INVESTOR DAY 2015

INVESTOR DAY 2015
ROGER BLAIR, PRESIDENT, INDUSTRIAL/ENERGY, U.S.
JUNE 10, 2015
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INVESTOR DAY 2015
JUNE 10, 2015
ROGER BLAIR, PRESIDENT, INDUSTRIAL/ENERGY, U.S.
Male:
So sometimes I’d like to say (enough) or something
completely different because part of my business is
specialty niche business. So we're going to have a
couple sectors that I’ll talk about.
One is kind of a general industrial utility business
which for the most part, we have -- we have
approached through the power sector whether it’s
transmission, whether it’s generation. And the
second part is specialty underground storage
business that sits in amidst in the midstream oil and
gas business. So they’re kind of different markets
but we’ll -- kind of I’ll go back and forth and
hopefully I wouldn't confuse you too much.
So we're talking about the first one which is heavily
in the power sector. The market remains flat in the
U.S. So combinations of reasons, timing-wise, it’s
related to frankly the overall economy. So when
economy is down, demand is down, at the same
time, as everyone knows, efficiencies in electricity
usage have drastically improved in the last five and
10 years.
And so that combination is to get the market pretty
flat. We expect it to remain flat based on talking to
the folks that are in the generations business, that
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own -- they own the facilities. But there will be -there will be some opportunities because of the
change in the mix of the -- of the fuel source.
So coal plants are retiring, the natural gas stepping
up, and of course, continued growth in the
renewables but we have to remember that
renewables are relatively small piece of the total
picture, so even though their growth is large, dollarwise, the money -- a lot of the money is going to be
spent on natural gas generation as far as the new
generation.
It’s going to be frankly the biggest mix. You know,
a few years ago, coal was the biggest mix, natural
gas would be the biggest mix for generation in the
U.S. in the next, you know, five years or so.
The other thing is we're seeing a trend away from -there will be some large natural gas generation
projects to replace coal where it makes sense to feed
into the system, but there is also a big trend towards
more distributed energy.
So smaller natural gas plant and renewables and
sometimes the natural gas plants are (inaudible)
simple cycle to basically take the swing as solar and
wind very based on the time of the day and time of
the year.
So there will be some opportunities even though the
general trend for generation is going to be down.
And on the grid side, we think the T&D market is
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going to have a big spin to basically be able to deal
with this change in dynamic of generation.
The other piece of the business is our underground
storage business which is kind of a niche subset of
the midstream oil and gas business. Fortunately
right now, there is a large demand for underground
storage related to the liquids market, so natural gas
liquids.
The shale plays from the fracking as well as the oil
plays result in extracting NGLs so propanes,
butanes, other natural gas liquids which are -- which
have a higher value than natural gas. They’re
exportable unlike crude oil, so with a few
exceptions, we can export crude oil out of the U.S.,
we can and have been doing natural gas liquids.
So a lot of the projects that we're seeing are related
to increased extraction facilities, fractionators, and
increased export capabilities of the natural gas
liquids which require a storage piece for operational
basically consistency.
So they fractionate the liquids at a certain rate. They
want to load up tankers at a very high rate to avoid
the (diverge costs), so you need something in
between to provide that buffer. And so a lot of the
projects we're doing now are related to that dynamic.
The fact that the oil prices are down and gas prices
are down, actually it does not directly hurt the
midstream piece because in the petrochemical side,
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that’s their fuel cost, so that actually makes their
business more economical. And because there is a
high value in the extracted liquids, the fact that
there’s already an inexpensive source of the raw
products helps many parts of the midstream
business.
So I kind of talked about on our, what I call our
power section or the utilities industrial piece, our
major competitors are firms that you probably heard
of. And so the big power -- the big power
companies or companies that had big power
components, power engineers, we see them a lot in
our T&D side, but now that they have (Bernstein
Rowe) as part of that group, we also see them on the
generation side.
So we're 12th -- (E&R) ranks us as 12th in the power
sector and so we're not -- we're not one of the
biggest. We will not likely be one of the biggest
because almost everyone ahead of us on this list
plays heavily in the (EPC) or the construction
market. So their dollars are bigger because the
construction dollars are larger chunks in the special
services.
So we think we definitely have room for growth but
we don’t have -- we don’t have the expectation that
we're going to be number one in power because that
would require a large construction component.
So operationally, we're also a relatively small group
compared to the whole U.S. business and people, a
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little over 260 folks. And what you can see here is
there are some red circles and kind of blue green
circles.
The red is our underground storage group which our
biggest office is in Houston because that’s the core
of where the energy -- that energy business sits, that
makes sense. We have -- we do have -- we have an
office in Baton Rouge and we actually have a small
office in South Dakota basically to support some of
the work we do in Northern U.S. and historically, we
have done in Canada.
And then we have (Botcos) for our power business.
So we're in Boston, San Francisco, New York and
we have some hydro folks in Portland.
We also do have an office across the river in Newark
that is really the kind of the headquarters of our
T&D business and we have one -- right now, it’s one
major project but we're looking at several other
opportunities.
So as I said, we're a relatively small part of the
overall business. In ’14, 4 percent of the -- of the
total business. This year I think ’14 was a bit of
aberration, we expect to be 5 percent or 6 percent
this year, but still a relatively small part of the
business.
So again, kind of separating the two pieces of the
market, this is the power side and where we’re
addressing the utility and industrial market. We
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have about, you know, equally in the design and
program management piece, so those are two things
that the firm has been known for across markets.
We also have those capabilities.
Our owners, lenders, engineers at our upfront work,
we see both of those as growth opportunities. So the
upfront work, as Jim mentioned, we think there’s
opportunities to work with the environmental group
to get in early. We, in the past, did not -- have not
really gone after that market. We now have
capabilities to try to do that.
The other is in the (auto) engineer sector, we're
making a strong push towards that. I’ll talk about in
a little bit mainly because we see in the…