Tom Blades Drives Siemens Oil & Gas Division Into World-Class Player

September 2009 Vol. 236 No. 9

Jeff Share, Editor

One could justifiably say that the job of CEO of Siemens’ fledgling but fast-growing Oil & Gas Division was designed specifically for Tom Blades.

Before he named to head the division in January, Blades, 52, had already spent 30 years working for service company giants Schlumberger and Halliburton in key executive positions. Most recently he had spent the past four years as president/CEO of Choren Industries, a German-based company that produces renewable energy.

AS you’ll learn through this interview with Blades, an energy career may not have been his original plan, but he happens to be the right person at the right time to move Siemens Oil & Gas Division into the upper tier of world-class energy service companies. One success for the Erlangen, Germany-based company came in May when it announced an order for the first carbon-neutral pipeline compressors in the U.S. as part of El Paso’s Ruby Pipeline Project.

P&GJ: Where did you grow up and what were your interests as a young man?
Blades:
I grew up in the southwest of England, just outside Plymouth on the edge of Dartmoor: wild ponies, moors and of course the sea, a great place even today. My school was a typical British grammar school, a little like Harry Potter’s school but perhaps a little more modern. We all wore blazers and ties and called the teachers “Sir”. It was, of course, an ‘all-day school’ where, in addition to the standard curricula, we learned to sail, shoot guns and fly. My father was a marine engineer and when I was 14 his work took us to Belgium. Having checked out the British School of Brussels I decided to stay where I was in Plymouth and so began a long series of holiday commutes, at first to Brussels, then Singapore, Louisiana and Taipei. By 18 I had seen a good part of the world.

P&GJ: Why did you decide on a career in the energy industry?
Blades: I studied engineering in Salford, England and in Lyon, France. It was while I was in Lyon, more through coincidence than anything else, that I landed in the energy business. As is customary in the final year, recruiter held presentations at the university. My friends convinced me to attend the Schlumberger presentations, not out of interest, but because it was rumored that Schlumberger had the best buffet. The prerequisite was sitting through a 30-minute presentation followed by a 45-minute film about oil and gas exploration. It showed far-off places, jungles, deserts and rigs out on the ocean and above all, the role of technology and the Schlumberger field engineer – that was it – I was hooked.

P&GJ: What path led to your position with Siemens Oil & Gas Division?
Blades: I was 21 when I began working in the oil and gas industry. Today I’m 52 – that’s 31 years of preparation for my role as the Siemens Oil & Gas CEO. In that time I have seen those parts of the oil and gas world I missed in my youth. I have worked upstream to downstream and refining, even some time in renewables, all in all a pretty rounded background for the job at hand. The invitation to come to Siemens came from Wolfgang Dehen, Chief of Siemens Energy. Initially I took a little persuading, after all, Siemens wasn’t exactly an established player in the oil and gas industry, but precisely the opportunity to change this is what motivated me in accepting this challenge.

P&GJ: How is the Oil & Gas Division structured and what is its focus?
Blades: Siemens Oil & Gas Division was effectively created in October 2007. We had been selling into the industry from several channels across Siemens but lacked the focus and true understanding of our customers’ needs. That description can probably fit a dozen industries, but in the oil patch in particular, we tend to speak a certain no-nonsense kind of language that focuses on solutions rather than problems and actions over words. Despite being the largest of all global industries, it’s still a relatively small-knit community where reputation, reliability and dependability count for a lot. If you don’t fit that description then you’re not on the inside and likewise your success or failure in one part of the world quickly becomes news throughout the rest.

Although we had a vast variety of products to offer the oil and gas industry, our one-by-one approach wasn’t ever going to get us on the inside. For that reason, Siemens decided to create a dedicated Oil & Gas Division and begin a strategic metamorphosis from products to solutions and supplier to partner. We are well on the way to making this change, yet we remain realistic that reputations aren’t earned overnight and that we still have a way to go to establishing the recognition that our peers have achieved.

Our division is made up of about 16,000 employees and is broadly structured in manufacturing and service entities and engineered solutions. Our manufacturing and service operations have a global footprint comprising 19 sites with a presence in all major oil and gas hubs. Within these, we design, develop manufacture and support our turbines. We are the world leader in steam turbines and perhaps a close number two supplier of gas turbines or turbine compressors. What makes us unique is our ability to package these and other technology from Siemens into end-to-end modular concepts that directly address customer needs. This forms the basis of our solutions business which, amongst other oil and gas applications, has a dedicated team focused on pipeline technology.

