KBR strategy focuses on expanding capability, geographic reach

Current global KBR oil and gas projects.

Offshore: What specific strategies do you use to seek competitive advantage?

Oelking: In addition to our major execution centers, KBR operates two high-value engineering centers in Monterrey, Mexico, and Jakarta, Indonesia, that act as project support offices for KBR. Those offices are key to allowing us to be competitive. One of the concerns I had before joining the company was, “Could KBR be competitive in the Gulf of Mexico market?” We won Big Foot at a very competitive time in 2009 against a big slate of competitors in the region. One of the reasons we were able to be competitive commercially was because we combined our Houston execution capabilities with Monterrey’s support services. As contractors, we frequently discuss how we differentiate ourselves from our competitors. In the Gulf of Mexico, for example, we have a clear differentiator in that we have a high-value engineering center located a two-hour plane flight away in the same time zone as the project. So, if you look at our execution plan for Big Foot, we’re doing 40% of the work in Monterrey. That makes us very, very competitive and as a company, we’re very good at joint execution. Our success with Big Foot will be a very powerful model for doing future work.

I also want to talk about Granherne and GVA, two KBR subsidiaries. One of the things that we did when I joined the company was that for the first time Granherne, GVA, and KBR oil and gas capabilities were organized into one business unit. Previously, they’d been in different business units. What did that do for us? One, it gave us all of those resources within the control of the business unit so that we could organize them, align them, and have them all working together. We’ve had a lot of success with Granherne in its consulting role, field development study work, and early concept selection work as it allows us to get involved very early in projects. In some cases, we’ve been able to pull those opportunities through to KBR as the projects move through their stage-gate process, going from concept to FEED, to detailed engineering. As a recent example, we’re doing the detailed engineering for Hess/Dragados Offshore, S.A. for the South Arne project in the North Sea. That’s a project that we started with Granherne as a concept select contractor, moved through FEED, and now we’re doing the detailed engineering. With all of them in one business unit, we can offer a client access to that complete resource through one portal. Granherne, which has offices in Houston, Leatherhead, UK, and in Perth, Australia, has been instrumental to our success and is today a very important part of our business.

GVA, another of our consulting companies, offers proprietary semisubmersible technology. That technology is being used in the Jack/St. Malo project. GVA adds a technology element to KBR’s Oil & Gas business unit, and we’re able to combine it with the engineering skills, the project management skills, and the project control skills of KBR, which results in a complete offering to our clients. The success with the Jack/St. Malo project is another example of the competitive advantage our subsidiaries offer. That project started, again, with GVA doing the early concept selection work, and once Chevron selected the GVA technology, we moved the project through FEED and now detailed engineering and construction management services.

So, as you can see, we have a very strong collection of capabilities between our consulting companies and KBR Oil & Gas that is really working well for us.

Offshore: Can you discuss how you see the current state of the industry and opportunities for KBR.

Oelking: First of all, it’s a great industry that we work in. We do remarkable things in terms of the technology developed in the industry over the last couple of decades – deeper water depths, increased pressures, and meeting all other challenges associated with the business. I’m really proud to, not only be part of the industry but to be part of KBR’s great legacy in the industry. That legacy is something that we continuously strive to build upon. As I look at it, you contrast the great exploration successes that the operators have had. You almost can’t pick up one of the industry publications on a daily or weekly basis without reading of another huge discovery either in well-developed areas or new, frontier areas. So, there’s a tremendous amount of reserves out there to be developed in interesting and challenging places, but also around the world there are some constraints.

In the Gulf of Mexico, we have some issues to work through post-Macondo. I’m absolutely confident that we’ll work through those issues. We’ve always come back as an industry in the past, and I feel confident that we will do so again.

Offshore: As far as opportunities for KBR?

Oelking:They’re all over the globe, literally. We talked about the success we’ve had in development work in all our execution centers, but if you look at projects that we’re pursuing, they’re everything from complex, large onshore oil and gas production facilities in Kazakhstan and Iraq, to conventional fixed platforms in offshore Angola and the Caspian and the North Sea, to the deepwater opportunities in the Gulf of Mexico and Brazil and West Africa. So, we’ve got a skill set and an organizational capability that gives us a large market to pursue.

One of the great stories of the industry is the resurgence of activity in the North Sea – the result of the combination of some improved fiscal regimes for operators, coupled with some good exploration success. We’re working on a number of North Sea projects, and we see a number of opportunities that continue to come forth. So, while the Gulf of Mexico is in a bit of a slowdown, it’s very good to see the North Sea generating the activity that it has.

Offshore:What do you think of West Africa?

Oelking: We’re doing some early work for some of the smaller operators. KBR was known by most of the super majors in the region, but I don’t think we were well-known to most of the independents. Independents have been some of the real frontier, leading companies both in deepwater exploration and in new areas. I think we see that in Ghana and up and down the West Coast, in addition to Nigeria and Angola, and recently on the East Coast of Africa. We look at Africa as a real opportunity. More specifically, we see potential in Angola and that is one of the countries where KBR Oil & Gas has opened and is growing an operating center.

Offshore: Do you believe KBR can be competitive in today’s market?

Oelking:With respect to being competitive, what I tell our people is ‘It’s easy to be competitive. All you have to do is understand the market to be competitive. The challenge is to be both competitive and profitable.’ We can keep the pulse of the market, and know what the market rates are. The question is can we be competitive and profitable? We have. We’ve proven that. We’ve proven that in most areas of the world by the successes we’ve had. Going back to our high-value engineering centers, they’re an important part of that model to be both competitive and profitable. We continue to get better at multiple office execution.

Offshore: Were you brought on to make this change?

