Queensland gas fires up contracting business

WDS Limited is bucking the downward trend that has hit many contracting companies of late by diversifying its business model to cater for the massive work needed in Queensland‘s gas sector, and helping mining companies stay afloat during the downturn in coal.

The company, which first listed on the ASX in 2006, employs around 530 in its energy side of the business and 350 people work in its mining division, says with a mass of work in the pipeline, the only way is up for this relatively small, but highly specialised business.

Energy Division

WDS managing director Terry Chapman says his company is an “important cog in the wheel” for companies vying to develop LNG projects in Queensland.

“The business has for a long time been a pipeline business and been involved in gas and petroleum and as the CSG industry developed, the gathering works was a natural progression for us,” Chapman told Australian Mining.

And with the company’s work in the sector growing, so is its energy division.

Posting FY13 results in August, the company said two new contracts in the first half of the year worth over $300 million in revenue had cemented WDS as a serious player in the energy sector.

WDS saw 40.2 per cent growth in revenue to $233.87 million last financial year, delivering a 167.6 per cent uplift in profit before tax to $15.68 million.

It is a principal contractor for Santos’ GLNG project and will carry out field installation of appraisal gathering systems for the connection of CSG wells in the Surat Basin gas fields.

The company has recently announced that it has secured contract work worth a total value of $50 million for delivery in the current financial year.

The company said the scope of work is multi-faceted and includes civil, mechanical, electrical and instrumentation aspects of the management and construction of field work and trunk pipelines and CSG wellhead connections.

WDS is also working to get the APLNG plant ready for action.

“On APLNG we’re doing all of the work associated with gas gathering works for 345 wells, so we’re installing all the lease equipment, we’re clearing the rights of way where all the pipelines will run, and installing all the pipes and power cables, and we have a large crew of men and women working hard on this at the moment,” Chapman explained.

The APLNG contract will run for three years, with an option to extend for a further two by two year options.

Chapman said the opportunities seen in Queensland’s energy sector would continue for many decades to come.

“The large liquefication facilities on Curtis Island represent a major investment and once they’re built, they’re built; they need to be fed with gas for the next 20 plus years,” he said.

Chapman explained that as wells only having a finite number of years of gas production, the scope for his company to help in the appraisal and delivery of wells would keep WDS very busy.

“When you develop a field, it has a finite life, so a well lasts let’s say 5-7 years, and 70% of the gas comes out in the first 5 years,” Chapman explained.

“If a well gets gas for seven years and there’s not much gas coming out and you need another well, another seven years, and then another one.”

“So for that 20 years life of that facility on Curtis Island you need to drill a number of wells and you have to keep developing the fields.”

The company also have contracts with QGC and Thiess for fabrication equipment supply and also supply Arrow Energy with well head skid fabrication.

Chapman said the success of the diversification of the business from pipeline-focused to successfully providing the full range of works gas companies need has ensured the success of WDS.

“The projected capital expenditure requirements for the CSG sector of the next three years are significant,” he said.

Over the next 20 years, Chapman said he expects companies to spend in excess of $1 billion per annum; a figure any company working in the burgeoning energy sector is keen to take advantage of.

“WDS is extremely well positioned to participate in the continued development of this expanding industry.

“The energy division’s result was underpinned by a number of factors including the successful mobilisation of the APLNG project, strong organic growth across a number of CSG projects, and an improvement in delivery performance and equipment utilisation,” Chapman said.

Chapman said while there was some controversy surrounding the CSG industry in Queensland, WDS was committed to working with the community to minimise impacts.

“We always need to do these things sensitive to the environment and sensitive to people’s properties,” he said.

“The last thing we want to do is cause any negative impact in the local communities.”

Chapman said with the energy sector in Queensland taking off, the industry in NSW was seen to be lagging, adding that the economic benefits were clear.

“I see the number of people being employed, the amount of money being spent on local services, and the tax being paid and it’s clear you can generate real wealth in the local communities , particularly in rural NSW in areas like up around Narrabri where it’s fairly sparse and spread out,” Chapman explained.

However, the company is not expecting any revenue in its CSG business to come out of the state in the next financial year but hopes discussions with industry leaders and communities would help to iron out any issues.

 “If we could as a community come together to find a way meet everyone’s requirements I think there are a whole lot of benefits to be had.”

Coal Division

The WDS mining division had a tougher year, with the downturn in the coal sector causing a 38.5 per cent drop in revenue to $118.67 million.

The company cut costs by way of redundancies, closing its Mackay workshop, while numbers employed in the mining division fell by 49 per cent to 371.

Chapman said the coal sector is sorting out issues with profitability.

“Our clients need to be making profit and the industry needs to get some profitability back.”

“When the slowdown came, everyone looked to cut costs and so non-essential work has been deferred, a lot of development work has been suspended, and they’ve changed staffing rosters to try and optimise their production,” Chapman.

However, Chapman said WDS has maintained a good relationship with its clients, working closely with them on equipment, roster and workforce optimisation in order to maintain high levels of productivity.

As a result, WDS was recently awarded a contract for surface to in-seam directional and vertical drilling for gas drainage and associated services at Vale’s Carborough Downs coal mine in the Bowen Basin.

The contract includes works for drill pad preparation, vertical production wells, surface to in-seam weels and wire-line logging.

Chapman says despite the downturn, there is still a lot of product getting out the door, meaning contracting services are still in demand, adding that a ‘gradual improvement’ for the price of coking coal will be seen over time.

Bullish about the potential for new projects, Chapman said the downturn meant there were a lot of skilled personnel without jobs, making it a good time to develop new projects.

“The number one question I used to get about a year and a half ago was ‘where are you going to get your mine workers from?’”, he explained.

“We’ve gone from that shortage of trained personnel and skilled people to all of a sudden there are plenty of them around, so we’ve gone from one extreme to another.”

“And so the risk profile for our clients has actually improved, particularly in new developments. If you want to build a mine today you couldn’t get a better time to do it because a lot of the risk has gone away in terms of shortage of resources, skilled workers, accommodation and equipment.”

Looking ahead

With an increased in its order book of $281.4 million this year compared to $183.9 million this time last year, and around $300 million submitted in tenders currently under evaluation, the future for WDS is a promising one.

“We can quickly respond when our clients (in coal) want to start reinvesting and getting a few more tonnes out and  we’re well positioned to respond and will be there for them when they need resources and services, “ Chapman said.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.