Meet the oil man who is toughing out the harsh new era of low prices
THE CHIEF executive of oil services business Wood Group Allister Langlands is in remarkably relaxed mood for a man who has seen oil plummet from $147 (£91) a barrel last July to around $65 currently, with all the mothballing of lucrative new projects a slump like that brings.
The Aberdeen-based firm may have posted an impressive 48 per cent rise in its 2008 profit to £237.2m in March, but it warned the economic downturn and the resulting low demand for oil would make 2009 a “challenging” year.
The FTSE 250 business has a market capitalisation of £1.5bn and employs almost 29,000 staff in 46 countries – primarily in the North Sea and North and South America – providing engineers and specialist equipment to oil explorers.
The affable Langlands, 51, sits in a bright meeting room in his PR firm’s offices overlooking Lincoln’s Inn Fields and in a very correct Scottish accent says: “Companies are pulling back on their spending. We will see reduced spending in 2009, of about 10 to 15 per cent. Majors, like BP and Shell, will hold their capital expenditure at 2008 prices.”
But Langlands, who is an 18-year veteran of the industry, does not see any reason to panic. During his time in the oil business he has seen prices fluctuate from around $30 in the early 1990s recession to the all-time high hit last summer. He now believes the world is through the worst of last autumn’s financial crisis, and his firm simply has to trim its sails to fit the new low oil environment.
He says: “I think the banking system and the credit markets are now stable. What we have now is a good old-fashioned recession – albeit the most significant recession many of us will have seen for some time.”
Langlands is confident Wood Group can ride out the downturn because of the spread of sales it picks up from oil explorers. Fifty-five per cent of Wood Group’s sales come from continuing operations, wells already in production. The remaining 45 per cent of its turnover comes from capital spending projects, finding and digging new wells.
This is important, because the slowdown in the oil industry has hit the search to bring in new wells. Over the last two years the rig hire business was one of the most lucrative in the world as oil explorers outbid each other to dig prospective wells to take advantage of steadily rising oil prices. But that came to a juddering halt over the last nine months on the back of the tumbling price of crude.
He says: “New projects are being delayed. Work from continuing operations is pretty resilient. We will still see spending in this area. Bringing in fields at lower cost, rather than at speed is now the most important factor in the industry.”
As an example of how the downturn is hitting even the biggest firms, both Shell and BP announced in the past few months that they would delay investment into their respective oil sands projects in Alberta, Canada for a least a year due to high production costs.
Forfar-born Langlands led the firm into the £65m acquisition of IMV in 2007, a Calgary-based engineering group specialising in oil sands extraction, to aid the explorers that were piling into this area at the time. But Langlands does not believe that his purchase has become a white elephant.
He says: “I believe those projects will come back. Most of the easy oil in the world has been found. The world will have to look in more difficult areas, such as deepwater drilling under higher pressures and oil sands.”
But Langlands emphasises that although exploration projects have taken a knock, they will not be axed altogether.
He says: “No one based their spending on an oil price of $147. That price actually came and went pretty quickly. Capital spending is usually based on prices of around $60 to $65 a barrel. An oil price of over $60 is good for the industry as it allows room for exploration.”
To this end Langlands supports controversial moves by oil cartel Opec to cut production in a bid to force up the price of crude in the face of falling world demand. However, the Edinburgh University economics graduate thinks Opec will not be able to buck the market this year and he sees crude prices settling at around $60 in 2009. He does not think crude will consistently hit $70 until 2010. And he does not think oil will hit prices of between $70 and $90, which will make oil sands production viable, until the back end of 2010.
Until then Langlands thinks the sales spread of Wood Group will see it through the downturn.
The firm is spilt into three units. The company’s engineering business – its largest unit – either designs new oil and gas facilities or maintains existing ones.
Its well-support business makes pumps that squeeze more oil from existing fields. And its gas turbines unit runs engines that not only power wells in the Gulf of Mexico but energy plants in Saudi Arabia or Thailand.
In 1988 the business was 95 per cent based in the North Sea, but now, after a number of US and other acquisitions, 80 per cent of its sales come from abroad. Langlands also points out that the business is well positioned, carrying only $250m of debt and renewing its $950m bank facilities in March.
An accountant by training, Langlands joined Deloitte after university. By the time he reached his early 30s he had become the firm’s youngest partner.
The Wood Group began life as a fishing business started by John Wood but was later turned into an oil services firm by his son Sir Ian Wood. Langlands inherited the business as a client while at Deloitte. But in 1991 he joined the firm as finance director. He became deputy chief executive in 1999. And finally in 2007, after one of the longest apprenticeships in business, he became chief executive.
Langland’s career path shows he is able to tough out lean times and come out on top. His investors will hope that he has lost none of this right stuff.
CV ALLISTER LANGLANDS
Work: Deloitte 1980 to 1991. Wood Group 1991 to present – where he has been finance director, deputy CEO and CEO since 2007
Education: Edinburgh University where he read economics
Family: Married with five children and one grandchild
Hobbies: Tennis, badminton, golf and five aside football. Tends his four-acre garden. He likes to travel, which is just as well as he spends two weeks in every month out of the country meeting clients.