Any doubts that the North East could still cut it in world class heavy industry were shot down last year when a giant example of the region’s capabilities was lugged down the Tyne.
The North Sea oil platform – the last piece of the £400m oil rig jigsaw built by OGN at the Hadrian Yard in Wallsend – showed just what this region has to offer the offshore sector.
OGN was formed out of Lowestoft-based SLP and came to Tyneside in 2008 with a £25m investment plan to build an offshore fabrication business using the vast facilities
at its disposal.
The deserted site OGN eventually acquired perhaps took some vision to picture as a thriving and globally competitive hub of activity.
But one senior figure within its ranks – Craig Melville – had a clear notion of what could be achieved there, having been one of the thousands of people who worked under the site’s previous inhabitant, Amec.
The chief commercial officer and deputy CEO says: “We targeted this facility because it’s in the North East, which has a heavy engineering pedigree. There’s a big catchment area of those type of skills and similarly there’s a good supply chain network around here for supporting the industry in areas like scaffolding and valve or cable supplies.
“Add to that the Tyne itself, which is one of the major ports in the UK and well serviced by vessels from the oil and gas community, and being here is far better than being in a remote part of Scotland. Local infrastructure has been fantastic as has supply of white and blue collar workers. It’s one of the better places to be.”
In its official year one of trading in 2010 turnover was £5m. Two years and a hefty offshore contract win later, that figure had become £150m.
Last year the business registered a 70% surge in profits despite revenues dropping £50m to £99.1m, a reflection of work with lower overheads tied into it rather than diminishing orders or cost-cutting.
“We’re looking at turnover of around £100m this year,” says Melville. “We’ve been up to £150m but the mix and the nature of our contracts nowadays happens to be projects where the customers are doing the design of the structure, they’re supplying us free issue with the equipment and materials and we’re just doing the fabrication, assembly and erection work.
“Previously customers have given us contracts where they’ve asked us to supply the materials. We’re looking at the same amount of labour on £100m as we did with £150m turnover and we’ll probably burn something like two million man hours’ worth of work
The landmark deal which set OGN on its path to exponential growth was the £150m contract it won in late 2010 with US-based Apache Corporation to build a North Sea oil platform, supporting 1,000 jobs at the site for two years.
This May it will complete an offshore foundation for Talisman in Aberdeen, while
it is currently getting to grips with the multi-million contract it won last November with EnQuest. That contract will create 600 new jobs as OGN works on a 249m vessel that will be deployed to the Alma/Galia field in the North Sea.
Melville says: “The Apache deal gave us a real solid foundation as a business and gave us roots into the industry pretty well and pretty deep. We’re targeting bluechip organisations and global energy businesses and at the moment we tend to secure big contracts nine to 12 months apart – that’s the nature of it. Between the EnQuest, Talisman and Apache contracts, there’s £350m to £400m worth of business.”
OGN has a flourishing supply chain within the North East. Melville says: “Everyone in the supply chain is extremely supportive of our quest of securing the big contracts because they feed off it pretty well.”
The Apache contract generated around £50m worth of supply chain opportunities within the region, with some SMEs securing work for as long as two years on the project.
The EnQuest project requires less external help, since it is what Melville describes as a “Meccano project”.
“We’re just the arms and legs putting it all together,” he says. However there is still between £10m and £12m worth of subcontracted work available in areas such as electrical installation, craneage and painting.”
Considering oil and gas-related work beyond EnQuest, Melville says: “There are two or three significant contracts to be placed this year and we are well placed to win them. I can almost guarantee that we will secure one of them and I have a high degree of confidence that we could secure two. These things have a long gestation period of nine months or so, and we’re still in the race right through to this stage.”
The company is also gearing up for expansion in the renewables sector, having had planning permission granted to build a £50m offshore wind turbine manufacturing plant at Wallsend.
The project is backed by £4.5m of Regional Growth Funding and is likely to support hundreds of new jobs.
As part of the UK Government’s drive to mobilise up to £110bn of energy investment by 2020, the offshore wind strike price will be at a high of £155 per MW/h in 2014/15 before falling steadily to £135 by 2018/19.
“Interestingly for the first time we’ve seen quite an increase [in offshore wind interest] since the Government confirmed the strike price at the back end of last year.
“The renewable energy market has picked up in terms of the interest being shown by the customer and we’re seeing more enquiries.
“Also enquiries that we tendered last year or even the year before are being brought back to life.
They had lost momentum and all of a sudden they’ve kicked up again.”
Having laid the foundations for its assault on the wind market – securing funding, planning permission and drawn up a blueprint for its new plant – the company is now awaiting the market assurances it needs to press ahead.
“This is the step change year that I see us clicking into first gear in terms of wind power. This year has all the right feel about it that we’re going to see the first evidence of contracts being placed and once it’s underway I expect that to continue for the next five to ten years if not beyond.
“I think we’ve just been free-wheeling over recent times in the part of the offshore wind market we’re looking at – the big infrastructure side of it.
“At the moment we’re really taking a much closer look at the market. We’re not going to build a big factory and have it stood there doing nothing. We need certainty that the offshore wind market is going to take off to the extent that’s been previously indicated. So we’ve got a lot of market research work going on to get a much firmer handle on the certainty of that market.”
The new 36,000 sq m plant will make wind turbine foundations, including those developed in partnership with OGN’s subsidiary Aquind, for UK and European offshore wind farms.
The jacket structures from OGN’s wind power operations may not have the same head-turning powers as their oil and gas counterparts when they finally are shipped down the Tyne.
The steel wind turbine foundations weigh in at around 700 tonnes, compared to 6,000 tonnes in oil and gas. But they may be no less lucrative in the long term for OGN, with Melville harbouring ambitious plans for the firm in renewables.
“With the new facility in place we would be able to manufacture up to 150 structures per year, but even without it we still have the capacity to make around 30.
“We envisage that one day our renewables operations could be just as big as our oil and gas activity. If the market was there we wouldn’t rule out looking to invest in other facilities in the North East, whether that’s on the Tyne, Wear or Tees.
“Collectively the offshore wind market could be as big as the oil and gas market has been over the last 40 years. Perhaps it could take over the whole of this facility, or we may invest in a new facility somewhere else and do all offshore wind there and leave all this facility as an oil and gas one.”
While Melville says the Hadrian Yard could accommodate 5,000 workers – albeit in a scenario threatening “organised chaos” – he believes the optimum capacity is closer to 2,500, with 1,500 jobs supported in the North East supply chain.
“The oil and gas market alone could potentially support that amount of employees if all the developments on the drawing board take off.”
OGN’s vision for its renewables work is less labour intensive. “Our approach would not be heavy engineering. Instead we’d be looking to have a real mindset change and be more of what we call mass manufacturing like a Nissan, where you’re making repeat products and lots of them. So there’d be a high level of automation of that and you could be looking at between 500 and 750 jobs being supported in a modern renewable energy mass manufacturing facility.”
Alongside its plans for growth at home, OGN is busy spreading the word of what remains a relatively young brand across Europe.
And, according to Melville, the company eventually may even look beyond the Continent for new opportunities.
“We started very parochially working with customers in Aberdeen and then branched out to make ourselves known in the London area and we’re now actively involved in pursuing opportunities in the Norwegian sector. [Our focus] has then flowed down into the Danish and Dutch sectors,” he says.
“One day we will look to step outside of the European sector but we are cautious and don’t want to get our fingers burnt somewhere where we don’t know the culture or business practice.
You’ve got to go and start in places where you do understand the business philosophies and the general culture.”
Given OGN’s track record to date, few would bet against the firm becoming a global name in the not too distant future.