...more in demand than ever What has changed in scope of the contracts you sign with E&P players? Frank Verhoeven: It has been our strategy to move away from simpler projects like chartering, where cost leadership is the key to success, towards more complex projects where we can add value with our people, know-how and assets. In the past, the market was dominated by single-activity contracts. Clients did their own design work, and we fitted our working methods to their design. These days, EPIC turnkey contracts are the norm. The design is often our own, and we can fit it to our working method. That prevents problems in the interface. We often do the interface management for the client. Most recent contracts comprise not just design and construction, but also extra features ranging from maintenance and finance all the way to operation. Frans den Houter: Whereas our core business is the transport and installation of offshore structures, from production platforms to deepwater pipe lines, in recent years we’ve seen a shift towards more complex projects that have made it necessary to gear up our entire organisation.
Frank Verhoeven: We have had a number of experiences with alliance contracts, all of them positive leading to lagging investment power. The risks FPSO contractors run are large: effectively the daily lease rate we offer is a fixed price quoted today, after which design, procurement and construction take up the following three years. On top of this, we indirectly run the reservoir risk: our clients succeed in contracting us with a minimum time guarantee that coincides with their most conservative estimate of the field’s life. Thus the contractor is at risk of having an idle unit return much earlier than planned – a unit that normally needs investments of over 100 million
EPCI (Engineering, Procurement, Construction and Installation) contracts require us not only to adapt to new ways of working, but also to stay vigilant in order to maintain a responsible level of liabilities. Activities such as design and procurement carry higher exposure to risks which must be continuously monitored and mitigated. These changes have consequences for pricing. Are contractors making more money? Hugo Heerema: Our industry segment (building, owning, operating and leasing of FPSOs) is structurally not making enough return on investment to stay healthy in the long term. There’s a shortsighted competition on price going on between players that are too hungry for sales growth and ignore the quality of that growth. This is particularly true in listed companies, which need growth to impress their shareholders and analysts. These companies become monsters that need to be fed, even if it is with underpriced projects. An underbudgeted project can undermine a company’s profitability for a very long time, and this is what has been happening to the FPSO business for many years,
Frank Verhoeven joined Boskalis in 1976, right after earning his civil engineering degree from Delft University. He held various operational and technical positions before becoming managing director of Boskalis Netherlands. Following the merger with Smit in 2010, he became Chairman of Smit, managing the merger and further integration of Smit and Boskalis. In May this year he was appointed a member of the management board of Royal Boskalis Westminster N.V. 27