Bob Keiller achieved the unthinkable. In May 2006, he and colleague Duncan Skinner sealed a management buyout from a famous US engineering and services corporation to create PSN. Today PSN – it stands for Production Services Network – is one of Scotland’s brightest global hopes with a footprint in over 20 countries. The creation of this independent oil and gas services firm remains a high watermark for Scotland. It involved a raft of Scottish advisers and financiers in a $400m (£257m) deal that would be difficult to repeat in these more straitened times.
But Keiller’s boldness and his sustained focus has forged this Aberdeen-based company, helping it secure new long-term contracts, including significant decommissioning services work for Shell’s ageing Brent Delta oilfield operations off the North East coast. This is a ten-year project that will require painstaking planning and execution, plus new ways of working that will eventually be exportable to other oil and gas regions. Coupled with this, PSN has 14 other offshore customers in the North Sea. Last summer it secured a BP Focus partnership contract.
“This year they’ve had probably the biggest year of summer shutdown activity for many years,” says Keiller. “Hundreds of people have been recruited and trained and used in that business. At PSN, we’ll see a lot of work over the next four or five years under this contract to help BP make all the improvements and adjustments that they need to their existing assets. “The health of the oil and gas business in the UK is strong. There is a lot of investment coming into the area in terms of capital and operational investment. We’re keen to encourage everybody to continue to invest in the North Sea because that investment means activity; this leads to projects and this means jobs. Then we can hire graduates and apprentices and give Scottish kids a great career for the future, not just in Scotland but the potential to work internationally.” But the North Sea is not the whole picture.
From its headquarters adjacent to Dyce airport which once belonged to Brown & Root, and with helicopters hovering close about the rooftops as they head out to the North Sea platforms, PSN now employs more than 8,500 worldwide, from Azerbaijan to Egypt, to Mexico and Cameroon. Bob Keiller, now 46, is an exceptionally busy commander, travelling extensively to all of PSN’s outposts, but he has found time to take on the chairmanship of the Entrepreneurial Exchange. While he has applied the same level of verve and determination in refocusing the Exchange’s modus operandi, he doesn’t see himself as a typical entrepreneur.
“The term entrepreneur is one that is used pretty freely nowadays,” he says. “For me, I like to be ‘entrepreneurial’, I like to be innovative. That’s means I’m challenging and sometimes a real pain to the teams I work with. But the key for me is building teams and giving them the space, freedom, the energy and the permission to do really good things.
“This is where I am ‘entrepreneurial’ as opposed to an out-and-out entrepreneur who comes up with new ideas and businesses.” The opportunistic way in which Bob Keiller took over PSN from KBR (Kellogg Brown & Root) is a snapshot of the art of the possible when conditions are all favourable. Since then, PSN has continued to create a values-led business based its principles of integrity and “doing the right thing.” In the wake of BP’s debacle in the Gulf of Mexico and near terminal damage done to its external reputation, it has become clear that PSN seeks to be a contractor prepared to forfeit quick-win bottom line profit to ensure it maintains the highest levels of health and safety and contracts that are sustainable.
“I’m all about taking what we’ve got and making it better,” says Keiller. “We’ve set out what kind of business we want to be – and what’s important to us. How we do things, how we want to behave, how we capture this and remain true to this in the future, this is important for us. We realised that we were creating a new Scottish business and this was a great opportunity to set out our values.” Keiller’s entry into engineering was accidental.
A rugby-mad Jedburgh Grammar schoolboy with an interest in electronics and computers, he toyed with the idea of going to art college. His friend Jim Steel – who was later the Falkirk Wheel’s project manager– was at Paisley Tech and persuaded Bob to have a proper trade as a fall-back position, so he headed off to Heriot-Watt University from fifth year at school. He undertook a Masters degree in electronic engineering, including nine months in industry, and joined BP in 1986. It was a brilliant grounding which led to him becoming a chartered engineer.
“It was a little bit of design, a bit of maintenance, a bit of operations,” he says. “And production support, both onshore and offshore.” In 1992 he moved to Amerada Hess joining the Scott Project, which was a massive platform in a North Sea oil field that was being commissioned. He was a loss prevention supervisor, a jack-of-all trades based offshore dealing with an assortment of cooks and cleaners, through to engineers and project managers.
His job was to get all the pipework and wiring going on this engineering leviathan, so it could produce oil. He says: “I realised the key to getting things done was people; you needed to have the ability to listen and understand people. The job was about motivating and persuasion and this was a key learning situation for me.” After this, Keiller was given onshore responsibilities with Amerada Hess, where the company was introducing a SAP accounting system.
