Inside this issue

---

2011 in review -
Interview with Allister Langlands, Chief Executive

---

---

News in brief

---

Where to see us

2011 in review -
interview with Allister Langlands, Chief Executive

It has been a year of major transformational change for Wood Group, with the $1bn acquisition of PSN, the $2.8bn sale of the Well Support division, the return of $1.8bn cash to shareholders and the further development of the engineering and gas turbine services divisions.

For Chief Executive Allister Langlands, it's a significantly different business to the one he joined 20 years ago from a forerunner of one of the Big 4 accountancy firms.

"When I started as finance director in 1991, Wood Group had around 2,000 people, 85 per cent of them in the North Sea," Allister relates. "We now have over 38,000 people with 75 per cent of them outside the UK. We've grown from a domestic player to an international energy services player with market-leading positions across what we do.

"We're a world-leading engineering business with strong market positions in upstream, subsea and pipelines. We're also the world-leading production facilities support provider and the world-leading independent provider of integrated maintenance services for industrial gas turbines. Being a market leader positions us better for future growth and is testament to our strong reputation, capability and people."

 

PSN acquisition

The acquisition of PSN - a business employing more than 8,000 people worldwide and operating in 23 countries - is Wood Group's largest to date and is pivotal to a strategic repositioning that refocuses the business on its three core activities: engineering, operations and maintenance, and gas turbine services. The deal has created the industry's largest global brownfield services provider – Wood Group PSN – by merging PSN with Wood Group's own Production Facilities division. The combined business, led by former PSN Chief Executive Bob Keiller, offers a proven management team and deep talent pool, wide market coverage, a broad set of long-term customer relationships and a comprehensive service offering.

"We completed the acquisition in April of this year and things are going well," Allister explains. "We've now been working as one business for six months or so and I think we would say that the integration programme is well on timetable. One of the key benefits of the acquisition is the significant strengthening of the management team, particularly in international markets. For example, Wood Group was strong in Latin America, but PSN wasn't really there at all. PSN was active in Canada and was also strong in central Asia, where Wood Group didn’t have much presence at all. In Africa we're both strong in a number of different countries, but with very little overlap, so the geographic coverage is very complementary.

Customer focus

"We've been focused on continuing to deliver first-class customer support and this has been confirmed by several important contract extensions including TAQA Bratani and Talisman in the North Sea and Sakhalin Energy Investment Company on Sakhalin Island, Russia. There are encouraging early signs of cross-selling opportunities both within Wood Group PSN across different customers and with our engineering and gas turbine services divisions, so progress is robust. There's not one day when I’m going to say ‘it's all complete’ – it's an ongoing process – but we're happy with how things are going so far."

Allister believes the enlarged business meets growing industry demand for a 'reliable global provider' with the geographic reach and capacity to address key industry concerns, including asset integrity and operational assurance. “Wood Group is well-positioned to provide consistent global standards in safety, competency, and best-in-class engineering tools, processes and systems."

Sale of Well Support

As part of the strategic repositioning, Wood Group sold its Well Support Division – comprising electric submersible pumps, pressure control and logging services – to General Electric.  Following the two deals, $1.8bn of cash was returned to shareholders.

"We felt we had a very successful business that was in product manufacture and that business was coveted by a number of large oilfield services companies," Allister explains. "Taking Well Support from division one to the premier league would've taken a fair bit of investment, so we believed there were other companies that could add value more quickly. We wanted to sell to a leading global organisation with the resources to take it forward and GE, as one of the largest industrial companies in the world, obviously fits that criteria. We also believe we got a very good price for shareholders. The return of cash to shareholders was about getting a balance sheet that was efficient while at the same time leaving us the flexibility to continue to grow the business both organically and through targeted M&A activity."

Engineering repositioning

The third key element of the new strategy is the repositioning of Wood Group's engineering division into two groups: Subsea/Pipeline/Riser & Integrity Management and Process & Facilities. The subsea-related group was formed last year and operates under the Wood Group Kenny banner.

The new Process & Facilities group will operate under the Wood Group Mustang banner and comprise Alliance Engineering, Energeticos, IMV Projects and Mustang. The integration of Alliance and Mustang is a key element in the formation of the new group. Individually, Alliance and Mustang are already leaders in the upstream oil & gas market. The combined capability will be a powerful force in the worldwide energy industry and will enhance our ability to better serve our clients with expanded resources, broader geographic reach and more comprehensive services.

"The rationale for the repositioning is to help strengthen the offering that we can provide to customers, so they can come to one engineering group for process and facilities or one organisation for subsea," Allister explains. "So we're taking all of our core strengths and people in these areas and offering them to all of our customers. It will allow us to increase efficiencies from an internal perspective but it also combines some strengths across both focused groups."

Recent developments in Gas Turbine Services

The group’s third division, Wood Group GTS, is the leading independent integrated aftermarket maintenance service provider for industrial gas turbines.  It is also a leading provider of fast-track power solutions for customers around the world.

"The business developed from roots supporting the equipment needs of our oil and gas customers in the North Sea," says Allister.  "It is now a global business – and the ability to support rotating equipment as part of our production facilities support offering is a key differentiator."

Wood Group continues to invest to grow the division and enhance its differentiation and has expanded its ability to provide aftermarket services for the Solar Mars® fleet of gas turbine equipment. These 9-11 megawatt units are predominantly used in oil & gas applications for compression, power generation and pumping activities. They are also used for combined heat and power generation by industrial plants and other local power generators.

"We commissioned our Houston test facility in October and are now able to fully load test Mars units, including the Mars 100 low NOx. Development of the full Mars capability, combined with the recent addition of Siemens Typhoon capability, gives customers operating both Solar and Siemens light industrial turbines a much greater choice for support of their critical rotating equipment needs.

