Date post: | 22-Feb-2016 |
Category: |
Documents |
Upload: | focus-reports |
View: | 223 times |
Download: | 0 times |
1
NorwayOil & Gas report Part 4Oslo - the new old cityNovember 2013
Brought to you by
2
3
This sponsored supplement was produced by Focus Reports. Project Publisher: Ines Nandin;Project Coordinator: Isabella Romeo Gomez;Editorial Coordinator: Martijn Jimmink .
For exclusive interviews and more info, plus log onto www.energyboardroom.com or write to [email protected]
CopyrightAll rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports.While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. Opinions expressed in this report are not necessarily those of the authors.
CONTENTS7 OSLO THE NEW OLD CITY 8 OIL AS FINANCIAL MUSCLE
10 OSLO’S HERITAGE
11 PUSHING OUT EXPORTS
12 THE NORDIC INVESTMENT POWERHOUSE
13 NORDIC PLAYING FIELD
16 365 DAYS AT THE HELM OF LUNDIN
16 SENERGY: EXPANDING ITS REACH
17 BUILDING A NEW SONGA
17 ADAPTING STRATEGIES 20 NAVIGATING A HIGH-COST ENVIRONMENT
24 INTERVIEW WITH
Per Gunnar Ølstad, Senior Adviser of Oslo Stock Exchange26 INTERVIEW WITH
Eivind Reiten, former CEO Norsk Hydro, current Chairman Norske Skog28 INTERVIEW WITH
Jan Arve Haugan, CEO - Kvaerner30 INTERVIEW WITH
Jon Edvard Sundnes, CEO – Tschudi Shipping32 INTERVIEW WITH
Knut Brundtland, CEO – ABG Sundal Collier 34 INTERVIEW WITH
Paul Bellamy and Amund B. Tørum, Schjødt36 INTERVIEW WITH
Torstein Sanness, Managing Director – Lundin Norway38 INTERVIEW WITH
Wenche Nistad, Chief Executive Officer - GIEK40 INTERVIEW WITH
Thomas Fjell and Erik Sandøy, InterOil42 INTERVIEW WITH
Roy Norum, Chief Executive Officer -PG Marine Group
INTERVIEWS
4
Brought to you by
5
Brought to you by
For exclusive ITVs and more insights, log on to energyboardroom.com
6 Norway Oil & Gas report part 4 November 2013
w
The new old cityOSLO
The generation living at the time of hydrocarbon extraction is by no means the sole ‘owner’ of its value, and is therefore not entitled to spend it,” explains Sigbjørn John-sen, former Minister of Finance, which effectively encapsulates the ideological basis
for the economic and financial model that Norway follows in order to preserve and grow its oil wealth for future generations. To hedge the economy against fluctuating revenues and to maintain competitiveness in other sectors of the economy, petroleum revenues are invested abroad through the Government Pension Fund Global (GPFG), referred to in the country as the ‘oil fund.’ The profits from this fund are then reinvested back into the economy, build-ing infrastructure and public works that will benefit Norwegians for generations to come, all while continuing to grow the size of the oil fund.
”
Opportunities in Oil & Gas ConsultingMcKinsey & Company is the leading global management consultancy, and our Oil & Gas Practice is the world’s largest. Our Oil & Gas consultants advise the world’s energy companies, service providers and public institutions on their most important strategic, operational, organizational and technical challenges.
To strenghten our fast growing practice we are now looking for outstanding candidates with Oil & Gas experience. Your background can be within capital projects, operations (upstream and downstream), as well as gas and energy trading. We seek candidates with a diverse set of experience from Oil & Gas operators, service providers, or professional services firms. Doctoral and advanced degree candidates in energy policy, geology, geophysics, engineering, and related disciplines are also encouraged to apply.
Should you be interested in joining our McKinsey Oslo Office with the Oil & Gas Practice as your main focus, please visit http://www.mckinsey.com/client_service/oil_and_gas for more information. You can also contact: Anders Brun at +47 98 20 40 10 or Christopher Forr-Rydgren at +47 93 83 51 13. Application via www.mckinsey.com/careers/apply, referring to the Oil & Gas Financial
Journal in your application.
FocMck_OGFJ_1311 1 10/28/13 10:45 AM
7
w
The new old cityOSLO
The generation living at the time of hydrocarbon extraction is by no means the sole ‘owner’ of its value, and is therefore not entitled to spend it,” explains Sigbjørn John-sen, former Minister of Finance, which effectively encapsulates the ideological basis
for the economic and financial model that Norway follows in order to preserve and grow its oil wealth for future generations. To hedge the economy against fluctuating revenues and to maintain competitiveness in other sectors of the economy, petroleum revenues are invested abroad through the Government Pension Fund Global (GPFG), referred to in the country as the ‘oil fund.’ The profits from this fund are then reinvested back into the economy, build-ing infrastructure and public works that will benefit Norwegians for generations to come, all while continuing to grow the size of the oil fund.
”
8 Norway Oil & Gas report part 4 November 2013
64 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
However, the current strategy of the oil fund may now change,
following the election of a Conservatives-led coalition in Norway in
September 2013, which is considering a number of different changes
to the structure of the fund. Proposals from the various groups in
the coalition include splitting the fund into two or three competing
funds, investing in foreign private equity and infrastructure, or even
using the fund for direct investment into domestic infrastructure proj-
ects. The fund currently contains around USD 755 billion, with the
Norwegian Ministry of Finance forecasting that the fund will reach
USD 1 trillion by the end of 2019. Despite the recent change of gov-
ernment, Norway knows that its oil and gas will not last forever, and
plans to ensure that for as long as possible, its citizens will be able to
benefit from this all-too-temporary good fortune.
