Pooled strengths

TechnipFMC is an international project management, engineering and construction company that specialises in design, delivery and installation of technologies for the production and transformation of hydrocarbons. Technip entered the Abu Dhabi market in 1984. Kervren discusses the role of mergers and consolidations in the market, the ENOC refinery project and the competition for projects in the region. TechnipFMC plans to continue with both companies’ legacy activities but focus its strategy on making the best use of the synergies created by the recent merger.

• On competition: I think the competition has always been significantly tough. What is changing is the fact that there are fewer projects in the market. This leaves companies with fewer opportunities and the players remain the same. Maybe the number of players for smaller projects has increased, but there are no new major EPC contractors in the market.

• On consolidations: To be honest, the biggest consolidations have already taken place. There might be more consolidations to come, but they will be on a smaller scale.

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Yves Kervren here.

What were some of TechnipFMC’s biggest achievements in 2016?
Right now, we have significant ongoing EPC projects, sustaining the organisation locally, but many of those are at the stage of completion. Beside that, we continue to be involved in the early stages of the upstream gas sector for the Hail & Ghasha and Delma fields. These projects involve our affiliate, Genesis, who is based in London and who helps optimise the organisation of the field for the next wave of projects in upstream gas.
We have also been involved in the pre-feed and feed of facilities in the downstream and refining sector. Obviously, our biggest project now is the Umm Lulu EPC, which we are implementing for Adma-Opco. This project is over 50% completed and is projected to finish in 2019. The development of the Umm Lulu field is the biggest offshore complex ever built by Technip and, quite possibly, the biggest of its kind in the world. Our work with partners NPCC [National Petroleum Construction Company] has been progressing well, from the transfer of engineering to the fabrication at NPCC Yard. We are also at the final stage of completion for the EPC1 package of the Upper Zakum development project as well as Satah FFD.
In other words, we have two trends in our business at the moment, the ongoing major EPC projects which – besides Umm Lulu – are reaching the point of completion; and the early stages of studies that will define the next wave of projects.

What is the timeline for completion of the refinery in Jebel Ali?
The ENOC refinery is a project we were awarded late last year. The project began straight after it was awarded to us and is being carried out from our office in Rome. The project is still in its early engineering phase. The next stage is the procurement of the big-ticket item, so called “long lead” items. This includes major pieces of mechanical equipment, machinery and other similar items.

How long will the procurement phase last?
The procurement phase starts generally after a few months in the project’s life and will run until the end of the project. By the end of 2017, we will be 15 months in and by then expect to have completed the engineering work.

Can you provide names for some of the downstream feeds that you have been doing?
We are working in the Duqm Refinery project in Oman as a project management consultant. We are also getting involved in the early stages of the Fujairah project.
The next wave of downstream and petrochemicals projects will come mainly from Takreer and Borouge in UAE.

Is the competition tougher than it was two years ago?
I think the competition has always been significantly tough. What is changing is the fact that there are fewer projects in the market. This leaves companies with fewer opportunities and the players remain the same. Maybe the number of players for smaller projects has increased, but there are no new major EPC contractors in the market.
What has changed is the pressure on market conditions. When you put together an EPC price, you have engineering, procurement and construction. The engineering part is taken care of internally, and procurement and construction are something we used to outsource. There is a lot of competition in outsourcing and just as we need to reduce our rates to remain competitive in engineering, so too must our suppliers and sub-contractors face the competition if they want to remain in the market.
This kind of competition is not necessarily new and the price level has always been under pressure in certain market conditions. Today, all the contributors to a single EPC price are more aggressive and the market conditions are very challenging.

What is TechnipFMC’s outlook on the market?
Technip is involved in three different markets. We have the subsea market, onshore and offshore market and the surface market. This diversity applies across the board. In Abu Dhabi, there is shallow water and therefore limited subsea activities. Activities take place mainly for onshore and offshore, as well as surface equipment supply and maintenance.
You have also most likely seen the announcements given by our clients about the downstream sector. This includes the gas industry and we expect to generate a significant wave of new projects from this. It is difficult to estimate the figure, but we are talking large scale. The question is about finding the right timeframe and deciding which of these initiatives will most likely materialise. It is very early to comment right now, but the situation looks promising.

