Engineering house Xodus, main shareholder Japanese giant Chiyoda Corp and leading international offshore contractor Saipem are to join forces in a new entity to seek expansion in the subsea engineering sector.

Each of the three partners in Xodus Subsea—a 50:10:40 venture—is looking for something completely different.

Xodus which is essentially giving up 50% of its current turnover from subsea projects in establishing this new company is aiming to grow much faster than at present - at least double its current rate, SEN has been told.

The company believes that it now has the size and capability to carry out big subsea projects, but this has not been acknowledged in the marketplace. It wants a seat at the top table with big competitors, such as Wood Group Kenny, INTECSea, et al.

Chiyoda wants some ‘street cred’ in its home market where a position in the subsea market is seen as a sign of importance. There are little offshore developments in home waters now, but the coming development of methane hydrate deposits off Japan could provide it with a chance to shine domestically.

The Japanese company, a noted provider of onshore engineering capability to big companies like Shell and ExxonMobil, could also provide entreé for Xodus to new clients.

For those who don’t remember, Chiyoda acquired its majority shareholding—believed to be around 60%—in Xodus in July 2013 from equity investors Simmons.

As for Saipem, the biggest player in the offshore sector amonst this trio, it apparently wants to get an earlier shot at project opportunities. It has eyed up the value that Technip derives from its ownership of front-end specialist Genesis and wanted to find something similar.

It all takes time

The current “breath-holding” by operators on projects does not appear to make this the optimum time to be launching a new venture like this. A senior Xodus executive told SEN that as it takes time to organise such a venture—it has been underway for much of this year—and an upswing could be expected once high costs are pulled under control.

A few other points. Xodus is much happier under Chiyoda who understands the engineering business in a different way from a venture capital group like Simmons. Would the latter have been happy to have Xodus turn over half of its subsea income to others as part of a long term strategy that might be five to ten years away? Possibly not.

The Japanese company also provides financial muscle and wanted to have a direct stake in the venture along with its shareholding through Xodus.

Matt Kirk, Xodus’ regional director for the Americas, will be managing director of Xodus Subsea supported by a team including those from the partners.

Offshore