Government protected incubation period for SLCCs:10 years
Value of 10-year hoist services contract from PDO:USD 90 million
Competitive sustainabilityJuly 15, 2016
Oman’s local community contractors continue to have an impact on the domestic market for oilfield services and the national economy. TOGY met with Hamoud Al Tobi, the CEO of Al Shawamikh Oil Services, to discuss the community owned company’s current projects. His company has enjoyed a period of establishment and growth over its first five years and is now looking at tender opportunities in competition with established players.
Should super local community contractors (SLCC) have a deadline to be self-sufficient and competitive?
It is not a deadline. It is the envisaged time you will take to go from nowhere to a place where you are sufficiently developed to self-sustain. I emphasise sustainability here because more than the deadline it is important to achieve the national objectives behind setting up shareholding companies for the communities living in the concession areas. It is important for the economy, for local capability, for Omanisation and for in country value (ICV). An important question to ask is, at what stage can we say SLCCs are able to sustain themselves and grow.
How can the industrial areas, such as Duqm and Sohar, help companies like Al Shawamikh invest in the opportunities and projects available within industrial estates?
These are some good projects, which are less prone to market fluctuations. It will be good to have some of these projects allocated to SLCCs, and to have joint dialogue between the industrial estate administrations and the SLCCs facilitated by the ministerial action team.
This incubation period was set up for the SLCCs to run from establishment until they are able to sustain themselves. The government gives these companies 10 years. It makes sense, as these companies do not have previous experience. They do not have any market share, and they do not have market reputations. They need to build all of that from scratch.
I think the incubation period should not be time bound. It should be based on some strategic milestones of financial strength, organisational maturity, revenue diversification and market share.
You are celebrating five years this year. What is the current status of Al Shawamikh at this halfway point?
Good news. We are moving in the right direction, in fact, we achieved a good growth rate in 2015, despite turmoil in the industry, and Al Shawamikh had its first year of dividends pay out. Of course, these are also difficult market conditions. The drop in oil prices has made everything much more difficult. It slowed down growth at the base, but we are proud to have achieved that growth as a SLCC.
In the future, we foresee being able to achieve organic growth in our core business in the conventional oilfield services sector.
However, you should not anchor a business to one project or value stream, especially if you want the business to be sustainable. It makes more sense to anchor a company with a wide shareholding base from the local communities, such as Al Shawamikh, to secure, long term investments. This is why we are seriously looking for sustainable diversification and some long term investment opportunities with say 20+ years timeline, and those that are particularly less sensitive to market fluctuations and operational exposure.
How difficult is it to manage a company that has more than 1,600 shareholders?
There are also companies out there with more shareholders than that, such as some of the publicly listed companies. I think SLCCs should continue to grow their shareholding base as it is one of their objectives to spread out the benefits to more and more people in the concessions.
The difference here is in the nature of the SLCC shareholding, the majority of our shareholders have not owned shares in such companies before. Many of them do not yet fully understand their rights and entitlements as shareholders, but we see they are gradually building their awareness about how SLCCs should be governed.
Governance is a very important aspect for organisations and we need to get it right to allow focus to be directed into organisational development and business growth rather than marginal issues.
Initially, it was not straightforward because people were just learning. Five years into the journey and things are becoming better. In Al Shawamikh, we have recently engaged a specialised consultancy firm to review and strengthen the company governance framework and manuals as per regulations, standards and best practices. We strongly believe that stable governance means stable business.
How does Al Shawamikh’s progress compare to that of other SLCC’s?
All the four SLCCs that were registered in 2011 have progressed well and achieved important milestones in their journey. We are all working hard to position these companies for sustainable growth and business diversification.
Is there also a need for co-operation within the industry?
More than ever, at today’s oil prices there is urgent need for cooperation in the industry between regulators, operators and contractors. Operators have needs, they need to drop their costs because oil prices have dropped. But services providers also have needs. They need to remain profitable. They need to achieve an acceptable level of growth.
It is very important that each party understands and respects the other party’s needs and they work closely together within a transparent and trustworthy setup to achieve tangible results. We should all work to achieve collective survival as much as possible because it is simply better for the economy. I think it is possible, because there is enough out there for everyone.
This cooperation should also include cooperation among operators themselves and contractors themselves from another angle. There is plenty of room for operators in Oman to align standards and basic oilfield requirements, which can help contractors reduce cost. This will eventually reflect on the service price to the operators. In addition, contractors need to think seriously about ways to share resources and services, which can also help them reduce cost.
There is another important area of cooperation which I think is crucial for now and strategically for the future of our country. This one should include regulating authorities in addition to operators and contractors. We need to work together on ways to improve the productivity of our workforce.
While working hard to find ways to drop cost, we should work equally hard to find ways to increase productivity of our resources and especially manpower. How do we bring the productivity of our people to high levels? If I cannot reduce the cost of an individual, then we should work together to increase their productivity and get more performance out.
Do you think there should be a limit to the number of players in healthy competition?
Healthy competition is open competition, but I think the Ministry of Oil and Gas in cooperation with operators should regulate new service providers. Some parts of the services sector are saturated already with many providers, such as the conventional well services sector.
For example, if you have a small size pie and divide it between four people, each one will get a slice. If you divide it between 10 people, each might get a slice that is too small to be sustainable and optimised! For a particular service, we need to have regular assessment of the available market size and whether this particular service market can take a new provider or not.