PM Group, Mercury Engineering seek refuge in Alberta oil
European construction companies tap new business in Alberta
Colm O’Mahony was on a mission to find a business partner. The PM Group of Companies had just finished building a natural gas processing terminal for Shell E&P Ireland Ltd. to serve the Corrib field off the country’s west coast and wanted to leverage the experience to gain entry into energy markets around the world.
The engineering, procurement and construction management (EPCM) firm came up with a short list: Norway, Canada and Australia. “We honed in on Canada because it was English speaking and relatively adjacent,” O’Mahony says, from the private company’s headquarters in Dublin, Ireland, where he serves as its energy director.
The PM Group’s energy director traveled to Calgary in September 2011 with two colleagues. They stayed for one week and held 20 meetings. O’Mahony was looking for a privately owned local company with fewer than 300 employees that was active in the oil and gas industry. Gas Liquids Engineering Ltd. (GLE) fit the bill, and in November 2011 the two companies signed an agreement to work together.
Mercury Engineering is another Dublin-headquartered EPCM seeking refuge in Alberta’s oil and gas sector. The private company immigrated to Canada during 2011 and established a downtown Calgary office. Mercury plans to secure contracts for oil sands construction projects.
Hochtief AG, Germany’s largest construction company, also joined the voyage to Alberta through the public company’s United States subsidiary Turner Construction Group. In November 2011, Turner paid $68 million to take a 51 per cent stake in Edmonton-based Clark Builders.
“I think what’s going on here has really ramped up with Alberta having approximately half of the world’s oil reserves that aren’t under the control of national oil companies,” says Paul Paynter, energy business development manager with Calgary Economic Development. “Clearly if you’re an international oil company or, indeed, if you’re an EPCM company, you’re looking at this strategically long term.”
The PM Group plans to make construction projects in Alberta’s oil and gas market a big part of its long-term plans. The energy sector made up 15 per cent of the company’s €136 million in revenue from 2011. Deciding how to enter a new region was just as important as deciding what new region to enter during the PM Group’s eight-month market research.
“We figured rather than try and set up an entity in our own right, which wouldn’t be welcomed in the marketplace, we thought one of the best strategies would be this alliance approach,” O’Mahony says. “We are going in without an office and we don’t intend to set up an office here. This is the exception, rather than the norm.”
The PM Group’s global expansion plans ramped up in 2006. “We’re probably the largest privately owned firm in Ireland. To grow to that size you have to be multidisciplinary and multi-sectorial, but there was a point where we outgrew the island,” O’Mahony says.
The company opened 17 offices between 2007 and 2011, which helped shift dependence away from Ireland’s construction industry. During those five years, the PM Group reduced the percentage of its revenue generated from projects in Ireland from 80 per cent to 40 per cent.
“What happened in parallel with that was this economic collapse,” O’Mahony says. “We just happened to be in the right place and our timing was good here.”
Ireland’s construction industry boomed between 1995 and 2007. The country’s economy became overly reliant on the sector, according to a 2012 report from Ireland’s Society of Chartered Surveyors. Construction of residential properties, commercial developments and infrastructure peaked in 2006 with an output of €39 billion, which was roughly 25 per cent of the country’s gross national product (GNP).
Then the bubble burst. Ireland’s construction industry has yet to recover. The Society of Chartered Surveyors’ report estimates the sector’s output for 2012 to be €7.5 billion, which will total six per cent of Ireland’s GNP.
A €67.5-billion bailout helped Ireland avoid defaulting on its debt during the construction industry’s downturn. In September, European Central Bank President Mario Draghi unveiled a bond- buying strategy that would provide unlimited financial support to countries on the verge of collapse.
Regardless of how the Eurozone crisis plays out, CED’s Paynter expects it will force some companies to look at new markets, like Alberta, but impede the financial ability of other companies to make the move. “The recession will result in fewer tire kickers and probably fewer companies overall, but more serious companies looking to diversify their markets,” he says. “I think the companies will do it if they think there’s a good chance of success. They can’t risk it on a maybe.”
German construction titan Hochtief has little doubt it will succeed in the Canadian market. Its U.S. subsidiary, Turner Construction, recently established offices in Toronto and Vancouver, but chose to set up a partnership to enter Alberta’s construction sector after being approached by employee-owned Clark Builders.
Shortly after Turner acquired a controlling stake in Clark, Hochtief’s chairman said in a statement that the opportunity to work on public-private partnership construction projects in Alberta was part of the attraction in adding Clark to its worldwide network of 80,000 employees. A spokesman with Turner said that Clark’s experience working on oil and gas projects with companies such as Shell, Suncor, Syncrude and ConocoPhillips also played a large part in the U.S. company’s interest.
CED’s Paynter says whether a European company decides to enter Alberta’s energy market by setting up an office, through a financial transaction or with a working alliance will depend on each company’s specific situation. The more experience a company has with oil and gas operations, however, the easier a move into Canada will be.
“There’s probably a little bit of a slipstream effect. We’ve seen BP, Shell, Statoil and Total getting heavily involved in the oil sands and to some degree shale gas as well,” he says. “I think it’s quite natural that the EPCM companies who already deal with those companies, whether it’s in the North Sea, the Middle East, or elsewhere, will follow those companies to a certain degree.”
The PM Group was not the first business suitor to approach GLE to form a partnership. GLE was founded in 1987 and had grown to just under 300 employees. The engineering firm had completed projects around the world, primarily natural gas plants, and was eager to take on larger shale-gas related projects.
“In Calgary we were very resource-constrained and couldn’t find enough engineers to do the projects we had an opportunity to work on,” says Peter Griffin, vice-president of operations with GLE. In Canada, GLE will be the primary operator with the PM Group providing support remotely with its 1,700 employees.
While there were no projects in the works when the two companies started discussing the alliance, it wasn’t long before an opportunity arose.
GLE and the PM Group are currently working on a mounting gas project for Sinopec Daylight Energy Ltd. The 400-million-cubic-feet-per-day plant near Grande Prairie, Alberta, is currently in the front-end engineering and design stage. It is expected to be complete in early 2013 but it could be a few more years before the facility is operational.
The PM Group and GLE have already discussed using the Irish company’s global network to secure oil and gas projects in other regions. The two companies have jointly met with potential clients in Poland’s emerging shale gas sector, but first the focus is on Canada.
“The PM Group is 39 years old now and during that time we’ve often thought about entering the oil and gas market,” O’Mahony says. “For a multitude of reasons we were never able to achieve that and that’s why last year’s campaign and winning that contract with GLE was so significant.”