Leading the way in crisis responseJune 16, 2020
Ahmad El Tannir, general manager of Al Masaood Oil & Gas, talks to The Energy Year about strengths in the UAE’s handling of the Covid-19 and oil price crises and how the company is achieving rate reductions while retaining employees. Al Masaood Oil & Gas is an industrial equipment supplier and oilfield service contractor that has served oil, gas and energy clients for almost 50 years.
How satisfied are you with how the UAE government has handled the crisis?
The leaders of the UAE are very advanced: They can foresee upcoming crises and they alert you in a way so that you won’t panic. They are very transparent in sharing Information and updates. For instance, they won’t lock down the airport at once, and they don’t say that many companies will go out of business or many people would die because of the virus. However, the leaders will stand by your side and advise you not to worry.
The UAE public health authorities are taking action to protect the safety and well-being of citizens, residents and visitors. With one of the highest per-capita testing rates in the world, the UAE is leading global efforts to contain the spread of the virus. The government has spared no efforts to implement extensive preventive measures to protect public health in line with WHO rules and regulations. The treatment of the situation comes in phases, which has been very successful so far.
Regarding the energy sector, the government hasn’t cancelled any upcoming projects. They started a five-year plan around two years ago, focusing on oil and gas production and local utilisation, and they are sticking to it. So, this production is not tied to any international contracts and doesn’t have to be promoted in any market. For oil production capacity growth strategy, as planned, our production will reach 4 million bopd during 2020, to be increased to 5 million bopd at a later stage, which will accommodate the local consumption while the rest can be exported.
I think that in the UAE, the impact was felt less than in other big producers, as they have a very moderate approach to production in the UAE and they understand that local consumption comes first. While on the other side, the UAE is considered one of the lowest countries in oil and gas production cost due to many initiatives which have been introduced by the leaders of ADNOC in the past few years.
There is also an ongoing strategic plan to go into the diversification of economic attributes to include but not limited to investing in local manufacturing (vision 4.0), artificial intelligence, the technology sector, infrastructure and tourism, and this makes us a less oil-dependent economy. So far, the UAE has overcome the challenges, while bigger countries with larger economies have struggled.
Is there room for more rate reductions amid the crisis?
There is. In our case, our clients have asked us for a discount, and we provided it up to a level where we were breaking even. This was to express our solidarity with the market, economy, and government, simply, it is our duty. Our contribution can make a small difference, but if all the companies do likewise, everyone could be safe. We would suffer for some time, but the boat would not sink in the end.
In general, clients ask us for the same price reduction – 30-50%, as the price of oil has dropped. But in reality, nobody makes the margins nowadays that would allow for that. However, I think this is just a starting point from where they will negotiate. It also depends on whether it is a services or supply contract and whether or not we share this contract with other contractors.
We are following a very special and critical discount strategy in our negotiations with our clients, starting from developing our market share volume against the offered discount or enhancing our market position if we share the contract with other contractors. So, in general it all depends on market share, volume of business and the contract period against the offered discounts. It has been tough; however, we always strive to achieve a win-win ending.
But how are we able to give discounts? My first thoughts go to sustainability and retaining our key personnel. Many companies nowadays are laying off personnel or reducing salaries permanently. What I introduced was a salary retention plan, in which part of employees’ salary is retained by the company until a future date. I started with myself and senior line managers who have the major retained share, then this share goes down gradually by employees’ grade until at less than AED 5,000 [USD 1,361] per month, nothing is retained.
I then get the employee involved in our budgeted targets for 2020. The plan is if we meet the budget, reviewed on a quarterly basis, the retained salary will be paid back at once for the three months. By doing that, I share the responsibility with everyone in the company. I also asked them to reduce their personal expenses in all departments and branches, where I educated them that each and every dirham in savings matters during these challenging times.
In parallel, the management team and I are working day and night to implement an internal cost-cutting strategic plan. We will follow this strategic cost-cutting model to ensure our company’s sustainability and continuity in business. Our target is to continue delivering the “CLASS A” supplies and services at reasonable discounted prices to our clients without going cheap in allocating any of our resources.
What are your takeaways from the current challenges?
November 2019 is when we started to plan our budget for 2020, and this is when we addressed all of the upcoming challenges and opportunities. You plan activities, spot some upcoming projects, define your opportunities, put a strategy in place, motivate your people and fight to achieve your budget and targets. A pandemic is, however, something that you cannot plan for. It was a bad blow for our industry and our business.
The situation was made worse by the conflict between the oil-producing countries during Q2 of 2020, but the basis was the drop in consumption paired with oversupply. We reached a point where terminals were full, and this is why you saw negative prices.
Meanwhile, the stock trading operations don’t know much about our industry. People in finance just work with numbers on paper, and they have never experienced what the oil price or production of oil is. They just buy and sell sitting in offices, and this made the situation even worse. Everyone waited until the last minute, acting like traders, and in the end, they could not even find the market for the oil to sell. In my opinion, this has shaken the trust of the investors in the oil industry which needs some time to rebuild.
What role can local companies play in building the nation’s resilience to a crisis like the Covid-19 pandemic?
I am a supporter of the in-country value (ICV) programme and other in-country initiatives. For the past year and a half, we have been working on bringing in international manufacturing companies by investing in a big plot of land as an industrial base. We have already started building the infrastructure. This will generate many opportunities for entering the market.
We take this very seriously. We need partners in order to gain the know-how to start manufacturing. With the crisis, I think many partners won’t be interested in investing abroad, but they might sell their know-how or invest in their know-how while you invest in the facilities and build up facilities. We look forward to partnering up with players who are interested in further building the country’s manufacturing base.
The philosophy of the owners of Al Masaood Oil & Gas is to always support and help the nation emerge from the downturn into a resilient and sustainable future. They always make every effort to be the front liners who stand by the government and its key stakeholders in these troubled times and play an important role in promoting the many investment opportunities the country has to offer amid the dual shock of Covid-19 and the uncertainty in oil prices. And our role as management is to adhere to this vision, set our plans and execute accordingly.
What is your expectation for upstream and downstream activities in the coming period?
Based on our forecasts, we don’t see less activity taking place upstream. Downstream activities fall under the manufacturing 4.0 plan, so I don’t believe ADNOC will stop or postpone any of its projects. They are needed; ADNOC and international and local partners will move the whole economy forward, especially in the industrial city of Ruwais. They have already spent massive amounts on infrastructure, so there is no point in stopping or postponing these projects.