Shifting Sands - The future of the oil industry
Case study: Vetco
Vetco has come a long way in the two years since the buyout.
3i first invested in Vetco in January 2004, which was created through the $925m sale of ABB units Vetco Gray and Offshore Systems to a syndicate. The emphasis since has been, in CEO Dr Peter Goode’s words, “rebuilding the brand,” reinvigorating a 100-year pedigree and creating a cohesive entity from businesses that had never previously
been managed as a group.
Today’s Vetco is very different from even two years ago. It is market-led rather than manufacturing-driven, refocused and increasingly global in outlook. In achieving this, Goode has been able to engage, not just the huge capability within the group, but also the oil and gas expertise at 3i.
“A critical aspect of having 3i in the investment group was that they were the one that brought oil and gas experience to the table. That was absolutely vital in gaining credibility with the seller,”he explains.
Goode’s ambition for Vetco is to extract the absolute best from its capabilities and opportunities and to build from that. “It’s about exceptional organisation – having the ability to see the opportunities ahead of time, rather than wait for tenders to come in,” he says. Vetco has arguably the most exciting contracts book in its history:Alvheim (Norway), Kizomba C (Angola) and Stybarrow (Australia) being three big 2006 wins.
Like 3i’s Graeme Sword, Goode agrees that today’s market dynamics, driven by robust oil prices, have created a terrific opportunity, but there are capacity constraints that must be addressed.
“There’s a bow wave of unfulfilled opportunity that’s being pushed ahead because the industry just doesn’t have enough capacity to service the volume that’s out there,” says Goode. “It’s really an issue of having discipline. That’s difficult for a business like this servicing a cyclic sector because, when there are plentiful opportunities, the overwhelming inclination is to book as much as you can.”
Widening the net
Goode says Vetco’s traditional customer base is IOCs and, to a lesser extent, independents. But the company also has good relationships with a number of NOCs, including some major resource holders.
“It’s clear that we have to get much more involved with NOCs going forward,” he says. “This is one of the largest strategic imperatives we currently have. If you want to continue to grow in this business, you’ve got to be able to service the customers that control that oil.”
Vetco is well on the way to achieving that goal and has a long-standing and strong presence in Europe, the US, East Asia and the Middle East especially.
“West Africa is extremely important. The Middle East and Asia are very important, especially in and around Australia and India, as are Russia and the Caspian Sea,” says Goode. “However, we’re going to have to be disciplined and selective about how we build the business in these markets.”