Interview with Steve R. Gill, CEO of Production & Processing Solutions in the Oil & Gas Division of SNC-Lavalin.
Interview by Paul Hart, MIDSTREAM Business.
MIDSTREAM Business, nov/dec 2016
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The Interview - Steve Gill - MIDSTREAM Business nov/dec 2016
1. The Interview
Interview
Steve R. Gill is CEO
of Production &
Processing Solutions in
the Oil & Gas Division
of SNC-Lavalin.
AS SEEN IN
NOV/DEC 2016
2. By Paul Hart
hen does a midstream supplier come over and become
a midstream operator? When it responds to capital-
challenged customers who need new assets but, thanks
to the downturn, don’t have the cash. Valerus is a well-known source
of engineering, procurement, fabrication and construction services in
the sector that has been through significant changes in the past two
years. A two-step merger has made it a unit of Montreal-based SNC-
Lavalin Group Inc., a worldwide supplier of infrastructure, mining and
metallurgy, oil and gas and power services. One positive of that change
has been new, readymade overseas markets. Its CEO explains here how
Valerus has reworked what it does to better serve customers facing
changes of their own.
W
Crossing
The Line
3. The Interview
MIDSTREAM The gathering and
processing business is very specialized;
what attracted you to it?
GILL I’ll credit my dad, he was in
the business. He started with Ingersoll
Rand in 1958. I thought my dad was
cool, so when I was growing up I said
I wanted to be just like him—he was a
mechanical engineer from Texas A&M.
He got in the compressor business, so
I said, “He looks like he has a lot of fun
and he puts put food on the table, so
let’s try it!” I started right out of school,
a mechanical engineer from A&M, and
I started with Ingersoll Rand two days
after I graduated. The whole family’s
still in the business.
MIDSTREAM Valerus recently be-
came a part of SNC-Lavalin. How has
the merger gone, and what has your
organization gained through it?
GILL We were acquired twice in
eight months in 2014. That January, we
were acquired by Kentz [Corp. Ltd.],
which was an Ireland-based company
that was more than 100 years old. Kentz
specialized in engineering, construction
management, commissioning and asset
management, with particular strength in
electrical and instrumentation construc-
tion across multiple sectors including oil
and gas, mining and power. What made
them really unique was not only how
long they had been in the business, but
their global footprint. They were all over
areas where we had never gone, and it
automatically gave us global reach. It
would have taken us the next 10 years
doing customer relations to break into
new countries. When you are out in the
desolate areas and you already have an
operating infrastructure—or entities
in those countries—it makes it a whole
lot easier to just immediately walk into
them. Several of us in the organiza-
tion had been doing it for a while, and
opening new offices in the international
arena is quite an ominous task.
You need entities—legal entities, tax
entities, all of those things—and if you
already have that done you can turn the
light switch on the next day and say, “I
can operate in this country!” Take Mo-
zambique, for example. We probably
would have never gone there, and South
Africa.There were a few areas where both
of us operated but for the most part the
very difficult areas—Iraq, Saudi Ara-
bia—we had not been there before.
Later that year, in August, SNC-La-
valin acquired Kentz.I like to say they ac-
quired us, but they acquired Kentz, and
they got us too. That furthered our reach
because now we operate in 50 different
countries, areas that Kentz didn’t oper-
ate in; SNC-Lavalin did. It just expanded
our list of countries that we operated in,
and that was very encouraging. Equally
encouraging is the fact that we recently
assisted the mothership in obtaining
close to $800 million worth of projects
directly related to our technical expertise
and products, such as an unconventional
shale play in Saudi Arabia.
We leveraged our experience that we
had gained as Valerus, when the shale
plays were so active during the period
of 2008 through 2014, and with all that
experience that we had gained we were
able to assist SNC-Lavalin and Kentz.For
example, because Saudi Arabia is one of
their largest countries of operation, we
just stepped in and provided technical
solutions that we understand are a differ-
entiator. It made us quite proud. In the
end, the technical teams melded together
really well.
MIDSTREAM Whatischangingin
theNorthAmericanmidstreammarket?
GILL Commodity prices—the
environment has obviously caused
everybody a lot of stress and a lot of
challenges. The biggest differentiator or
opportunity for us is the balance sheet
that SNC-Lavalin has—a very strong
balance sheet—and that is why our
Build-Own-Operate (B-O-O) model,
we believe, will continue to provide a
lot of new opportunities. What’s unique
about it and why it fits in so well with
Valerus is everybody likes to have a big
credit card—but what do you do with a
credit card?
