Stabilisation and growth

What has been the focus of Falcon Oil & Gas in the light of the recent recovery in global oil prices?
Activity in our service sector has grown in 2017 compared to previous years. The market has assets in place to support the current active rig count. Our activity level has seen growth but it is still modest in the service sector. Given that, we are looking at opportunities in representation agreements, joint ventures and other such arrangements.
We want to partner with regional and international entities that can bring technology to our business. We are constantly looking for opportunities to bring new technology to the market. We also added Falcon Construction to the Falcon Oil and Gas portfolio in May of 2017, seeking to meet demand for civil earthworks, supply of camps and existing facility remediation services. Falcon Construction has been a registered company since 2007 and continues to support Empire World and its valued clients within the Empire Business Complex. Bringing Falcon Construction into the oil and gas sector allows us to use their years of experience and track record while expanding their service offering and client base.
In addition, we together with our chairman, Mr. Peshraw Agha, are more focused than ever on opportunity recognition and look at everything as an opportunity. We have relationships with all operators and are tendering for everything that comes our way. If you are not in the game, you cannot win the game.

What was the main impetus behind the company’s decision to enter the construction sector?
Currently, there is more activity in that market than in others. We have seen many tenders, especially since June 2017. When we see construction work, that means there is future planning. It all starts with earthworks and making sites that are capable of hosting roads, building well pads, laying lines and then setting up early production and central processing facilities. We are in a constant state of tendering for early-phase construction works.
That shows us the operating companies have future plans and are moving on them. It is hugely positive. I wanted to get into construction because it gives me a better grasp of the operators and their future plans. I know that if they are doing the earthworks, there is going to be something built there.

Given the challenges with mobilising equipment, do you expect to see a greater demand for warehousing services for international companies?
We have a storage yard just off Makhmur Road within the Erbil city gates. We are placing our logistics storage outside the city, whereas most of the yards are within the city on Ghazna Road. We can avoid city traffic as we are well-positioned on the cut-off road to Kirkuk and very close to the shortcut road to Mosul.
Activity in this sector declined in 2014 but the entire infrastructure is still in place. There are many current opportunities for oil and gas within this market. Everything is available. The operators are taking advantage of the abundance of choice. They are very picky about specifications, location, associated services and cost.

How do you view the importance of the MNR’s AVL system?
The AVL system is a necessity and it’s hugely positive. The new version is a vast improvement from the previous version. It has dealt with many inconsistencies and is much more concise and precise. It is very demanding for service providers. It is essential for both service companies and operators as the AVL system brings a new standard for the market. It keeps regulations and qualifications equal, and prompts us to upload our documentation and the proof of our programmes such as HSE and quality control systems.
Having worked in many countries, the Kurdistan Region is slightly underdeveloped on the local oilfield service side. The local small business providers in our sector are not aware of the depth and benefit of programmes such as HSE and quality control. They do not have a grasp on that purely because it has not existed here prior to the development of the oil and gas sector.
A big part of what we have done has been to bring our systems into compliance with those of the operating companies. We want to be able to prove that we have a system and a record-keeping and filing process. We have no problem signing a contract with a company and comparing our systems with theirs to bridge the two so operations move more smoothly.
Throughout the registration process, we are asked to continually provide evidence and proof. That adds validity to us and our credentials as an oilfield service company and a registered vendor. On the operator side, it provides a far more accurate and precise listing of available vendors who have the qualifications and experience to complete the projects. That is the huge value for us with the AVL and we stand behind it 100%. Falcon Group will be a leader in meeting the criteria needed within the AVL system.

What should the MNR focus on going forward in terms of further developing the system?
The MNR has done a very good job of continuing the evolution of the AVL system through the changing times. We commend them for this. They know that the resources are here and this industry is a very large part of their future. While everything is going on around them, they continue to make demands of the oilfield service companies to ensure they become better service providers and more qualified vendors.
They want everybody on the same page so that when the oil company looks at the AVL, they will get an apples-to-apples comparison. They have done an incredible job, especially in 2017 and that needs to remain the focus.
The information you get from experienced oilfield service providers needs to trickle down to the local small business service providers. If the oil companies put their feet solidly on the ground and say they are only going to work with qualified companies, somebody needs to be responsible for training the local small businesses.
We continue to work directly with the MNR for further developing the AVL system. We want to be the first to the plate, we want to tick all the boxes for our company first and that is our focus. We want to supply what is needed for the AVL and help it to become an all-inclusive system that is fair to all. It is not just about data entry. It has gone far beyond that and is very detail-oriented. It is very much centred on showing evidence of what you claim you can do.

How quickly can the system materialise into growth and efficiency?
The AVL system will help the operators move faster from exploration and appraisal to the development phase of their drilling blocks. It is to everyone’s advantage to fast-track that process as it will increase activity levels and further economic benefit. It is a lot of work for all, but in the end the reward will be a streamlined system.
In many developed markets in the world, things shift to become less about qualifying for tenders and more about somebody picking up the phone. The business matures into a situation where once all of the service companies are on a level playing field the tender process becomes easier. We are trying to develop our service offerings to be compliant so the operators don’t have to do so much investigation into their contractor.
In Calgary, we might have supplied quotations, but we never wrote a tender. It didn’t work that way. We had the same compliances as my 21 other competitors at the time. It came down to price, your record of work for that company, non-productive time and other small factors. Here, we need to bring the oilfield service sector to a state where everyone is at the same level with compliancy and companies are differentiated by technology application and level of service.

