best achievement of this project is that it was completed by AdYard with no lost time incidents," came the ringing endorsement of Jayme Meier, Qatargas 2, common LNG sub-project manager

The team in Mussafah also completed their first offshore platform, including the jackets and topsides for Indago, for projects with Ras Al Khamaih Petroleum.

Nico International is the Topaz group's afloat repair operation, which also banked an impressive performance as owners and operators sought to minimise drydock time when the market was at its hottest.

"Nico delivered an impressive year in terms of occupancy, but the really impressive thing for that division was its aluminium boat building, which really took off.

In these troubled times, a firm long-term contract with a blue-chip company of the likes of BP is just what the doctor ordered.

The aluminium specialisation really separates them from other vessel manufacturers in the region, and they've been mastering double and mono-hulled vessels and workboats," adds Fazelbhoy. Nico is currently in the process of delivering a 17-metre mono-hull for Miclyn Express Offshore, a major provider of crew and utility vessels and barges to the Middle East offshore oil and gas industry.

The BP effect

In August Topaz subsidiary BUE Marine was awarded a ten-year $225 million contract from BP Azerbaijan to custom-build and supply three support marine vessels. BUE saw off competition from across the globe for the three vessel package, which comprises one dynamically positioned platform supply vessel (PSV), one dynamically positioned anchor handling tug supply vessel (AHTS) and one emergency and recovery and response vessel (ERRV).

The contract followed the award of another long-term three vessel contract by BP to BUE Marine in 2007, and reinforced Topaz's position as the leading provider of marine support services in the Caspian Sea region.

"The significance of the BP contract cannot be overplayed; it is one of the most important that we've had. In these troubled times, a firm long-term contract with a blue-chip company like BP is just what the doctor ordered. It adds a very steady earning capability with predictable margins, and moreover, it's a return order, so highlights the fact our relationship with the majors is a very healthy one."

This is the 14th time in a row Topaz have won a signed a deal with BP for Azerbaijan, and the company is currently the only international vessel provider in Azerbaijan. Having the endorsement of majors is a major step for any offshore provider, as these companies have stringent HSEQ standards, and the weight of their backing is a hugely beneficial sales tool.

The ERRV on order as part of the 2008 deal is capable of providing multi installation safety cover and is the first vessel in the region to be equipped with three daughter craft.

"The deal itself is important, but we were particularly delighted when our product was really put to the test, and came through with flying colours," explains Fazelbhoy.

"The biggest highlight of the year came when the BP President's Award was conferred to the crew of the ERRV MV Baki in recognition of outstanding services rendered on 17th September."

The MV Baki was on-station at the Central Azeri platform in the Caspian Sea when the master received a call from the offshore installation manager informing him that a gas leakage was suspected, and that all the 211 persons on the platform had to be evacuated.

Within one and a half hours all personnel were safely transferred from the platform to the emergency recovery vessel, and safely transported to the SPS base in Baku Azerbaijan.

"What gave the award extra gravitas was that this was the largest evacuation of personnel from an offshore installation - ever. This was a huge testimony to our operations, and something that's very close to the heart of the management here and our team in Azerbaijan."

Home game

No manufacturer or service provider in the UAE will have been exempt from the rising cost of business in the Emirates. However, those increased costs are lamented without a full appreciation of how that cost is offset. Fazelbhoy does not see this as a fair appraisal of what the UAE has offered to those who make it home. There are positive elements too, and the blend of cultures in the UAE make for a rewarding business environment.

"Although the UAE has become a lot more expensive, that cost is balanced somewhat because it has some formidable assets for any business.

It is a good environment to operate in from a regulatory standpoint, and you save a lot of money by virtue of being here in terms of delays, approvals and all the associated aspects of running a business. These all balance out against the rising cost of working here, and it is still a good place for us to be."

That said, the company are actively exploring options to balance its portfolio and looking into cheaper manufacturing environment such as South East Asia too.

"Thailand, Vietnam and Batam Island in Indonesia all have a manufacturing capability that's suitable for what we do, and we haven't narrowed down the search that much yet, suffice to say that SE Asia certainly has the right mix for our needs."

Batam has a strong pedigree with the offshore sector, it's a similar upstream client base that work in the Middle East. "Batam is a good fit, both in the oil and gas manufacturing we do with AdYard, and the manufacturing and offshore support elements we'd need for our marine business.

The biggest highlight of the year came when the BP President’s Award was given to the crew of the ERRV MV Baki in recognition of the outstanding services rendered on the 17th Spetember – the largest evacuation from an offshore installation ever.

We've had some tentative acquisition opportunities that are still being looked into," reveals Fazelbhoy.

Credit crunch

The drying up of liquidity is a global issue, not a local one, and the CEO is under no illusion that its effects will not reverberate around the Gulf. "There is no doubt that it will have an impact in 2009, but possibly even more in 2010.