Our business focus is providing com-
plete solutions,not just widgets.We’re not
going to build this business one compres-
soratatime,we’regoingtobuilditbypro-
viding complete gathering and processing
facilities. If you take the midstreamers of
the world,which we’re talking about here,
it starts at the wellhead.
We can assist in the technical exper-
tise of building a gathering system that
collects the gas from the wells, and then
we take it one step further, by offering
to engineer, manufacture and install the
gas treating or gas processing module. So
when you look up, instead of providing a
SNC-Lavalin’s Production & Processing Solutions provided turnkey
engineering, procurement, construction and commissioning for
this 18,000 horsepower compressor station serving a Utica Shale
gathering system. Modular equipment and piping design reduced
field work required and expedited construction at the remote site.
All photos courtesy SNC-Lavalin Production & Processing Solutions
4. $1 million compressor, you’re providing
a $150 million complete facility, and I
think that is just starting to gain momen-
tum for us. You match that with a fledg-
ling company that may be backed by an
equity group that would rather preserve
their balance sheet for the E&P side and
use ours for the surface facilities, and it
puts us in a very unique position. We’re
very excited about that.
MIDSTREAM Have you had a suc-
cessful B-O-O project this year?
GILL We are working on a project
with a domestic midstreamer to provide
all of their gathering and processing facil-
ities—and we will operate it too. We’ve
been working on the development of it
for a long time, and we think this is a first
step for many like this. That’s part of the
reason that SNC-Lavalin is very excited.
They like a model where we can go in
and provide a complete cradle-to-grave
opportunity and operate it.
Following this same thought process,
what if you take that model to the inter-
national market where they haven’t seen
this concept? One of our key clients is in
a remote location where they do not have
operating infrastructure,and we are will-
ing to commit $200 million to go build a
complete facility for them. We can do it.
In some cases, the owner prefers to
operate itself, but some people don’t
have the operating infrastructure,so they
want us to do it. That’s a real differentia-
tor for us. Kentz was well known, as they
had people all over the world. For exam-
ple, in Mozambique, we have employed
more than 2,000 people there during
recent projects. You don’t find our tech-
nical expertise just anywhere. And so, if
somebody has a project with a short fuse,
or it’s a very technically complex facility,
or they prefer not to use their balance
sheet, then we’re an attractive solution.
MIDSTREAM Canyouadaptforlocal
situations?Forexample,howwillyour
modulardesignsworkincolderregions?
GILL The world is a big place, and a lot
of it is cold. As Valerus, we topped out
at about almost $700 million in revenue
in 2014, but our quest now is to be a big-
ger part of the $10 billion SNC-Lavalin
machine, so we’re going into areas in-
cluding the Bakken and areas of Canada,
if it makes sense. Since SNC-Lavalin is a
Canadian company, your reception is a
lot better because most people like to buy
from their local country mates. So we
have aspirations for expanding our offer-
ings into Canada.
MIDSTREAM There’s a lot of poten-
tial in Canada’s Duvernay and Mont-
ney unconventional plays. Will you get
involved in the tar sands?
GILL The Kentz and the SNC-Lavalin
guys are already deeply entrenched in
the area with several projects, and others
in the region.
MIDSTREAM New U.S. cracking ca-
pacity will be coming online in the next
couple of years, and this is expected to
cause ethane prices to finally turn up-
ward. How will that trend impact the
gas processing business?
GILL Intuitively, you would say the
market will need more ethane, so people
are going to grab it. Ethane is a nasty
word right now because it’s more of an
expense than it is a revenue stream. We
will be very excited when that happens.
We think we have all the technical prod-
ucts in our portfolio and the execution
model to offer in order to immediately
be ready when this turns. We like where
we sit in terms of strategy, we’re ready
for the market if it turns tomorrow or if
it takes another year or two years.
MIDSTREAM You have discussed
your strong international presence.
Will that continue to grow as a result
of joining SNC-Lavalin?
GILL For our Production and Pro-
cessing Solutions unit to participate in
$800 million worth of new business is big
when you realize that our total revenue,
before the acquisitions, was $700 million
in our best year. So we’re very excited
that our little pieces fit in the larger cor-
porate model. The international market
is about being present in a country, and
if you already have infrastructure, rela-
tionships and a brand, that breaks down
most of the obstacles of success. If you
have the products and expertise to go
with it, then one would conclude success
is just around the corner.
