Oil business expands firm’s global frontier to some challenging places.
On one of his rare visits to St. Paul, Ecolab Energy President Steve Taylor flipped through two heavily stamped passports showing trips to Iraq, Kazakhstan, Libya, Russia and other far-flung regions of the globe.
It’s been nearly two years since Ecolab — better known for its soap and sanitizers — jumped into the global oil and gas services business by buying Nalco. As a result, “We do business in some funky countries,” said Taylor during a recent trip to Ecolab’s St. Paul headquarters.
With Nalco’s chemical and water treatment services part of the mix, Ecolab is suddenly treating highly corrosive water in oil fields in isolated or war-torn nations. It is preventing wax and mineral clogs in refineries, redesigning pipelines and providing the chemicals that keep oil flowing, all while keeping a close eye on potential conflicts.
Dicey geographies have meant extensive travel for Taylor and forced Ecolab to install top-notch security throughout its Nalco facilities that could be at risk. After incidents in which gunmen attacked a BP gas plant in southern Algeria and an oil pipeline in northern Algeria in January, no security detail is left to chance, Taylor said.
“Three weeks after the war was officially declared over, I was in Iraq. ... I got to go to Gadhafi’s home [in Libya] right after it blew up. I am going into countries the rest of Ecolab is not even thinking about,” Taylor said.
To enhance security, Ecolab hires locals, including guards, bilingual engineers and chemical experts. The thinking is that natives will quickly hear of potential problems and help Ecolab and its customers mitigate risks.
“We have a saying that God didn’t put oil in some of the greatest spots in the world,” said Taylor, who splits his time between his home in Dubai and Nalco’s energy hubs in Houston and Naperville, Ill. “But we hire local professional security guards and other professional security who are in tune with what is happening in that country. We get embedded.”
When Nalco workers park their cars anywhere in the world, they are trained from day one to back into parking spaces. Why? So they can bolt quickly if trouble arises. The practice was obvious even during a recent visit to Ecolab’s R&D facility in Eagan.
“You can tell which cars belong to Nalco employees. They take security very seriously,” Ecolab spokesman Roman Blahoski said.
Ecolab’s $8.3 billion purchase of Nalco is bringing in $3.5 billion in fresh energy revenue and adds 12,500 employees from around the world. Also contributing to Ecolab’s energy heft was its April acquisition of Houston-based Champion Technologies for $1.2 billion.
Ecolab has Champion gas fracking and oil customers in the United States, Canada, Brazil and Russia. It’s deploying Nalco’s powerful automated fluid-analyzer and corrosion-reduction technology into the boilers and cooling towers of Ecolab’s more-traditional line of hotel, restaurants, dairies and food factory customers in Western nations. Ecolab is also introducing its knack for antimicrobial chemicals into Nalco and Champion’s oil or gas fracking operations.
Blending those skill sets and unique geographies appears to be driving growth, analysts say. CEO Doug Baker told investors at a conference last month that acquisitions should help Ecolab reach its revenue goal of $20 billion by 2020.
Nalco’s presence in the energy fields, while potentially volatile, could ultimately bring Ecolab’s traditional sanitation products into far-flung pockets of the world. But that will take time as these countries must experience their own bursts of development, company officials say.
Nalco “might be in a country 20 to 30 years before Ecolab can go in with its full scale of offerings” that relate to its traditional hotel, restaurant and hospital cleaning chemicals and services, Taylor said. Nalco is already in “Uganda, Angola, Nigeria and Mozambique. But I don’t expect Ecolab being there in mass for 15 to 20 years.”
Many of Taylor’s oil-rich countries don’t have solid infrastructure. Nor do they have the world-class hotels, restaurants, dairies and breweries that typically hire Ecolab to ensure that countertops, dishes, linens and food conveyors are sterilized.
“You have to imagine what is going to happen in those countries years from now,” Baker said. “I will tell you that we are always surprised at the countries that are doing well now that were in the doldrums. Look at Argentina. It was a hot spot.”
The idea that oil in undeveloped or troubled lands could bring prosperity to Ecolab’s hotel, hospital and restaurant service business surprises some.
“It is an interesting twist and ... intriguing” said Mark Henneman, executive vice president of Mairs and Power Inc., which has long invested in Ecolab and Nalco. Henneman admits that his investment telescope isn’t out 15 to 30 years. But he likes Ecolab’s plans. “Without energy, it would not have the opportunity to grow as fast as it is going to be growing.”
Said Andrew Wittmann of Robert W. Baird & Co., “Ecolab has endorsed a double-digit growth rate for that energy business. And that is really new for Ecolab.”
Ecolab’s stock is trading at a 75 percent premium from its pre-Nalco days. “I am happy that it all turned out,” Baker said recently, noting that Wall Street initially frowned at the idea of Nalco bringing oil services into Ecolab’s dependable model.
Investors said it was too volatile, Baker said. “But it wasn’t the business. It was the situation that was volatile. The issue was they were cash-strapped,” Baker added.
Gamble pays off
Energy sales now constitute 27 percent of Ecolab’s $13 billion in total revenue. “By the end of next year we will be closer to 30 percent,” Taylor said, noting that results now include Champion.
Ecolab workers are now in desert oil fields and on rigs and ship platforms right alongside the employees of customers such as Exxon, Shell, BP, ConocoPhillips, Chevron and other high-profile behemoths.
Today, Ecolab’s tentacles extend to 171 countries, up from 160 before its dive into energy. The goal is to “build business in the fastest-growing emerging markets” on the globe and to “cross-fertilize Ecolab, Nalco and Champion technologies,” Ecolab’s Baker said.
The combination should add $500 million in revenues by 2016 and hoist earnings growth to 15 percent a year, up from 12 percent.
Wall Street obviously will be paying attention. “The most natural opportunity is for [product] crossover in the food and beverage end markets,” said Wittmann from Robert W. Baird & Co. “You get the hygiene expertise from Ecolab and the industrial application that Nalco is very good at. If you put them together, hopefully you find an opportunity for better customer penetration.”
Dee DePass • 612-673-7725