Early-2007 saw Vetco Gray bought out of private equity ownership by General Electric for a shade under $2billion.
At last it seemed that the years of uncertainty were at an end, bearing in mind that the business had been for sale by ABB for several years prior to being picked up by Candover, with 3i and JP Morgan, in July 2004 as the major part of the then Vetco International business. But is Vetco Gray settled? Does GE realise what it has bought?
The answer would appear to be yes to both questions. Moreover, Claudi Santiago, president and CEO of GE’s oil&gas business, clearly values what the US giant with well over a century on its clock has bought.
He told Energy during a visit to Aberdeen that Vetco Gray is now playing a “critical role” within the oil&gas portfolio that the group is constructing.
Investment is being made, including in the Scottish operations in Aberdeen and Montrose, where 700 are currently employed and where capacity is being increased through streamlining, where training is very high on the agenda and where more jobs are in the pipeline.
“We are extremely happy and excited about the value and domain knowledge that the Vetco team brings into GE. Acquiring the company has allowed us to move our business into a new space … basically the subsea space, where we were not present before.”
GE Oil & Gas comprises three major business streams collectively employing some 14,000 worldwide. The first is drilling and production systems, which is a combination of Vetco and the Hydril acquisition of early-2008 that reports into Vetco. The second is turbo-machinery – basically gas turbines and compressors – and the third is after-market services.
“We’re expecting over $8billion of orders this year,” said Santiago.
“The current backlog is running around $7billion, not counting orders that we’re working to close.
“The business has a global footprint and, in the bigger scheme of things, we believe we’re weathering the world economic recession that has clearly impacted our customers and the oil&gas industry overall.”
Santiago said GE Oil & Gas had come through the first six months of 2009 well and that deepwater had been the least affected of the industry subsets.
He said that, in Vetco Gray’s case, the combination of its strong technology base – especially wellheads for the deepwater market – coupled with access to GE’s substantial research and development budget meant that the company was in excellent shape for the future.
Santiago pointed out, too, that Vetco Gray’s people immediately spotted potential technology transfer opportunities, including from GE’s aero-engine division, which makes extensive use of light, non-corrosive materials.
“These materials, they are GE intellectual property, are sophisticated alloys, and the Vetco team immediate saw application for them in subsea trees and risers.
“That is yielding a new set of products that we’re bringing into the oil&gas industry. We anticipated some of the synergies, but others we couldn’t anticipate but are seeing today. The Vetco team will, I think, flourish in the GE space.
“One of the key reasons why we’re winning in the marketplace is because major players have confidence that this combination of Vetco and GE will deliver leading-edge solutions to some of the very difficult challenges that this industry has to confront.”
But what shape was Vetco Gray in when GE acquired the business from the P/E syndicate?
Santiago’s response was careful.
“Let me put it this way. The metrics – the goals and objectives that a P/E club has – are totally different to those of an industrial corporation like GE.
“When the P/E club bought Vetco, they did it with the intention of reselling at the right time for the right price. The first thing that I said to the Vetco team when we acquired the business was, ‘Let’s make sure we like each other because you’re not going to go anywhere else for a long time to come’.
“This is going to be a tough way to go through life if we don’t like each other. They know, and they like to know, that they’re here for a very long time.
“Our average tenure of a business is 97 years, so we still have 95 to go with the Vetco team.”
Santiago, who was born in Spain, is an engineer who has spent his entire professional career – 28 years so far – with GE. He is clearly fiercely proud of GE and its fabulous history and sees a similar spirit in Vetco’s people, not least in Aberdeen, which he sees as playing a pivotal role in the future of the company.
“We’ve got a business with a team that is very loyal to the Vetco brand that was fighting every day to protect the business (during the P/E period). It’s a team with a tremendous reputation in the industry.
“Obviously, we also saw a business that needed investment, including in R&D. This is what we’re doing. We’re accelerating what we, in GE, call the NPI (new product introductions) because, in industrial businesses, products are everything.”
So how much investment has gone into Vetco since the sale of early-2007?
According to Santiago, every year, GE Oil & Gas spends about $170million on R&D, and he says a very significant proportion of this investment has gone into the Vetco business.
“It is more than we thought we would commit because the ideas and recommendations that we have got from the Vetco team have been extremely compelling.”
While Vetco has a number of major centres around the world, not least the Scottish operation, Houston, Brazil, East Asia and a new facility being established in Australia, Santiago prefers not to talk in terms of headquarters plus subordinate satellites. Rather, he talks about centres of excellence.
“If you look at subsea, which is a key strategic segment for us, clearly the subsea knowledge, engineering and manufacturing is basically located in Aberdeen. But if you consider gas turbines, they’re located somewhere else,” said Santiago.
“The subsea expertise is going to be of paramount importance for us, and this domain knowledge … this expertise … this credibility … is in Aberdeen … built on the Vetco team.
“When you look where we do the most advanced innovation in subsea; when you look where we do the training for subsea engineers; when you look at where we have the PhDs who are working on very sophisticated subsea developments, it will continue to be here.
“We plan to continue to keep it here because there is no better place for us to fully develop it.
“We will (of course) move resources around the world as necessary; we expat some people for three, four, five years but, sooner or later, they return to the centres of expertise, in this case Aberdeen.
“I want to add that we see the future with confidence. We’re very excited about the assets that we have in this part of the world.”
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