Industry Leader: Mark Collett talks oil offshore

The OGM:

Where do you think the price of oil is going?

Mark Collett, COO, Crosbie Group:

Shale oil clearly has been a game changer, and I don’t think anyone fully understood the impact it would have on industry. Supply and demand are coming back into balance, so I don’t think that it’s a stretch to say that a long run price of around $70 over the next three or four years is possible.

The OGM:

Where is the Crosbie Group partnership plan?

Mark Collett, COO, Crosbie Group:

A secret to Crosbie Salamis’ success has been partnering with leading-edge, world-class companies, which have developed innovative approaches, technology, and expertise, which we see as having potential in this marketplace. Through a partnership, we actively seek out these innovations, adapt them for this region, and present them to our clients. It’s been a very successful strategy over the years, and to this day it remains a core tenet of our business. Several of our partners have been with us since the beginning of Crosbie Group’s entry into the oil and gas sector, and we have collaborated on some innovations that have benefitted our clients.

The OGM:

What do you think it will take for Newfoundland and Labrador to get to the next level of development offshore?

Mark Collett, COO, Crosbie Group:

Operators are looking at opportunities worldwide, and are taking a portfolio management approach to identify where to invest their capital. Newfoundland and Labrador has to be seen as a good place to invest, with a stable work environment, and attractive royalty regimes.

The team at Nalcor has made significant progress in providing essential information to attract companies to take an interest in the region. Their strategy of focusing on seismic activity and marketing the opportunities is clearly showing results.

At $50 oil I think we have ways to go before we see significant uptake in capital investment. Costs are coming down in the supply community, and innovation and technology will support development, but it will take time. As we move into deeper water, there’s a whole new set of challenges to be overcome, particularly around logistics. Overcoming those challenges takes time and resources. So I think with the continued marketing of the region by Nalcor, building on the interest in this region while these challenges are studied, and solutions are developed, we will see momentum pick up again, with time.

For a company like Crosbie Salamis, our focus has traditionally been to support operations and maintenance activity. If an offshore development project was sanctioned by an operator tomorrow, it’s at least four years before we would have an opportunity to pursue. So for us, in the meantime, it’s about continually looking for ways to add value to our existing clients, and perhaps taking a more serious look at diversification.

The OGM:

What’s your next big project?

Mark Collett, COO, Crosbie Group:

We’ve been very fortunate, particularly with regards to the Hebron project, as it gets ready to transition into operations. We’ve been awarded the deck services contract by ExxonMobil, and we’ve signed a contract to provide fabric maintenance services to the EPCM provider. We have similar agreements in place for fabric maintenance services with Terra Nova and White Rose, and we provide Deck Services and industrial cleaning and rope access services to Hibernia.

The OGM:

What could happen if we are not careful to have full and fair opportunity for local companies?

Mark Collett, COO, Crosbie Group:

For years I’ve heard people speak about what ‘full and fair opportunity’ means, and what it means to be ‘local,’ and it’s predominantly been during the project development phase. For the production phase of the projects here in the province, I’ve never really heard much debate or scrutiny of ‘local benefits’ as the industry here has been in somewhat of an uninterrupted growth mode for a couple of decades, and players in the industry have generally gotten along, with healthy competition and a lot of opportunities to pursue. But right now, with the downturn and the focus on cost, the industry is being tested in ways I don’t think we’ve ever seen in the province.

Market forces are driving reactions by different players in the industry, each one scrambling for their place in the value chain, trying to expand their base or move risk. That’s healthy, but if these reactions are left unchecked, there can be unintended consequences for the industry. We are seeing international Tier 1 contractors in the value chain, companies that have the same full and fair obligations as the operators, opting to self-perform traditionally locally sub-contracted services, with no requirement to show how they fairly arrived at that decision. Local companies are typically positioned as Tier 2 or Tier 3 contractors. Sometimes, an operator will decide to bundle the scope associated with several contracts into one large contract and then push the procurement and management of all lower Tier services onto the Tier 1 company. But if a Tier 1 company decides to self-perform the work that is typically executed by the local supply community, rather than tender and sub-contract that work, the local companies are shut out of the opportunity with no chance to compete. That sends a very significant rippling effect throughout the industry.

As a supply community, we’ve spent over 30 years building up pockets of expertise and established local companies that can provide their services, competitively, anywhere in the world. But if we leave the market to sort itself out, many of those truly local companies will be nudged out of the market by larger, multi-national players that have the financial wherewithal to ride out the downturn. I’m a capitalist at heart, but if we do keep going down this road, local companies, companies that are active members of the community and are headquartered here, that were here long before there was an oil industry in this province, will leave the industry.

The companies that were built locally since the industry started here, and depend entirely on oil and gas, I think you’ll see many of those companies go out of business altogether. If a decision to self-perform can be made by a Tier 1 contractor, without a 3rd party mechanism to ensure the principles of full and fair opportunity were adhered to, we risk an erosion of what local companies have spent over 30 years building. It’s already happening.

The government, the regulator, and the operators all have a part to play to ensure all companies participating in the value chain of the industry are fulfilling their obligations to provide full and fair opportunity to the local supply community.

The OGM:

What is the strategy for Crosbie Group moving forward?

Mark Collett, COO, Crosbie Group:

Crosbie Group will continue to do what we have done for over 100 years. We will adapt and innovate. We’ll look for new ways to add value for our clients. We’ll look for new markets for our services, outside of the province. We’ll probably get into other sectors to help balance out the risks inherent in a cyclical industry. And we’ll help support the oil and gas industry’s capabilities and promote the region as a good place to do business because it is.