Is the AVL designed to help the emergence of a solid local services sector?
Yes, as long as progress is monitored – as long as there is a body to assess qualifications and compliance with systems, to tell vendors what they need to fairly compete. We have a lot of local ownership here and they are very good in the way they do business. The oil business is conducted on an international level with international standards which are maturing in their existence here in Kurdistan.
As an expat, I want as many local players here as possible. I do not rotate in and out of Canada. This is my home and we approach our business that way. We want to see locals be introduced to or partner with international companies that have technologies that differentiate them and give them an opportunity not just to supply simple goods and services, but to evolve and develop into providers of technological solutions.

How crucial will local content be for stimulating growth in the Kurdistan Region’s oil and gas industry?
It is everything. On the operator side, in the last six years, the number of expats compared to locals has come way down. The locals are being trained within those organisations and it is very positive for local workforce development. There are a lot of young, talented engineers in this country and we need to couple this talent with training in international business codes, standards and regulations.
We at Falcon Group are 100% Kurdish-owned and our chairman, Mr. Peshraw Agha, supports the entire Falcon Group in our local workforce hiring and development. The local population is our workforce. Our entire engineering department is local and we are here to protect our local employees. Falcon Group is a large group of companies, and only has a few full-time expat employees.
When we need to man a project, we take equipment operators and labour from our sister companies within the group. We share resources all the time and this puts us in a good situation to survive a downturn. Between all of the active companies within the Falcon Group we have many moving parts. The directors of these companies are in constant contact and we utilise the workforce as best we can. We keep as many people on salary as we can at any given time.
As an industry, we need to aim for succession planning that includes the local element. We can’t continue to replace expats with expats. We need to ensure that local training is ongoing and continual. We are not successful until we find a local who can do our job.
Industry training, utilisation and succession of a local-born, educated and experienced workforce does not happen overnight. Many expats from developed oilfield markets do not just go to school, become educated and then be introduced to the business. We grow up in it, our fathers had their careers in the oil industry, our brothers and sisters are in it. It is more than a career to us; it is a way of life. We understand the sacrifices needed to progress before we are at a place where we need to consider them.
The oilfield sector is in its infancy here. The local skilled workforce is educated, smart and quick to learn. Over time as the industry develops it will lead them to seeing that as their own children grow up, they will see the business as a part of their family life. They will understand the nuances and advantages this brings to the future generations who choose to work in this industry.

What regional growth opportunities is the company eyeing in the oil and gas industry?
We are open to anything and our interest is always growth. We had some momentum going before the commodity price crash. If you were willing and you had the investment or the money to invest, the world was your oyster. Since the commodity crash, we haven’t seen steady growth in any one region or market though 2017 has seen positive recovery.
We know how budgeting works with the operating companies, especially the multinationals. They are always looking at the best bang for their buck, the most economic market. Where do they own infrastructure? Can it be taken advantage of? As the price recovers, we will dig harder into that. For now, we want to remain healthy and active in the local market.

How can services providers work and remain profitable with the current commodity prices?
We are constantly in contact with international groups. We have had a lot of opportunities outside of Erbil or Kurdistan that were in certain stages of discussion but the trend in commodity price has made some groups risk-averse. The operators have had a couple of budgeting rounds to adjust to this price. Even in Canada, where lifting costs are very expensive, we have seen activity levels rise.
The biggest thing for the oilfield service sector is being on-point with the reasoning of the oil company. When the commodity price goes down, their profits go down. We have to allow our profits to decrease with that as well. We will need a further price recovery to drive demand. Oilfield service companies live and die on activity levels. As things recover, demand will go up, supply will dwindle and that will be positive for us.

What are the details of the company’s strategy for 2018 and beyond?
For 2018, we see the construction side of our business as having many opportunities. We currently have many tenders completed that are being evaluated. We are waiting for the situation to stabilise before anything gets awarded. We want to stay active with tendering during the period of stabilisation.
Construction is the beginning. When that rebounds, there will be more rigs in play, and more facilities. Building access roads will lead to logistics activity.
We have used the last calendar year to restructure and become very lean. We are running on minimal engineering support right now. We are preparing for the region to stabilise. We want to be in the right position so that when the industry fully recovers, we are ready to grow with that.
As a team, we are doing our level best to bring opportunities to the table where we believe we can take advantage of the current situation to position ourselves for growth. We are looking at international services providers, joint ventures, partnerships and representation agreements. When activity is down, it gives us an opportunity to develop internal systems. Being a 100% locally owned company, we are not running and hiding from anything. Some small international entities here move people and assets away; they close offices and give up warehouse space. We do not react in that way. It is our job here to take a down commodity market and turn it into opportunities that benefit our business well into the future.

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