“They had it in the US but wanted it in place in their European operations,” he says. “I was asked to head this up with a small team in Houston, Aberdeen, London and Copenhagen. It was my job to co-ordinate the teams to change the business practices.” When Keiller made the move back onshore, he took a cut in pay, as the allowances and perks associated with weeks on- and off-shore disappeared. He decided that he might need to take a step back in his career to take two more forward, and he also wanted to ensure that his young family were not disrupted with their education in Aberdeen.
“Things were tight financially for two or three years,” he says, “so I cycled the six miles to work every day because we couldn’t afford two cars and my wife needed the car with the car seats because we had two toddlers at the time. I knew it was the right thing. Had I stayed offshore, I would have remained as a supervisor.” Several years on, senior colleagues suggested he would have to go and work in New York or else move out of the oil industry altogether to further his career. With a son now about to start senior school, Bob decided to leave Amerada Hess and joined Halliburton in January 2002.
Halliburton is a big ticket American corporation – whose former chairman and CEO Dick Cheney came to prominence as defence secretary in President Bush’s Iraq war cabinet – divided into two divisions, the energy services group and engineering and construction under the banner of KBR (Kellogg Brown & Root). Bob Keiller started in the energy services group but after three months was asked to take over as managing director of KBR’s UK division, which operated out of Aberdeen.
He says: “I would characterise the KBR culture as focused on large projects and some fantastic people and great processes and some really good ways of working, but mostly geared towards selling multi-million and billion-dollar projects. The nature of the business that I was involved with in Aberdeen was about providing services. As a result, the fit wasn’t natural. There was nothing wrong with KBR’s offer than they were focused on other stuff than we were doing.” In 2004, Keiller was promoted to run the whole KBR Production Services business, which meant taking on global responsibilities outside the UK.
It was then that he gained a much wider appreciation of how the firm operated and the priorities. Within months, he and his colleague Duncan Skinner formulated their cunning plan.
“This business could be potentially more successful if it was spun-out and run in a less-constrained way using the principles we’d learned by being part of the Halliburton Group,” he says. In early 2005, the pair went to meet chief financial officer Cris Gaut at Halliburton’s HQ in Houston to suggest a proposition.
“I didn’t want to regret something I didn’t do,” he says. “I’d much rather regret something I tried to do. We felt that we had to make the pitch, but it was pretty scary.” There were obvious problems to surmount; the business wasn’t for sale, Keiller and Skinner didn’t have several hundred million dollars tucked away, and they had no idea how much the company was worth, even if they could raise the money. They also had to explain to Gaut why it was in Halliburton’s best interests to sell the business.
“We didn’t know where to get the money – or how much it would be,” he says.
“There was a fair chance we might even get fired.” But Halliburton has a history of divestments and acquisitions, so it wasn’t such an out-of-the-blue request for the experienced chief financial officer, although for Keiller and Skinner it was nerve-wracking experience.
“We knew that Halliburton had plans to spin-out KBR as a separate division,” says Keiller. “We felt there was more likelihood of them spinning off PSN separately from KBR. The proceeds would oil the wheels of the larger deal but it wouldn’t detract from the KBR proposition.
“We said, ‘If you sell it to us we would have the best chance of being able to retain customers and staff and therefore the best chance of being able to retain value in the business, which means you will get a better price than you would if you were selling it in an auction.’” It was a point well-made; and wisely heeded by Cris Gaut who later agreed that the management buyout would help ensure continuity for PSN customers. Gaut and his directors instructed Keiller to firm up the thinking and come back with a proper offer. The Scottish pair had now crossed their Rubicon, there was no going back. They returned to Aberdeen and while it was business as usual running the company, there was a period of intense activity which lasted 15 months.
“We thought there was a good chance of us being fired, so it was relatively daunting throughout the whole thing,” says Keiller. The pair set up an off-the-shelf company with two £1 shares and engaged Simmons & Co International in Aberdeen, working with Colin Welsh, the former RMD energy adviser, and Mike Beveridge and their team. They helped with introductions to potential financiers, setting up the contacts, assessing the valuation and raising hundreds of millions of dollars.
A significant introduction was made to the Bank of Scotland’s Integrated Finance team, and Alasdair Gardner, now managing director of Lloyds Banking Group’s Corporate Markets division in Scotland.
“Alasdair came in and a couple of days later Graham Shanklands came up from Edinburgh,” says Keiller. “We took them through what the proposition was and very quickly Graham was able to consult with Peter Cummings (BoS’s head of corporate) and they came back saying, ‘Yes, this is the type of business we’re happy to support.’” So, in February 2005, the bank provided a letter of support to Halliburton saying that the pair were serious about buying the business.