MIDSTREAM How do foreign mar-
kets differ from the U.S. and Canada?
GILL The difference is the U.S. likes
the standardization model, whereas
the international clients are not as
comfortable with it. We use the term
“bespoke” because that’s what many of
those markets have traditionally done.
However, we think that the timing is
very opportune right now for foreign
companies to find more economical
solutions because of commodity pric-
ing pressure. We’re flying all around
the world and offering alternatives, and
it’s just a matter of time before they
start to catch traction. Once we do gain
Gathering systems don’t always need a big
turboexpander to process gas. The SNC-
Lavalin unit installed this Joule-Thomson
plant, with a capacity of 35 million cubic feet
per day, to serve a Delaware Basin system.
Installation took 14 weeks.
5. The Interview
traction, I think then you will start to
have a snowball effect because if Com-
pany A sees that Company B is more
competitive because they took a stan-
dardized model that’s just as safe, that’s
just as efficient, that operates just as
well, then they have to ask themselves
and their engineers, “Why are we still
doing a bespoke model? Customization
takes us twice as long and it costs 50%
more. Our model is broken.”
The real challenge is how do you
diplomatically say that to a guy who has
been doing things the same way for a
long time? That’s a bigger challenge than
you think. In some companies, engineers
run the company, and so if you can’t
make them feel comfortable that your
design—again—is safe, is efficient, and
that they are not really giving anything
up for trying this new standardization,
then you have a real challenge.
MIDSTREAM Could you speak to
modular plant design vs. stick-built
projects? Do you see increasing inter-
est in modular projects?
GILL Let’s talk about the two projects
that I mentioned earlier, the ones that
we won in Saudi Arabia. We built a
plant in West Virginia, in the Marcel-
lus, and it was done in record time, on
budget; we made a bonus for safety and
early startup. We basically took that
exact same model and asked the client
in Saudi Arabia, “If this were in your
desert environment, and it would op-
erate the same way and provide you the
same service, would you consider it?”
And that’s basically where that project
started. They couldn’t find a reason why
it wouldn’t work in their environment
vs. anywhere else in the world.
That’s a roundabout way of saying we
believe modular solutions will increase
in popularity over time. Once you get
somebody to try it, and it’s more cost-ef-
fective and it doesn’t give up efficiency or
safety, we believe that it will gain traction
in the regional markets.
MIDSTREAM Production & Pro-
cessing Solutions has a new fabrication
facility in Sealy, Texas, west of Hous-
ton. What is different about it?
GILL We are really excited about it.
When I came to Valerus in 2008, we
had five different facilities and they
were basically basin-oriented in terms
of location. It was important to have
your presence in a basin, and so we had
Longview for the East Texas region, we
had Victoria for South Texas and Eagle
Ford, we had the Northeast shop in
Pennsylvania for the Marcellus, and we
had Bay City, Texas, which was basically
where we built our compressor pack-
ages. That was kind of the nucleus.
With times changing and the neces-
sity to operate more efficiently, we de-
termined that consolidation was a really
important factor for our future. This is
a key point: it speaks highly of SNC-La-
valin’s commitment to the Production &
Processing Solutions business, given the
current market conditions, because we
signed a long-term lease and are spend-
ing a lot of money to relocate the right
people to run the Sealy facility.
What’s interesting is with almost
400,000 square feet and a 30-foot hook
height, we can build any product that I
know of that we make right now. Intu-
itively, you should be more efficient if
you build everything under one roof. We
are up and running and now ready for
the market to help us out a little bit. The
last couple of months have shown very
encouraging signs both internationally
and domestically. I saw a picture of our
first production equipment going to the
Permian just the other day. It was the in-
augural equipment from our new facility.
We see Houston as the epicenter of
the Western Hemisphere in terms of the
oil and gas market, and with that under-
standing, there are a significant number
of visitors coming to town for corporate
meetings or conferences,i.e.the Offshore
Technology Conference. We know it will
be a big benefit when visitors want to see
our manufacturing facility, we can take
them to one shop where all products are
manufactured, instead of four spread
around three different states. Two large
international clients have already visited
and audited it and we received very high
marks. We’re excited about that.
Stringent environmental regulations are a factor in
designing more and more gas processing plants.
This Barnett Shale operation lies within the Fort
Worth, Texas, environmental impact area and was
engineered to minimize air emissions.