Oelking:I think the word to use is “atrophy.” KBR had a muscle from the Brown & Root legacy days that wasn’t exercised for a while due to business decisions that were made long before I got involved. That was the reason I came onboard and that was primary focus of the discussions I had with the company’s executive leadership. KBR had a clear commitment to re-grow the oil and gas business and the offshore business. Obviously, they convinced me that the commitment was there and it’s been there ever since I’ve joined KBR. That was the mission – to come in and provide some leadership, some focus, some strategy to redevelop the business and move it back in the direction of where it once was.

If you assess KBR 20 years ago – with installation vessels and fabrication yards around the world – there was a major EPC focus. One of our long-term project engineers put together a collage of all the projects executed by the company since 1947 which included the first platform in the Gulf of Mexico out of the sight of land…there have been some great projects in this company’s history. Decisions were made to divest the company of a lot of those marine construction assets and sell or close fabrication yards.

So, our challenge, in addition to growing our engineering and project management services, is figuring out how to get a bigger piece of these projects. How do we get back to being a project delivery company? It’s not in our strategy to begin building fabrication yards or installation vessels. Our strategy is one of looking for companies that have very complementary types of capabilities. In other words, they have what we don’t have and we have what they don’t have. Last year, we announced a relationship that we’re developing with STX Offshore & Shipbuilding (STX), which is a large Korean conglomerate that’s made a huge investment in a shipyard in Dalian, China. We see opportunities to combine KBR’s expertise in project management with STX’s world-class shipyard in China. This will allow KBR to offer what I think will be a really compelling execution capability that will also be extremely competitive. The relationship with STX is a large part of our EPC delivery initiative. We are also working out some other collaboration-model initiatives for the future.

Offshore: Where do you think the best revenue opportunities are – onshore or offshore?

Oelking: I think everybody likes balance and diversity in their business, but right now our offshore business is the significant majority of our overall business mix. However, we see opportunities in these large, complex onshore oil and gas production facilities that we’ve identified as pursuits. If we have some success, it will balance the business and allow us to grow the business with more balance between offshore and onshore.

We’re happily focused on offshore. With GVA’s technology, we’re heavily focused on the Gulf of Mexico, Brazil and Angola. Those three regions have 70% of the world’s current deepwater reserves. For KBR Oil & Gas, deepwater is an area of focus and those three areas are areas of focus as well.

Offshore: What are your current goals for the oil and gas business?

Oelking: Grow, grow, grow. As soon as we meet this year’s objectives, it’s on to next year’s. We have our three-legged strategy. We want to continue to expand geographically. We want to continue to add capability. Third, we want to expand our offering to become an EPC company in the oil and gas sector.

We’ve taken some significant steps towards adding capability in 2010. For example, we added Energo, a small, talented engineering company in Houston that specializes in the area of integrity management – the sustainability of platforms and offshore installations. We think that integrity management – a systematic, engineering-based plan and program to maintain and ensure the structural integrity of existing facilities – is a growing requirement that we expect going forward with new industry regulations is going to be an even greater requirement. Energo is a leader in that industry.

Its business is very focused on the Gulf of Mexico, and now, with KBR’s global platform, we have the opportunity to expand that business around the world. We’ve already made progress with getting that business set up in Perth and also in London. The industry has a huge inventory of facilities that have been in the water 20 to 30 years, and now, as an industry, we’re getting a growing inventory of FPSSOs and FPSs, and those systems need to be maintained and inspected. That’s just one example of adding a capability similar to the case with Granherne. When you add to these specialized companies the global platform that KBR has to work from and the ability to access the expertise of Granherne and KBR resources, as a company you can expand your reach globally and take on bigger and bigger projects.

Offshore: What about deeper water?

Oelking: Our subsea expertise resides within Granherne and in the subsea business, Granherne is our primary offering to the industry. We’ve got significant capability here in Houston, and we’re just now completing the Chevron FEED for a multi-well tieback offshore Angola. We successfully won a project in Perth that’s a combination of floating production systems and subsea. Among our initiatives in the deepwater is to continue to grow Granherne’s subsea capability to address the deepwater market. We also have GVA with its semisubmersible technology, and I think as we go into deeper and deeper water, the semisubmersible technology is going to evolve into a technology of choice. We think it will be more competitive than spars or TLPs, so we feel really good about the technical capabilities that we have at GVA. The other capability is floating topsides. If you look at the history of KBR, we’ve done a lot of floating topsides, so the Big Foot award now gives us a reference project of executing a major floating topsides in the Gulf of Mexico. Our credentials have substantially enhanced over the last couple of years, and we’re looking for more deepwater floating topsides projects. We now have deepwater floating topsides designs ongoing in all three of our major execution centers. That gives us a firm basis to work from and to capitalize on in further deepwater business.

Offshore: Where do you see KBR in five to 10 years?

Oelking: We want to do more of what we’re doing and we want to be a tier one oil and gas contractor. What does that mean? I’d be happy if anywhere in the world you went and any operator you asked the question to name your top three oil and gas contractors, KBR made that list every time. That’s what I’d like to see. KBR has had a great history and we want to rebuild that legacy.

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Prior to being appointed as group president, Oelking served as president, KBR Oil & Gas, where he was instrumental in restoring the growth of the business unit through a series of global awards in the Gulf of Mexico, North Sea, West Africa, and Caspian regions. He also played an instrumental role in the opening of representative KBR offices in Kazakhstan and Angola.

His 36 years of experience have focused on project management, engineering, and construction of oil and gas projects in the Americas, Middle East, Asia Pacific, Africa, and Russia. In addition to Houston, he lived in Singapore for four years.

Prior to joining KBR in 2008, Oelking held the position of Sr. Vice President – Upstream with Worley Parsons, and worked for J. Ray McDermott for 29 years, leaving in 2003 as vice president of Worldwide Engineering and Project Management. He holds a degree in Civil Engineering from Tulane University.