That's because investment decisions being made in 2009 may be delayed, however, because of the long-term nature of most of our contracts, to a certain extent we've a degree of protection from the immediacy of the crisis."

For the Middle East market Fazelbhoy says the company will continue to build on spec, and that asset mobility will be a massive advantage. "We have the flexibility to move our vessels around from Saudi into Qatar, the UAE and further afield into Libya and North Africa.

We've got enough strength in the core markets we operate in to be able to find an imbalance of supply and demand in one region and exploit that."

Typically, when financing is hard to come by, operators may scale back or invest in cheaper assets, but in the offshore industry this is unlikely to materialise.

There may well be some bargain priced vessels knocking around, but the oil and gas space is so demanding in terms of safety and quality, that these vessels are unlikely to fit into that market. We're working in an industry where the safety of the crew, the vessel and the assets involved is absolutely paramount, and because of this we have a layer of insulation."

Indeed, national oil companies and IOCs working in partnership in this region have a long-term vessel requirement for supplies, maintenance, and emergency response, which means there is a fairly predictable supply requirement.

"There are three aspects to consider looking forward. Firstly there is the exploration, the development, then production. Out of those three, exploration is the field most sensitive to current market conditions.

Especially tight is the relationship between oil price and new or smaller pure play exploration companies. When price shocks arrive during the development or production phase, well, by that point most companies already have too much committed, so the project continues regardless," explains Fazelbhoy.

The drying up of credit will have some far reaching implications for the industry, but how those implications manifest will vary depending on the state of each company's books. "One of the things that the credit crunch has done is create interesting opportunities for companies, with strong balance sheets, such as the Topaz group, to look at acquisitions of companies which may have over-stretched in the easy credit period."

Offshore service specialists which have contractual obligations to supply vessels, but which may not now be able to finance new builds, will have to turn to fleet providers such as Nico World and BUE Marine to meet their obligations.

"We've got the equity to put down, but the sources of financing will be drying up for all companies, so it's just as vital for us not to be overstretched. The current climate will probably see some pretty unconventional deals coming through, whether that's mergers, share-swaps, or things we haven't even seen before. So where there's a good opportunity, we might need to be creative and think of investment strategies that are out of the box," says Fazelbhoy.

"The biggest challenge for ambitious firms today is going to be finding enough liquidity to fuel growth ambitions. We're still in an overwhelmingly bullish mood, but we're not blind to what's going on around us. We have a niche market that's better insulated than others, and we have to stay focused and not lose sight of the fact there is a tomorrow," he says.

Wider audience

Approximately 45% of Topaz's business is derived from its Caspian operations, with the remainder largely accounted for by Middle Eastern activities. However, the landscape in both markets is changing, and with it the demands of the company's core customers. With the Kashagan field coming up in Azerbaijan, more oil development is in difficult fields.

The easy stuff in the Caspian has been found or gone. The new developments are going to be in deeper water, the oil might be deeper underground and also there's the issue of increased sulphur content.

"We do expect to keep a continued focus on the Caspian market, and are taking market developments into consideration, but not at the cost of the rest of our operations worldwide.

We've just established a joint venture for Saudi Arabia with a company there, and we're in the middle of establishing Topaz Marine Services in Saudi Arabia, to put vessels in the water there to meet Saudi Aramco's growing requirements for a marine and offshore fleet."

Aramco has indicated that it wants to be less involved in vessel ownership and operation, and would prefer to outsource services to a specialist oil and gas marine operator. Moving into partnership is a well-established in-road to the Saudi market, but the CEO asserts that the current tie-up isn't just a marriage of convenience.

There's a lot of value add to be gained from both parties. This particular company is established there, so this is a strategic partnership for us, and we looked long and hard to find the right partner in KSA."

Road ahead

The Topaz group has undergone a restructuring in 2008, and the process is all about streamlining the company's brands.

"Gaining global recognition for the force we are is another challenge. Today we have strong brand names with Nico Middle East, Nico World, AdYard, DMS and BUE. Our fleets each have upwards of 25 vessels, and people should recognise we're a hundred-vessel company.

Also, our engineering divisions have strong identities of their own, with AdYard - strong in offshore jackets and topsides, and Nico - strong in aluminium crewboats, are in similar businesses, each with their own enhanced niche capability, but combined they should be recognised as a boat building force."

Growing the Topaz Marine and Topaz Engineering brands remains a core priority for Fazelbhoy. "Common HSE, crewing and recruitment needs will all be managed through a centralised single operation - so it's about a lot more than re-branding.

With strong marine and engineering units we can reconfigure our branding, and reputation, but of course the real benefit will be a more efficient operation," concludes Fazelbhoy.

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