A lead lawyer at Dundas & Wilson remarked: “It’s not the biggest deal in financial terms we’ve ever been involved with, but it’s been the Mother of All Deals.” Ernst & Young’s seasoned energy expert Alex Carstairs and Bob Rudiman and his team from McGrigors, which was part of Ledingham & Chalmers, also made up Keiller’s team. It was certainly a complicated deal. It wasn’t a straight share sale, there was no single legal entity but a number of stand-alone business units across more than 20 countries.
“It was like surgery on 20 pairs of conjoined twins simultaneously across all these countries, with all the issues of pensions, competition and trade unions,” recalls Keiller. There was a juggling act to be done; winning over colleagues, persuading others that it was a valid concept, speaking quietly to suppliers and customers and treading a tightrope to keep the business motoring along and winning new contracts, all at the same time.
“During that period, we didn’t take our foot off the gas,” says Keiller. “We kept moving forward and growth in the business continued throughout that period. It was about mindset.
“When we came back from that first meeting in Houston we realised there was no going back. We were definitely going to do something or life was going to change in some other ways.” Nothing is ever done until it is signed and sealed. Keiller says: “It felt so fragile to me. Given that my background was in projects and project management, I like things that are clear – schedules, deadlines, commitments and scopes that are all tied down and don’t change. I’m told by those involved with the deal that it wasn’t particularly unusual but that it was complex. There were lots of false deadlines.” It was educational and there were difficulties keeping the team motivated, telling them that it was worth all the effort.
“You’ve got to have faith that this is worth doing. It’s worth all the effort,” says Keiller. His key managers were offered a stake in the new entity but he was blunt, telling them: “These shares today are worth nothing, because we have a business that has more debt than value, but these shares at some point in the future could be worth a substantial amount of money, if we all get stuck in and do a really good job.” For an engineer, Bob Keiller is an A-star communicator. He’s a charismatic personality with a great sense of humour and loves lobbing in a few jokes – with his recent chairing of the Entrepreneurial Exchange dinner showing that he can give funnyman Fred MacAulay a run for his money. He used these skills to great effect, ensuring everyone that the energy services company was fundamentally a great business and that it would continue to be a great business.
“We were paranoid at times about any speculation about things that were happening,” he says. “We were very tight about who we could and couldn’t tell. But, eventually, there was so many people involved, it became relatively common knowledge about what was under way.” Keiller reckons the whole 15 months worked in his favour because it gave people time to come to terms with the new state of affairs. Even more reassuring was that not a single customer ditched their contracts when the new entity emerged.
“Our customers recognised that what we were trying to do was potentially risky, but that the relationships we had with them were strong, and they were willing to support us,” he says. The deal was concluded in split signings. The key documents were signed on March 15 2006 but final completion was on April 30 2006. The deadline was May 1 and the completion – with sighs of relief – was done at ten minutes to midnight at McGrigor’s office in Aberdeen. The announcement was made the following morning.
“I was told it was always like this but I was still anxious that the whole thing might unravel at the last minute,” says Keiller. Then the gravity sank in. There was an electronic transferral of $280m and on top of this PSN needed additional funding for on-going activities, with revolving credit facilities for working capital. In all, a funding parcel of $400m was agreed. HBOS helped with all of this, providing debt and equity. Once this was in place they syndicated the debt down to other banks and investment houses with 17.5% passed onto West Coast Capital which was one of the investment vehicles for Sir Tom Hunter. But this story is part of the wider banking crisis. The collapse of Bank of Scotland, and the subsequent merger of Bank of Scotland and Lloyds TSB to create the Lloyds Banking Group, has meant drastic changes.
For PSN, it has been relatively clear-cut. Today 42.5% is owned by the management, mainly the seven key managers, plus others who were involved at the time; 40% is owned by Caird Capital, which is a joint venture between Lloyds Banking Group and Coller Investment, set up to look after the major assets of HBOS Corporate, and the remaining 17.5% is owned by a variety of third party and external investors.
Throughout the summer of 2006, Bob Keiller spent time selling the sizzle around the new business while his management team had a lot to do. “We didn’t have time to draw breath,” he says, recalling that 6,000 employees worldwide needed to hear from the new boss. Keiller went on the road to meet staff and customers from Sakhalin Island, Kazakhstan, Azerbaijan and Africa to Egypt. There is a large debt to service, but with a stream of contracts in the pipeline, there is little need for nervousness. And, PSN’s core values are the drivers for the business. “It’s about doing it right and winning as a consequence of that. Integrity matters to all of us at PSN,” says Bob Keiller.