Hydrasun breaks into Caspian market

In July 2005, Aberdeen-based Hydrasun, supplier of fluid connectors, hoses and fittings, announced the award of a long-term $5 million contract with BP Exploration (Caspian Sea) Ltd for hose integrity management services in Azerbaijan and Georgia.

To support the contract, Hydrasun has set up a new joint venture company based in Baku – Hydrasun Rapid Solutions – whose Business Development Director, Neil Munro, is a genuine Azerbaijan “veteran”, with dozens of Caspian business trips under his belt stretching all the way back to the halcyon days of the mid-1990s.

Neil is a self-confessed Azeri-phile (“the Azerbaijani’s are really great people, wonderfully genuine with all sorts of diverse Western/Eastern influences”), and recently took some time out to talk to exportlink about some of his fascinating personal Caspian experiences…

“I first went out to Baku in 1994, just four years after independence from the Soviet Union under which Azerbaijan, for all its vast hydrocarbon reserves, had slumped at one stage to having the lowest rate of growth in productivity and economic output among all the Soviet republics.

Despite this unpromising background, Azerbaijan soon adopted a very pro-Western stance and its careful economic management made it the most attractive of the oil-rich Caspian countries for foreign investment.

Without in any way pronouncing on the rights and wrongs of Azeri politics, we mustn’t forget that President Heydar Aliyev really had his share of nerve to go looking for international oil trading in the early 1990s with energy-hungry Russia breathing down his neck!

Working in a frontier environment

On my first trip, I found a lot of BP Amoco people were already in place, following the first of several spectacular billion-dollar agreements with SOCAR, the Azerbaijan state oil company. Baku was so different then from what it is now – there were curfews and warring political factions all over the place.

There were also no proper hotels – only old Soviet-style tourist hostels – and only two recognisable bars!

But the place had an amazing buzz to it, and some of us could sense that the country was about to undergo one of the most successful international economic overhauls ever seen.

The Aberdeen company I was with at the time, Rigblast, was the first UK support service company in Azerbaijan and we worked hard to secure a contract for the Dada Gorgud first rig upgrade. We then faced the challenge of hand-picking a suitable team from the North Sea who we thought could successfully adapt to the culture and could live sensibly within what was then very much a frontier environment.

I’m pleased to say that, although I have since moved on to Hydrasun, many of these original team are still there, which is quite a compliment to this remarkable country and to Rigblast’s success.

Give it your best shot

We also learned what many Aberdeen oil entrepreneurs have since gone on to confirm – send out your best people when you are opening a new overseas venture. That may sound obvious, but it is amazing how easily office politics can throw a hefty spanner in the works, and people end up just getting shunted around the world.

At the same time, of course, you have to be realistic – not everyone is suited to an overseas posting, so you may have to try them out first.

And yes, if you do ship out your best people, it is true that you may be temporarily depleted back at base - but that’s a great time to develop your next layer of quality people. Put simply, if you don’t give an overseas venture your best shot, including manpower, you may struggle to succeed.

Local involvement

We were naturally keen to involve local Azerbaijani’s as much as possible, but there was an obvious business culture problem to be overcome. Although there were many well-educated Azerbaijani’s on the job market, many, especially the older ones, found it difficult initially to shake off the effects of living within a communist culture for sixty years.

There was really no incentive to look for workplace responsibility, for example – that was simply the job of the “supervisors”. Understandably enough, there was also a degree of scepticism about leaving the security of state employment for what could turn out to be a ‘here-today, gone tomorrow’ new industry.

Luckily, many of the younger Azerbaijani’s saw the opportunities and were keen to adopt new technologies, so, with good training programmes in place, we soon found we had a highly-skilled and well-motivated local workforce ready to tackle the huge construction projects like Chirag which were by then starting to come on stream.

The Hydrasun connection

Established in the UK in 1976, Hydrasun has since grown to become a widely recognised supplier to global and local markets from its main operating bases in the UK and Europe and through an established worldwide distribution network.

When I was asked by Hydrasun to go back to Baku in 2003, after an absence of several years, I was delighted to see at first hand the fruits of the city’s transformation.

Baku is a genuinely beautiful city, much of it built along European lines at the end of the 19th century when the Caspian was yielding around half the world’s oil and the first wave of international oil entrepreneurs like the Nobels and the Rothschilds were making their fortunes.

I still have many friends in Baku, and it is really heartening to see so many aspects of Azeri culture, in particular music and poetry, recovering after decades of pessimism.

A tremendous step

What Hydrasun has done in this new climate of optimism is, I believe, potentially an important model for other Scottish oil service companies.

To give a little bit of industry background, Hydrasun has always concentrated on what are technically known as “fluid transfer and process control products”, but in practice essentially comprises flexible hoses and couplings.

It is one of the historical paradoxes of the oil industry that for many years rigid metal pipes on installations were subject to rigorous testing regimes while flexibles in the same system received less structured and systematic visual inspections.

In the North Sea, however, UKOOA did a great job in creating a new integrity framework for flexibles, with valuable input from its members, including Hydrasun. We built on that and became the first company in the North Sea to introduce a formally structured integrity management programme, complete with registers, databases, inspection regimes and guides to charting the life of flexibles.

We found that for many operators, using a system like this could yield quantifiable benefits on top of enhanced safety and operational performance. Spare parts can be rationalised across a number of assets, 24/7 emergency replacement systems can be put in place, special fittings can be pre-manufactured, and so on.

Delivering on the ground

So this is the new concept which Hydrasun took out to Azerbaijan, which was a tremendous step for a company which had been mainly active until then in the UK domestic market.

After months of intensive research working in the field, we were awarded the BP Caspian contract last April, and we are now working on an intensive nationalisation programme to train up our Azeri team to the highest standards.

We had already decided to form a joint venture with a local organisation so we could deliver on the ground, and these arrangements with Rapid Solutions, our partner, were already in place for the commencement of the contract.

The benefits of internationalisation

There are many important benefits to serious internationalisation. There may seem to be nothing wrong with trading solely in Aberdeen, which is undeniably a great place to live and work, but there is always the danger that you are simply left behind.

If you internationalise, you have by definition got to be highly strategic about the processes of analysis and planning. You don’t need hundreds of thousands of pounds, and there are many excellent export support programmes but it is absolutely critical that you do all your homework before you step on a plane.

It’s also a really worthwhile exercise for any company – it prevents you from becoming too inward-looking. And, as you become more strategic, your thoughts broaden and also start growing your people, as well as your company, in terms of their first-hand business experience.

Following the Sigmoid curve

The whole process, in fact, might be critical to the long-term future of your company. There are many proponents of what is referred to as the “Sigmoid curve” or “Life Cycle Curve”, which is a management concept which applies equally to corporations and even whole civilisations.

In essence, they make the point that no organisation lasts intact for ever – everything has a natural growth curve of some sort. The clever thing is to try and gauge the optimum time to grow a new opportunity – typically this should be before your organisation has reached its peak, but far enough into the growth cycle to ensure you have the power, energy and assets to carry out the activity.

Then, when your “old” entity peaks and starts to go down, you find you have a strong new opportunity growing beneath that, all ready to take over from the old model. In fast-changing technology, you may even find that the whole thing becomes a regular cycle of well-timed change so the overall organisation keeps on going from strength to strength.

It is my personal belief that, in the current global energy climate, Hydrasun has shown that successful internationalisation into new territories like the Caspian, South American and West African markets represents the strong new future for many North East oil service businesses.

You can visit Hydrasun at www.hydrasun.com.