Starting your own business in a highly competitive niche might seem risky compared to working for one of the biggest energy companies in Canada, but John Henry doesn’t think so.
“I actually think that, working in a larger organization, there are a bunch of risks that maybe you don’t appreciate. Other people can be doing things that you’re not aware of that submarine your business plan, and you don’t become aware of those things until it’s too late.”
Henry is president of Vista Midstream Solutions, a minnow compared to big fish such as Duke Energy swimming in the stream of cash flow generated by midstream companies, which collect, process and transport natural gas from producing wells to large transmission lines.
Going against not only other players in the niche, such as AltaGas Services and ATCO Midstream, Vista also competes against petroleum producers where midstream assets are viewed by some executives as a competitive advantage in developing plays.
|Shannon Oatway, Business Edge|
|Vista president John Henry (right) and VP Mick Dilger look over gas prospects.|
The president and Vista executives Mick Dilger, Stuart Taylor and Jim McMahon worked together at the midstream unit of Nova until it merged with TransCanada PipeLines in 1998.
Working for a huge company with a costly infrastructure of people and equipment taught the Vista team a number of lessons, Henry said.
“Don’t grow faster than you can implement because that’s a recipe for disaster,” he said. “I think another key lesson is making sure that everybody in the company understands how the company makes money. There is no room for people who do things because that’s the way they like it, versus that’s how we make money.”
The post-merger travails of TransCanada convinced Vista’s principals a firm focused on midstream operations could flourish. The company makes money by collecting a fee on each unit of gas that passes through its plants.
They sold their vision to a number of institutional fund managers, including ARC Financial of Calgary and Quebec pension giant Caisse de depot et placement du Quebec.
Vista concentrates on sweet gas facilities (meaning they do not process hydrogen sulphide, which gives sour gas its distinctive smell of rotting eggs).
The roughly two-year-old company has acquired seven plants with more than 300 million cubic feet of daily processing capacity.
“We are acquisition-oriented, and that is something that will remain. In the acquisition of assets, by and large, our competition is other midstreamers,” Henry said. “Once we’ve acquired something, then our competition is whoever owns the gas plants” in the region.
Average utilization of processing plants in Alberta runs around 50 to 60 per cent. Vista, for example, owns three gas plants in southern Alberta designed for 118 million cubic feet per day that are currently handling 75 million.
The challenge for the firm, which employs about 30 people, is to boost utilization while holding down costs and preserving margins. Besides running lean and using technology to cut costs, Vista is counting on industry experience of staff to help it compete, Henry said.
“We’ve got to be able to offer fast tie-ins for all the deliverability. If a guy drills a nine-million-a-day well, we’ve got to be able to get his nine million on right now.”
Customer service is key for smaller players like Vista to survive, said Tim Stauft, a former midstream executive at TransCanada now working with the Calgary office of international energy consulting firm Purvin & Gertz.
“They’re not going to be huge, they’re not going to have a big market impact, but there does seem to be a niche for them,” he said. “One of the ways you make sure you can compete on a fee basis is that you have to keep your costs down, which goes back to the other issue of making sure all your back-office systems are cheap, automated and efficient.”
David Oginski, principal engineer with El Paso Velvet Canada Inc., says his company plans to add another 25 million cubic feet of gas a day going through Vista’s facilities because it is more economical to use the midstreamer than building a plant.
“I find them great to work with. They have a good understanding of the economic drivers for a producer and where the midstreamer fits in. They create a win-win solution.”
Within the next couple of years, privately owned Vista hopes to have a “liquidity event” – perhaps a public offering or a merger – so shareholders can realize a return on their investments.
Until then, Henry said Vista’s founders intend to enjoy the challenges of running their own business.