10/10/2006 - 22:00

Growth strategy brings opportunity

10/10/2006 - 22:00

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WorleyParsons has been one of the big winners from the resources boom, growing to be Australia’s largest engineering firm, and the Perth office under Peter Meurs has played a key part in that success.

Growth strategy brings opportunity

When Peter Meurs moved to Perth in 1988 to become general manager of Worley Engineering, the office consisted of 17 filing cabinets, some furniture and one staff member.

The then US-owned company had closed its Australian office the previous year, and the remnants of the business had been bought by Sydney engineering consultancy Wholohan Grill and Partners.

Mr Meurs was hired to revive the Worley business, which subsequently merged with Wholohan Grill and has gone on to become the biggest home-grown engineering company in Australia.

Mr Meurs still runs the Perth office of WorleyParsons, except today he has 2,250 staff working on some of the state’s biggest resource and infrastructure projects.

The growth of WorleyParsons says a lot about the opportunities created by the boom under way in Western Australia.

It also says a lot about the company’s growth strategy, which has lessons for many other businesses striving to maximise their opportunities.

To put the growth in perspective, WorleyParsons’ WA staff numbers have tripled in the past four years.

Many of its staff are working on big projects, such as Fortescue Metals’ $3.7 billion Pilbara iron ore and infrastructure project, and the North West Shelf venture’s $2.5 billion phase 5 expansion.

WorleyParsons also has hundreds of staff working on long-term services contracts, which are a critical part of its strategy.

The biggest of these is a $700 million, three-year contract that a Transfield Worley joint venture signed with Woodside last year.

WorleyParsons isn’t just pursuing big projects and big contracts, however.

Mr Meurs believes it is equally important for his staff to take on smaller projects – such as the $32 million power station it is building in Exmouth – which he considers an important training ground.

Mr Meurs is modest about his contribution but recognises the significance of what WorleyParsons has achieved.

“There has never been an engineering organisation of the size of WorleyParsons in Australia before,” he told WA Business News.

An important part of WorleyParsons’ growth strategy has been its willingness to enter joint ventures.

“We are very happy to be a joint venture partner,” Mr Meurs said.

“You will find that for a lot of these very large projects, we are joint venturing with our major competitor.”

Mr Meurs believes the joint venture approach delivers a win-win situation.

“Rather than going head to head, we’d rather say, if we add value to each other, let’s get together.

“That’s a benefit to us and the joint venture partner and mainly a benefit to the customer who gets access to our on-the-ground resources and the international connection of a major competitor.

“That combination is quite powerful; it’s also a good way to win.”

WorleyParsons’ approach to joint ventures includes a preparedness to take minority positions.

For instance, it teamed up with US engineering company FosterWheeler to win the major engineering contract for the phase 5 project.

However, FosterWheeler holds a 75 per cent interest in the joint venture, hence a majority of the work is being undertaken at its overseas offices.

Similarly, FosterWheeler holds a 60 per cent stake in the joint venture that is undertaking the front-end engineering and design (FEED) work for Woodside’s planned Pluto LNG plant on the Burrup Peninsula.

The two companies also won a contract for pre-FEED work on the planned Browse Basin LNG project.

That puts WoreyParsons and FosterWheeler in the box seat to be awarded the main engineering contract for what is shaping up to be a $10 billion-plus project.

WorleyParsons other big joint venture partner is US engineering company Kellogg, Brown & Root.

Their 50:50 joint venture was awarded the main engineering contract for the North West Shelf venture’s $1.6 billion Angel platform.

They have also been awarded the FEED contract for the planned Pluto gas platform and are working on the proposed North Rankin B platform.

Mr Meurs said WorleyParsons often had the capacity to bid for projects on its own.

“But we’ve said, particularly in the hydrocarbons area, that we are happy to be a joint venture partner of choice and work together on the really large projects anywhere in the world,” he said.

The project that is arguably most valuable for WorleyParsons is its engineering and construction management (EPCM) contract with Fortescue Metals Group.

The estimated value of the reimbursable contract, which started in March, is $160 million over a 25-month period.

Woodside is spending an even bigger amount, $192 million, on FEED for its Pluto project, but that money will be split between three joint venturers.

While big projects attract most of the headlines, Mr Meurs said WorleyParsons made a conscious strategy decision in 1994 to also pursue long-term services contracts.

He said the group wanted half its business coming from long-term contracts, and currently it was just ahead of that target.

The long-term contracts delivered benefits in their own right but also delivered opportunities, he said.

“They are often less profitable than the major projects, and they are hard work; to keep them alive you have got to really keep putting energy in and keep delivering year after year,” Mr Meurs said.

“But what they deliver is very deep relationships with the customer where you understand their business and you build trust, and out of that comes relationships that often lead to the capital projects.”

The nature of the contracts also provided opportunities for Worley to develop its people.

In particular, he said, the contracts were long-term and involved maintenance of existing facilities – the “hard end” of engineering.

One of the landmark events in the company’s WA history came in 1995, when it formed the Transfield Worley joint venture and won a 10-year services contract with Woodside.

Adding spice to the win was that Tranfield Worley was the only all-Australian consortium.

The services contract became progressively more significant as Woodside expanded its oil and gas operations.

The contract was put up for review last year, with the oil and gas assets split into two separate contracts.

Transfield Worley was the big winner, being awarded a $700 million, three-year contract to service all of Woodside’s gas assets.

“That, I think, is one of the biggest contract renewals that has ever happened, because after 10 years most long-term relationships get changed,” Mr Meurs said.

(The contract to service Wood-side’s oil assets was awarded to a Clough AMEC joint venture. Their three-year contract is worth $75 million.)

Other oil and gas companies that have signed up WorleyParsons for long-term services contracts include BP, Alinta, ConocoPhillips, Apache Energy and KJO Engineering in the Middle East. In the minerals sector, WorleyParsons has service contracts with BHP Billiton subsidiary Worsley Alumina and its Nickel West division (through a joint venture with Maunsell).

Mr Meurs believes one of the keys to WorleyParsons success is its willingness to empower its staff.

“We have a very delegated structure and empower people, who go out and do business with customers and look after them,” he said.

This includes staff having a specific focus on particular industry sectors.

“Our competitors are the large international companies and when we are up against them negotiating with customers, typically our people are able to make the deal and make the commitment because they are empowered to do that.

“The international competitor typically will have to come back in the morning after they have phoned head office somewhere to get clearance.

“Having customer sector managers that are focused on their part of the business and are very much empowered to run their business, to find the people, to deliver the results, is an absolute key, we really live that.”

Mr Mears said another differentiator was the company’s strict focus on occupational health and safety.

A third was “making sure that we run efficiently and effectively and that we have the best systems”.

He said the company was continually investing in this area and he believed it was operating at a world-class standard.

“That’s a fundamental, if you haven’t got that you just can’t be in business, but I think we are continuing to push the envelope,” Mr Mears told WA Business News.

WorleyParsons success in WA has been matched in other parts of the world.

The group has 14,300 staff globally and in August announced a doubling of annual net profit to $139 million.

There were a couple of blemishes, however.

The company said the Burns & Roe Worley power joint venture was disappointing, with operational difficulties on a number of contracts contributing to a small loss.

Another setback was the Exmouth power station, which was affected by cost over-runs resulting in a charge of $1.9 million.

The skills shortage has also been an issue.

Mr Meurs said WorleyParsons had a substantial graduate recruitment and development program, with the latter run by second- and third-year graduates.

He said the area of greatest concern was the non-engineering professions such as cost controllers, project managers, planners and procurement managers.

“It’s harder to find those skills; you have to develop them in-house,” Mr Mears said.

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