Lower oil prices force new offshore equation
Houston-based McDermott International struggled in recent years but returned to profitability in 2016 under CEO David Dickson, poached three years earlier from McDermott’s larger rival Technip. McDermott, a 95-year-old offshore engineering and construction company, has added nearly 3,000 jobs in the last 18 months or so, but nearly all of that growth is overseas in Saudi Arabia and India, or nearby in Mexico.
Employment in the Houston headquarters has remained steady at about 450 people, Dickson said. A native of Scotland, Dickson spoke with the Chronicle in advance of the massive Offshore Technology Conference, which kicks off Monday at Houston’s NRG Park.
Q: How is the mood heading into Houston’s largest energy conference?
A: As we look longer term, the economics will still stand up for offshore production. What we’ve done in the last couple of years while oil prices have been down is really focus our efforts in offshore business with national oil companies. We’ve focused on a big effort in the Middle East, and that’s all in offshore shallow water. A lot of Saudi Aramco production comes from offshore. If you look at countries such as Qatar, there’s huge offshore gas fields. We focus a lot of effort there to making sure we maintain our position as the No. 1 contractor in that part of the world.
Q: Why has McDermott had so much growth in Saudi Arabia?
A: The reason Saudi Aramco is successful on capital spending is because it really has taken on board standardization. We do these projects on a standard basis, and it creates this certainty around schedule and cost, which Saudi Aramco obviously is happy to have. How do you take that model and take it international? More customers are interested.
Q: Why wasn’t standardization of major projects adopted by the industry years ago?
A: We got fat, dumb and happy, and money was not an issue. If there’s anything about the low oil prices, it’s creating a huge focus both technically and operationally about how do you lower the cost of an equivalent barrel of oil. The low oil price environment has helped people to change gears.
Q: Where else is McDermott eyeing growth?
A: Another area we’ve put a lot of effort into is India. There’s the traditional business on the West Coast and then emerging shallow-to-deep-water developments along the East Coast. They’re going to spend $25 billion over these next 10 years developing the East Coast. In Mexico, there are two avenues for us in terms of a customer base really resulting from what’s happening with the energy reform. We’re working with Pemex on a large contract. On the other side with energy reform, there are more international oil companies now working or developing projects in Mexico.
Q: What were McDermott’s problems in past years, and what’s improved?
A: There was a tough time, and when I came in, my job was to turn the company around. We had a lot of changes in leadership. We’ve had a lot of focus on further developing our engineering capability. I don’t want to spend a lot of time analyzing what went wrong. There were clearly a few fundamental issues. One is the company moved into the deep-water business and didn’t actually attract or bring in the right talent to take the company into the deep-water business. They thought they could take the knowledge from the shallow water and take that on into the deep water.
Q: How’s the Gulf of Mexico?
A: The U.S. side of the Gulf, I think, is fairly flat — unfortunately flat at low levels. On the deep water, it’s going to take a little bit longer because deep-water projects typically have the longer life cycles. I would expect in the next two years we start to see activity. We’ve been flat now for probably a year. Everybody believes in the long-term position that the deep-water market will come back. Whether it will be as big as the era from 2012 to 2014 remains to be seen. But clearly deep water is coming back.
Q: You recently acquired the Amazon construction vessel from a bankrupt British company. How does that change McDermott’s position?
A: That complements our existing fleet and strengthens our position in terms of moving into deepwater. As we look at our deepwater capability today, we’re light compared to our two or three major competitors. With this asset, we will now be able to compete for a larger-sized market.