Self-propelled
Lamprell grew from buccaneering opportunist to substantial global oilfield service provider over three decades and in 2008 returned its best results ever. But scale alters the case and the company is making radical changes to meet new market realities. John OÔÇÖHanlon looks at some achievements and challenges.
When Steven Lamprell went to Dubai in the late 1970s, there was a dearth of engineering services to support oil companies operating in the region. Lamprell filled that gap with rig refurbishment work at its Port Khalid facility, entering the new build market in the late 1990s and taking on increasingly complex fabrication projects, including the construction of FPSO (floating production, storage and offloading) vessels.
As more space was needed, Lamprell expanded its operations to a purpose-built facility in Jebel Ali Free Zone, Dubai, which was completed in 2002 and further expanded in response to growing demand. In 2005, the company completed its Oilfield Engineering Facility at Jebel Ali, with enough capacity to undertake five major land rig refurbishment projects simultaneously. Further capacity in the UAE was added in the Hamriyah Free Zone.
In October 2006, Lamprell floated on LondonÔÇÖs AIM market, moving to the main list in 2008. The IPO paid off in terms of accelerated growth, with revenues trebling between 2005 and 2008 to $741 million. At the end of last year it had $600 million on its order book, entering 2009 with a successful year behind it and a challenging one ahead, as capital for new projects became harder to come by.
Nevertheless, Jason Pollock, project manager at the Jebel Ali facility, remains optimistic. ÔÇ£ItÔÇÖs our successful track record of delivering complex projects on time and on budget that differentiates us,ÔÇØ he says. The Jebel Ali yard has just delivered the second of two self-propelled, dynamically positioned jack-up rigs to Seajacks International, which has contracted them long-term to an operator in the southern North SeaÔÇönot for oil and gas platform work but for wind farm development. The latter is a market likely to increase in importance as oil and gas declines and the energy sector seeks cleaner and more efficient energy sources.
The Seajacks Kraken and Leviathan were LamprellÔÇÖs first full EPC (engineering, procurement and construction) contracts, and Pollock is justly proud of his teamÔÇÖs performance. ÔÇ£This was an aggressive, fast-track project, the design of which was somewhat new to the market in terms of the functional requirements and performance specification. It was delivered on time and on budget to the clientÔÇÖs entire satisfaction.
ÔÇ£I think this was a milestone in LamprellÔÇÖs business model,ÔÇØ he continues. ÔÇ£If you look at projects worldwide on that scale and of that complexityÔÇöa full engineering, procurement, construction and commissioning, turnkey prototype project from a single concept piece of paper two years agoÔÇöyouÔÇÖd be hard pressed to find a better example.ÔÇØ Of comparable large-scale global contracts, 75 per cent fall behind schedule, he points out.
As the recession bites, clients are looking for efficient and effective return on investment and ways to reduce their operational costs. Leviathan and Kraken are currently the most technically advanced rigs in the world, says Pollock. Being self-propelled, they do not rely on tugs to locate them or to return them to port when the weather gets bad. This means more uptime, and in operation they are equipped with state-of-the-art mission management systems. ÔÇ£We are seeing more and more clients choosing high-end automation and the latest vessel management technology to minimise manning levels. Certainly, they cost a bit more up-front to build but after that, the reduced operational cost comes in a sharp curve.ÔÇØ
Lamprell grew so fast during the years when margins were high and cash available, that to keep pace with the scale of the enlarged operation, procurement took a back seat to gung-ho marketing. This takes us into the province of group supply chain manager Roger Reading, who joined the company in 2007 and immediately set about making changes in the methodology. ÔÇ£Lamprell has been very effective in what we might call reactive local buying, with project managers driving a hard deal to obtain the materials they need,ÔÇØ he says. ÔÇ£We have brought in a more professional approach to allocating contracts in a way that locks in benefit to Lamprell as well as the suppliers.ÔÇØ
Significant savings are being made in some commodity areas, he says. Industrial gases, welding electrodes and valves are examples of key strategic commodities that are used in quantity. Of course steel, the basic raw material, is also on the list. ÔÇ£You can make savings by bundling up the volumes and leveraging the market,ÔÇØ Reading says. And his attention has not stopped with the high-cost items: what he calls ÔÇ£supermarket-type itemsÔÇØ such as drinking water and cleaning materials are being given the same treatment.
Volume equals price, Reading declares, and if you are in a position to offer the full Lamprell annual purchasing volume to a supplier in any particular commodity, you become a ÔÇÿprice makerÔÇÖ, rather than simply a ÔÇÿprice takerÔÇÖ in the market. Lamprell has more recognition and influence in the market than it had three years ago and is, for example, now the fifth-largest user of industrial gases in the area. It spends around $5 million on gases, $8.6 million on electrical cables and $5.4 million on valves each year. ÔÇ£With large purchasing volumes like these, Lamprell is seeking world-class global suppliers who can provide a secure supply of cutting-edge products and innovation. Local traders may be able to offer attractive spot prices but they may not always be able to guarantee continuity of supply, quality or technical innovation. Sourcing the right product is not just a matter of price: it can have a major impact on the efficiency and quality of the projects under management,ÔÇØ he says.
A host of small changes amount to a wider culture change. Instead of scrapping the leftover copper cable at the completion of a job and recovering only the spot price value of the copper, the supplier is now being asked to return the cable for resale. This is called reverse logistics: it adds value to Lamprell by getting better value from waste, feeding into its environmental performance and boosting the clientÔÇÖs confidence. ÔÇ£If procurement is working well it has a direct impact on the marketing potential of the business.ÔÇØ
Having set up the new structure, Reading is busily looking at several initiatives, such as training for his procurement team, as well as the software platforms they work with. ÔÇ£Our software systems were out of date, and we realised last year as the orders poured in that we were trying to run a VW Beetle on the autobahn! Not surprisingly, it broke down from time to time.ÔÇØ Now, Lamprell is considering the introduction of a state-of-the-art ERP (enterprise resource planning) system, engaging the Canadian consultancy TEC to help select the right one. Whichever system is chosen, improved ERP will enable better cost management on future projects, Pollock agrees.
ItÔÇÖs a prudent reaction to economic realities. ÔÇ£We have recognised that we wonÔÇÖt cut it in the same way in the challenging market that is likely to be with us over the next couple of years. For Lamprell to prosper in increasingly difficult global markets, it is going to have to change to deal with this deflationary, as opposed to inflationary, spiral.ÔÇØ This, Reading firmly believes, is going to call for enhanced skills to meet very different types of challenges from the ones Lamprell has done so well in meeting thus far.