"Looking to TransCanada Turbines, where we have a leading position in the service of GE LM 6000 and LM2500 and Rolls Royce RB211 and Avon engines, we recently opened a new 220,000 square feet repair and overhaul facility near Calgary, Canada.  This gives us greatly increased capacity and enables us to accelerate our service cycle, which will help customers get crucial rotating equipment back on line faster. TransCanada Turbines is also investing $40 million in a new LM 6000 test cell in Calgary which should be open for business in Q2 next year.

"We also recently completed our investment in GTE and entered into a strategic licence agreement with Pratt & Whitney Power Systems.  GTE provides a number of key capabilities centred around dry low NOx (DLN) combustion systems and the control and optimization of operating advanced technology turbines.  The strategic licence agreement with Pratt & Whitney Power Systems will provide us with access to parts for the GE 7F fleet of gas turbines.

"I am optimistic about the growth I see coming from this division over the next 12 months."

New opportunities

Allister is also enthusiastic about new opportunities across the business. These include a growing engineering business in Saudi Arabia and engineering joint ventures in Angola and Malaysia.

Allister sees potential to expand in regions where Wood Group PSN already has a presence, like Russia and Africa. Canada is also a key growth market. "The market in Canada is going great guns and it's a really strong recovery story in 2011," he says. "With their heavy oil, Canada has the second largest oil reserve in the world so it's a tremendous market."

Heavy oil is a type of crude oil that is very viscous, so does not flow easily. One of Wood Group's businesses, Calgary-based IMV Projects, specialises in engineering for heavy oil projects. This includes steam-assisted gravity drainage – a type of extraction in which steam heats up the oil and thins it, allowing it to flow to a well. "We have IMV Projects, which specialises in the engineering of heavy oil projects, but we didn’t have a brownfield services company like we have now with Wood Group PSN, so that's a great opportunity for us to offer operations and maintenance to operators of heavy oil projects." 

In terms of unconventional plays, shale presents one of the biggest opportunities. "Shales are a new source of natural gas and liquids in the States and they have changed the whole supply and demand balance," Allister says. "The US now has a more than 100 years supply of natural gas thanks to its shale plays and it's a tremendous opportunity for our operations and maintenance group to go in and provide the resources to help produce this. It's also a fantastic opportunity for our engineering business, which recently opened an office outside Pittsburgh to service the Marcellus shale play."

This growth is boosting the group's production support business in the US, which has built up expertise in both shale and coal bed/seam methane. This knowledge is also helping Wood Group develop new businesses in areas such as Australia.

Expectations for 2012

In terms of the outlook, Allister’s expectations are for growth across all three divisions in 2012. "Market conditions have improved during 2011 and this has contributed to forecasts for global exploration and production spending both in 2011 and 2012," he says. "We continue to see good momentum across our business, and the longer term fundamentals for our oil and gas development and production and gas-fired power generation support activities remain strong."

“But we are not naive and are vigilant in looking to pick up early warning signals or changes in customer behaviour.  We are not seeing any issues at this time but we know things can change," he adds. "Our focus is on talking to customers and staying very close to them, and maintaining a very flexible business so that if activity does pick up or turn down, we can react and scale our business appropriately."

Allister says he's extremely proud of how the business has developed but points out that there is still a lot to do. "I want us to do even better and am hugely excited by the future potential for all of our businesses to deliver the best of what they can do," he says.

People power

At 53, it seems he is just getting into his stride. With five children aged between 32 and 10 and two grandchildren, he is said to have 'ferocious energy' and cycles, plays badminton, tennis, golf and five-a-side football to keep fit. He has also raised £80,000 for charity so far this year by losing 40lbs in a sponsored weight loss programme.

At work, he's been known to call meetings at ridiculously early times during busy periods and has clocked up hundreds of thousands of air miles visiting businesses worldwide. "When you're running a global business, you can't summon staff from the ends of the earth to discuss their issues over a cup of tea in your office," he explains. "You need to get out there and visit employees, customers and other industry leaders."

He pays tribute to Wood Group's people, without whom the business would not be the success it is today.  "I love helping people to develop and reach their full potential," he says. "The people in our business are delivering market-leading services and their talent constantly surprises me. I'm passionate about the opportunities we have to add value to our customers, and the opportunities to keep our people and the facilities that we work on safe."

Roots of success

Despite a naive wish to be a professional sportsman, it was a fascination with numbers and problem solving that drew Allister to accountancy. Stories about two successful great uncles in the Twenties and Thirties also fuelled his interest in business.

"One was a financial adviser to the Shah of Persia, the other was financial director for copper mines in South America," he remembers. "Making money in faraway places had a romantic appeal to a schoolboy growing up in Forfar,” a small town in Scotland.

After an MA in Economics at The University of Edinburgh, he became a trainee accountant at Deloitte Haskins and Sells.  Later, as a young partner in Aberdeen, working on the Wood Group account led to a job offer as finance director.

Since then he has immersed himself in every aspect of the business and lists his career highlights as the internationalisation of Wood Group, its float on the London Stock Exchange in 2002, valuing it at more than £1bn, and the strategic repositioning of the last 12 months. So what’s next?

"It's been a very busy 18 months but I think we're in a much better position with a much cleaner investment story," he says. "We are a market leader in certain areas of engineering and a market leader in almost every area of production support. We like being a market leader and we like our balance of activity across both the opex¹ and capex² operations of our customers. My ambition for the business is to stay focused on that journey. With strong long-term fundamentals and a refocused strategy, we're in an excellent position to deliver good longer term growth."