Tuesday, August 30, 2011

The Innovators

This article appears in the September issue of Oilsands Review
By Peter McKenzie -Brown
After taking a close look at the AJM Deloitte business plan, some of Deloitte Touche’s competitors may give themselves a Homer Simpson-style whack on the forehead and grunt “Doh!” The business case for the global accounting giant’s new business unit is so compelling that it’s only a matter of time before the copycats arrive.

To start at the beginning, chairman and CEO Robin Mann is one of the founders of AJM Petroleum Consultants – a 12-year-old company that provides geoscience services to the petroleum industry. With staff of only 50, as a stand-alone entity AJM is one of the world’s seven largest firms providing resource estimates and calculations of petroleum reserves to the industry. The company operates in 10 countries, but has only one office – in Calgary. “We have worked with companies wanting to come into Canada, like the Chinese,” according to Mann. “We did our first bitumen and heavy oil studies nearly 10 years ago.”

It was overseas that Mann and his colleagues first sensed that integrating financial services into its technical offerings could be a winning combination. “We were working for offshore clients and they were asking whether we had financial expertise, and we didn’t. They wanted advisory functions that we didn’t have.” At a conference in Singapore last fall, several of the firm’s executives began to discuss the possibility of combining with an organization that also provided financial services. When they returned home, they asked Deloitte Touche to broker the idea to the business community. The idea didn’t make it out of the firm’s offices.

Global Organization
According to Deloitte’s Chris Lee, a CA whose unit provided financial and other business services to energy, mining and power and utilities companies. “We quickly saw AJM as a great complement to our existing skill set. We have a financial advisory practice across Canada, with 60 people in Calgary alone. We do business evaluations and corporate finance and provide financial due diligence.” In addition, Deloitte Touche is a global organization, with offices in 140 countries.

“Overseas we worked with state-owned enterprises and national oil companies that wanted technical expertise that we did not have,” Lee continues. His enthusiasm is palpable. “They were looking for one source where they could get all of these services in one place. About half of the deals they wanted us to look at were asset deals, and they wanted a service that could offer due diligence plus a technical analysis of quality of the reserves. We couldn’t do that before. Now we can.” With somewhat uncharacteristic restraint he adds: “Our challenge is going to be where to focus globally. We (have been able to) see in our work all the time that not having geological expertise has held us back. Now we don’t have that (restriction).”

Robin Mann continues, passionately: “What we have created is a one-stop shop. It was a good meeting of minds when we started talking about this. We are building a service that is available nowhere else on this planet, using Canadian technologies, exporting the way we do things around the world. No one else has the breadth of services we can offer.” Because of the Deloitte connection, the business unit can now present its services to the business world in virtually every oil-producing region.

Both sides of the business unit are beneficiaries. According to Lee, “Almost from day one we have been seeing combinations of service that would build both businesses.” According to Mann, “a (Deloitte) partner in Toronto told me early on that ‘You guys are going to be sorely understaffed from the get-go.’ And he was exactly right.”

For the present, Lee’s and Mann’s units will remain in separate office buildings because neither side has spare space. They will share an acronym, however, as Lee is quick to point out. “ERAS stands for Energy Resource and Advisory Service,” and that is the in-house description of the unit, which itself is part of the Financial Advisory group. “Deloitte just loves acronyms,” Mann says with a chuckle. “Longer-term, we would like to get all the staff together (under one roof) so we can interact. That will happen, but we don’t know when.”

Big Dreams
I ask whether the merger was an exit strategy for senior partners at AJM. “Not for me,” says Mann. “I’m now a partner in Deloitte, and I intend to help turn this into a world-class business. We can do that because we have people like Dave Russum in our technical group. (Dave) is a sought-after speaker, and he has been very innovative in the gas business. We have people who are similarly innovative on the oil side, and who look at how we do things in Canada and how we should do them around the world. We can marry our innovations with the innovation created by Deloitte in tax and so on. Right now we are a marketplace of one. We have no competitors.”

Of course, among the Big Four accounting firms – Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers – there is debate about the merit of building too big a consulting business. The critics argue that accounting firms with huge consultancies could find themselves with conflicts of interest that will run afoul of global regulators. According to one highly reliable source, in Europe a Green Paper on the subject is already “causing many people in accounting to lose sleep.”

Mann and Lee are far from these worries, however. Both men believe their big dreams are possible because Calgary is destined to become the world’s dominant petroleum centre. According to Lee, “Calgary is one of the fastest growing Deloitte offices in the world,” and he expects growth to continue. “Canada has the opportunity to be an energy superpower. To do that we have to unsure that issues around transportation infrastructure are resolved. We need a national energy strategy. We have to deal with potential labour shortages and cost overruns, and we need a more positive public image for the oilsands. The future of the oilsands is incredible. Just imagine what would happen if (bitumen) carbonates became economic! What would this city be like?!”

Mann adds another perspective to the conversation. “Within the next five years Calgary will be known around the globe as the most knowledgeable place (in the petroleum industry) with the best technology. A big reason is our regulatory system, which makes (so much) information public. That freedom of information speeds up the leapfrogging of technological advance.”

And the discussions continue. Calgary may not yet be the world’s dominant energy centre, but it does seem to have spawned yet another great energy idea.
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