Over the years we have refined our pipeline technology portfolio to cover electric or gas-driven compressors, substations or e-houses, transformers, breakers, automation, safety and security systems and SCADA. Maybe we should just say that we don’t provide the pipe, or put another way, we like to think that we provide the intelligent part of the pipeline.

Through our success and experience in the recent past in projects such as the mammoth 3,456-km Keystone pipeline, or China’s Shajing II, we have been able to further tune our pipeline technology portfolio and now offer a range of pre-engineered SPCP’s (Siemens Pipeline Compressor Packages) beginning with the 5-MW SPCP 100 through to the 30-MW SPCP 700. These fully documented packages put detailed information in the customer’s hands at short notice, yet retain the flexibility to adapt and adopt individual requirements, leading to faster decision making and reduced factory throughput time and in turn, projects that are on line sooner. Our global service team leads the commissioning effort and remains close to the technology through long-term service agreements.
A further example of our success in pipelines was the recent award of ‘intelligent technology’ provision for the 350-km Habshan pipeline that will directly connect Abu Dhabi to Fujeirah and hence the Indian Ocean, bypassing the infamous Straits of Hormuz.

P&GJ: Is the Oil & Gas Division meeting expectations?
Blades: Surprising to many is the fact that with 2008 revenues of roughly $5.6 billion, we are already tenth on the oil and gas services and products ranking list. Despite difficult times we have been able to grow this year.

P&GJ: What are the division’s biggest challenges?

Blades: Those within the division are very similar to those of the industry as a whole. Supply can only be kept ahead of demand by developing technologies that access hydrocarbons in difficult locations and under difficult circumstances. Once that has been achieved we need to apply that same technology toward optimal exploitation of the reservoirs and efficient conversion of the hydrocarbons throughout the entire upstream downstream petrochemical value chain.

Our forward-looking developments around our compression technology include depletion themes and sub-sea applications. The latter is an essential element of deepwater development and mature field extensions through sub-sea tie backs. Commensurate with an increasing quantity of production and processing hardware finding its way to the sea bed, we forecast a corresponding increasing demand in medium-voltage sub-sea power grids to support the transition from outdated hydraulic actuators to electrical motor-driven actuators.

Siemens has an increasingly significant role to play in these technology developments. Our challenge, aside from the day-to-day role of accelerating our business, will be to meet customers’ expectations and gain the recognition as a true oil and gas player.

P&GJ: How difficult is it to organize a company that reaches into many different regions of the world, with different laws, languages, customs?
Blades: Siemens has a well-developed matrix structure, probably not a surprise to anyone when you consider that we have about 430,000 employees across 15 main business lines with a presence in more than 190 countries. I am told there are only three organizations in more countries than Siemens: the Catholic Church, FIFA and Coca-Cola. We’re quite content to be lower down on the list as all three are good customers of ours.

The question on how to organize such a behemoth is valid and can only be answered through good communication and clear statements of priority. Our main divisions drive the strategy whereas the regional organization implements the tactics that go hand-in-hand with doing business locally, in different languages, and across different cultures. The two work seamlessly when it comes to closing agreements or executing projects and are a part of the strength that makes up Siemens.

Below the top management layer we are essentially organized in a way that best matches the needs of our customers. For example, in Brazil we have an excellent rapport with customers such as Petrobras mainly because of our interface through Chemtech, a wholly owned engineering subsidiary with more than 1,200 employees. There, we have been able to become a true partner of our customers. Chemtech was voted Brazil’s best company to work for three years in a row.

P&GJ: What is your outlook for the industry over the next year?
Blades: The financial crisis that precipitated the current situation of the world economy took years to materialize and won’t be fixed within a few months. At Siemens we have well-developed models that we refer to as V, U, L, extended L and, as of late, perhaps even W. These are not intended to predict the future but more importantly to prepare management for potential outcomes so that we are ready to react when we ‘recognize the future’. Within this bigger picture, the classical cycles of oil and gas obviously have a role to play.

