Axing jobs and costs alone won’t be enough to save struggling engineering and construction companies suffering through the oil industry downturn, several energy executives said at Tuesday’s Global Engineering & Construction Forum at Rice University.
More partnerships are needed and more acquisitions are likely to come if oil prices continue their slide, speakers at the event said.
While growth in the petrochemical sector is helping some companies, a recent Wood Mackenzie report, for instance, shows that $1.5 trillion in pending North American shale projects are not profitable with oil at $50 a barrel.
But “battening down the hatches” and making widespread cuts isn’t the answer, said Michele McNichol, CEO of Houston-based Wood Group Mustang.
“All you’re doing is changing your color, changing your spots, but you’re still a chameleon,” McNichol said.
These problems warrant a more “enduring and metamorphic change,” she said, comparing the situation to a butterfly coming out of a cocoon.
She said the oil downturn is expected to last for an extended period of time and companies need to innovate and find new partnerships to stay in business with $50 oil.
“There is some risk and it can get a little messy,” McNichol said, but companies must be willing to try new approaches to make projects profitable. “And they (owners and operators) have got to trust we’re doing it for the right reasons.”
Wood Group Mustang, for instance, recently launched an innovation network for employees to propose new ideas, and the company formed a company to select the best proposals and put them into action. One example is a new master database software system developed in-house by engineers to examine all vendor databases within a project and adjust costs accordingly, she said.
Companies need to bluntly assess themselves and determine what they offer that their competitors do not. Businesses must cut out unnecessary steps in their operations and innovate in ways that cut costs with the goal of becoming much more predictable. Far too many projects come in late and over budget.
“We’ve been doing it the same way basically for a long time,” she said. “Transformational change starts with clarity. It’s going to take time and it’s going to take lots of money, so it seems counterintuitive.”
Jeff Reilly, Amec Foster Wheeler group president of strategy and business development, said that in order to get projects off the ground and win contracts, he is meeting with peers and competitors to build relationships that could lead to partnerships.
U.K.-based Amec just acquired Foster Wheeler last year. Reilly noted that the energy engineering and construction sector is more fragmented than the oil field services.
“[Joint ventures] have become a big part of our thought process moving forward,” Reilly said. “We do innovate when our backs get up against the wall. It’s that double-edged sword.”
As necessary as it may be to cut jobs, McNichol said companies mist keep investing in employees and developing them or risk another generation gap in energy workers and skilled craft workers.
Tom Anderson, president of Lutech Resources, the recruiting arm of CB&I, said companies lose productivity when there’s a lot of skills and labor turnover.
CB&I recently launched its “Have you got grit?” job recruitment campaign and the company is partnering with Louisiana community and technical colleges to train new welders and more. Apart from salary and benefits, the biggest reason workers leave jobs is a lack of skills development and promotion opportunities.
“People have to feel there’s more than a paycheck,” Anderson said.
The secondary reason for attracting top talent is a company’s reputation and branding.
“Your corporate reputation is extremely important these days and it can be destroyed very easily if you’re not careful,” Anderson said.