What benefits have been gained from the merger between Technip and FMC?
The merger was made official around mid-January. We are now a new company called TechnipFMC. There are a lot of benefits to this merger. If you look at the legacy activity of both Technip and FMC, we are not doing the same work. This merger will not drastically change both legacy activities, but will generate new combined integrated offers for the benefit of our client, reducing prices, interfaces and project execution schedules significantly.
The merger has also brought the company to a very significant size with a share value of almost USD 17 billion. In this market in evolution, where you see a lot of consolidation, this merger gives both legacy companies the adequate level of stability.

What other benefits do you offer your clients?
The benefits of this merger will trickle down automatically as benefits to the client. Without disclosing too much about our strategies, if you can propose a technical solution for the same output that will save the client significant capex by connecting two technologies, there is huge interest.

Will these changes now require you to be present at an earlier stage in the project?
This is one of our targets, but there is nothing new in this regard for Abu Dhabi. We need to be present at a very early stage in the project because the portfolio of solutions we offer are not always known as integrated solutions. The clients know Technip and FMC as individual companies, but what a combination of solutions from both companies can put on the table is something that remains to be discovered by them.
Our business is now concentrating on highlighting these synergies and has been developing more synergised projects across the board for quite some time already. Over the past two years, there was a joint venture called Forsys between Technip and FMC. During this time, we studied all the possible synergies between Technip and FMC and the results were amazing.

Who do you consider to be your strongest competitor?
It is true that we are now one of the largest players in the market. The company is comprised of 44,000 people with a presence in 48 countries, which is massive. There are not many contractors who can put themselves on the same platform as us. We are also not only an EPC contractor as we are often referred to as by our clients in Middle East, but we are an equipment provider, an engineering company involved from very early project stage till completion, a service provider and we are also offering maintenance and assistance, not to forget the proposed fully integrated solutions.

How many projects have you secured as a backlog?
Today we have a backlog of USD 16 billion. The backlog is something that is constantly changing because it comes from across the board worldwide. However, we have a solid backlog structure and are prepared to face difficult market situation.

Do you think there is more room for consolidations such as yours?
To be honest, the biggest consolidations have already taken place. There might be more consolidations to come, but they will be on a smaller scale.

When it comes to tendering and bidding in the market, we are seeing more and more EPC players. Are you still a big EPC player?
We are still very much an EPC player. We have been awarded most of the few EPC project available on the UAE market over the past year. The merger between Technip and FMC is an activity adder, not the other way around. We are possibly one of the few having the right capabilities to handle EPC projects of significant size or complexity.

There is now a tendency for EPCs to form consortiums to share the risks and benefits. Will TechnipFMC join this approach?
There is no generic answer to this question. For every project, we have a very systematic screening and preparation process when deciding how to tackle it. The level of risk you are taking in an upstream work of USD 5 billion does not fall into the same risk profile as work of the same value in downstream. I am not saying that one is more complicated and risky than the other, but it depends on many factors. We always try to organise ourselves in the most possible efficient way with a risk profile that remains acceptable for the company. Every project has a different strategy and we are teaming up with peers each time it is necessary. It is not a new approach for Technip FMC.

What is TechnipFMC’s business strategy in the region?
Beside our traditional legacy activities, the strategy we forecast for TechnipFMC in this country will focus on the combined synergies that will allow us to offer different solutions on specific projects and facilities. By combining the two companies, it is possible to keep the best what both had to offer originally, plus added benefits created from the merger. We are really trying to push this agenda and showcase the advantages of providing a better solution to our clients because of the merger.
You should consider everything from a historical perspective. We have been here, both Technip and FMC, for the past 40 years. We are a project based company and there is no strategy for developing one country over another. We are covering all countries and following opportunities and projects when they become available. The UAE has always been our hub and we are going to continue to collaborate and develop ourselves here. However, Saudi and Qatar are also an important country for the group. We have also built a lot in Yemen, and Bahrain is another country where we have been quite involved. The intention is to maintain our footprint and work in all these countries while keeping Abu Dhabi as our Hub. We are looking for opportunities everywhere in the region. Our strategy is both country and opportunity based. We need to see and balance both.

What is your outlook for 2017?
As far as the outlook for 2017 is concerned, we have a lot of expectations on a long term future, but it is up to our clients. It is time for the market to really pick up because we have been struggling for quite some time. If we want to maintain and sustain our model of local presence, we need to fill our project portfolio.

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