After more than 30 years in the industry I have seen six such cycles and along with my many peers have become used to managing the ups and downs that are inherent in our industry. Aside from death and taxes, the one certainty is that over the long term we will need increasing amounts of energy. There is just no getting away from that fact and within the context of ‘more energy’ oil and gas will continue to play a main role for a long time.

What I have seen over these cycles is that the industry’s ability to react and adapt has accelerated and improved. Large oil and gas companies that work on long-term projects have hardly adjusted their mid and long-term plans other than to recalibrate their cost or pricing of those projects to the near term.

Over each of the cycles the bottoming-out of the capacity curve is a little higher than the previous cycle. My personal opinion is that these are supporting indicators for an early bounce in oil-demand recovery for which we need to be ready. The worst thing that could happen is to cut CAPEX on key projects which, in the long term, will only exacerbate the kind of price speculation that we came to know in 2008. Gas, on the other hand, despite LNG and international pipelines, is still very much a local commodity that will have a longer road to recovery ahead.

P&GJ: How do you view the push toward alternative fuels and is this influencing Siemens strategy?
Blades: It is no secret that Siemens sees tremendous opportunity in renewable energy technologies and their obvious acceleration through the global stimulus packages. Our Renewables Division is one of the fastest growing parts of the company and we expect to be a major contributor toward ‘greening’ the planet.

As these technologies evolve, I expect to see an increasing energy mix in fueling our mobility needs. Second- and third-generation biofuels, GTL (gas to liquid) and CTL (coal to liquid) or electric vehicles are all technically viable options that would neatly address today’s requirements. At the same time, our unabated thirst for energy will mean that these additional ‘fuels’ will be easily absorbed in the overall energy mix. Therefore, personally I see the development of alternate fuels as complementary and as opportunity for Siemens.

P&GJ: When you talk to customers, what do they say is their greatest need?
Blades: At $60-70 per barrel we have an oil price equivalent to where it was in 2004, albeit with 2008 cost of services and equipment. Trying to influence the cost of finding and producing hydrocarbons is not, surprisingly, a priority for our customers today. At the same time, the oil and gas industry is renowned for its conservativeness and propensity to pay a little more in return for quality and reliability, or stated another way, ‘going cheap’ is not the way to address the problem. Therefore, our more sophisticated customers are seeking ways to either increase value or lower costs by closer cooperation with supply partners.

This can vary from improved exchange of forward-planning details to more efficiently anticipate factory loading and manufacturing efficiency or collaboration on the reduction of project interfaces to accelerate project timing and reduce execution complexity. Another example is an improved effort in scheduling service and maintenance personnel vs. the ‘I need him now’ attitude prevalent in the last two years.

Although we sit on commercially opposing sides of the table to our customers, we can generally achieve win-win situations when both sides are willing to share information in a spirit of trust and longer-term relationship building. In that way, these tough times actually yield some long-term improvements in how we do business.

P&GJ: What would you advise young people today who may be interested in an engineering career?
Blades: Engineering careers per se cover a wide range of opportunities; engineering careers in oil and gas are something exciting but not for everyone. Those of us who have been in the industry long enough wouldn’t want to be in any other line of business. My advice to those wanting to understand if this is for them would be to read Daniel Yergin’s ‘The Prize’. If you can read this and not become excited by the history of the commodity, that more than anything, has changed our lives, then stay at home and become an accountant.

P&GJ: What special interests outside of work do you share with your family?
Blades: I probably spend most of my time these days in hotels and airplanes. I’m not unique in that sense; that’s just the kind of world in which we live. In my time off I like to play golf with my wife and friends. I’m not one of those players who are forever fine-tuning their handicap, more the ‘grip it and rip it’ variety. When I’m traveling I tend to wake early and use the time between 5-6 a.m. to train for triathlons which I endure a couple of times a year. Aside from that, I enjoy reading and just putting my feet up at home with family and friends.

P&GJ: During your travels, do any particular situations or people stand out in your memory?
Blades: I’ve been fortunate in many ways in experiencing different cultures and situations that have enriched my life and helped me learn to deal with most things in what I hope is a calm and open manner. It would be a long list if I had to write down all those moments that had a particular influence. I think Rudyard Kipling put it very nicely when he said: ‘We carry our dreams with us from afar, where we’ve been and what we’ve seen makes us what we are’.