OIL AS FINANCIAL MUSCLE
The GPFG is open about its investment strategy, its annual results,
and the size of the fund. With investments of the GPFG in over 7,500
companies around the world, in both stocks, bonds and real estate,
the fund's risk is quite mixed. And just because the fund has the
intention of diversifying investments away from Norway, this does
not mean that energy is left out: the fund is currently invested in 147
of the world’s 200 largest companies in terms of reserves of coal, oil
and gas.
The fiscal guidelines for the fund state that only the profits from
investment can be reinvested into the Norwegian economy. How-
ever, with the fund returning 13.4 percent on its investments in 2012,
the second best performance in its history, this strategy appears to
be no barrier to investment. In the Nordic region, Norway is com-
monly referred to as the ‘rich cousin’ for a very good reason.
As Christer Tryggestad, director at McKinsey & Company explains,
the discovery of oil on the Norwegian Continental Shelf (NCS) has
revolutionized life in Norway. “For more than 40 years, petroleum
production on the shelf has created considerable wealth for the coun-
try. The Norwegian government and regulatory bodies have done an
extremely good job in getting the most out of the resources on the
shelf. In fact, other hydrocarbon-rich governments now implement
the Norwegian model.”
While it may seem that Norway is benefiting from its attempts to
diversify its economic base, the problem of over-dependency on oil
may be more deeply entrenched than the government likes to admit.
As the Pareto Group, a Norwegian holding company, wrote in its
2012 annual report: “The Norwegian economy was solid to the core
– but was probably more oil-fueled than most people realize.” Svein
Støle, CEO of the holding company, explains that with a continued
high oil price, “the oil sector will remain extremely profitable and as
a result will attract the best people, thus increasing labor costs. At
the same time the public sector will continue to grow, while many
ordinary businesses are feeling the pressure between a lucrative and
profitable oil industry and the public sector increasing its wages.”
Despite the attempts of the government to preserve oil wealth for
future generations, it is clear that Norwegian citizens today do feel
the results of the oil boom in their everyday lives. On The Economist’s
2013 ‘Big Mac Index’, which aims to show the purchasing power of
citizens in countries around the world, Norway comes in at the top of
the list, at USD 7.51 for a Big Mac, against USD 4.66 in the EU area
and USD 4.56 in the US: in raw terms, the Big Mac is overvalued in
Norway by 64.7% when compared to the exchange rate between
the NOK and the USD. There is a danger that Norway’s oil sector will
leave other industries out in the cold because of the salaries on offer
for skilled workers.
However, this situation is not a new one, and despite the challenge
of rising wages and increased living costs, the Norwegians remain
generally stoical, as is their wont. Eivind Reiten, former Minister of
Petroleum and Energy and former CEO of Norsk Hydro, sums up the
situation by saying: “It has been a consistent issue, albeit a small one,
ever since we found oil in the country. However, Norwegians have
not broken a single window in any shop over the last 40 years despite
some challenging decisions. Norwegians citizens are extremely
disciplined.”
Sigbjørn Johnsen, Former Minister of Finance
Christer Tryggestad, Director, McKinsey &Company
Eivind Reiten, former CEO of Norsk Hydro
9
As an International Midwater Drilling Contractor, Songa Offshore
are present in some of the most challenging areas of the harsh
environment North Atlantic basin.
With a fleet of 5 rigs in addition to 4 rigs being delivered
in 2014 and 2015, we are ready to take on the future challenges.
Find out more about Songa Offshore SE at:
www.songaoffshore.com
The Midwater Expert
FocSong_OGFJ_1311 1 10/28/13 10:44 AM
10 Norway Oil & Gas report part 4 November 2013
66 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
ABG UNDAL OLLIERCS
ABG Sundal Collier - A
leading Nordic Investment
bank with strong E&P
track record and long
term focus
ABGSC is recognised as a leading distributor
of Nordic equities and derivatives to Nordic
and international investors. Our global rela-
tionships, coupled with our unique under-
��������������������������������������� �
���������������������� ������������������������
deliver unique local insight, investor views
�����������������������
��������������������������� ������������ www.abgsc.no
Lundin Petroleum AB
USD 165m
Acquisition of certain
assets from DNO
ABG Sundal Collier
Advisor to Ludin Petroleum
2004
Dansk Oljeog Naturgas AS
USD 1,200m
NOK 500m
Bond
ABG Sundal Collier
Joint Lead Manager
2004
Petrobank Energy Corp
USD 250m
Convertible bond
ABG Sundal Collier
Sole bookrunner
2007
PetroBakken Energy Ltd
USD 750m
Unsecured convertible
bond
ABG Sundal Collier
Sole bookrunner
2010
DNO International AS
USD 240m
Senior unsecured bond
ABG Sundal Collier
Joint Lead Manager
2011
Wentworth Resources Ltd
NOK 77m
Private placement
ABG Sundal Collier
Joint Lead Manager
2011
Petrominerales Ltd
USD 400m
Unsecured convertible
bond
ABG Sundal Collier
Joint Lead Manager
2012
IGas Energy Plc
USD 165m
Senior Secured Bond
ABG Sundal Collier
Sole bookrunner
2013
Pertra AS
USD 155m
Sale to Talisman
ABG Sundal Collier
Advisor to PGS
2005
Oslo CopenhagenStockholm
Gothenburg
London
FrankfurtNew York
FocSun_OGFJ_1311 1 10/28/13 11:03 AM
While economically, the country might be heavily influenced by the
oil and gas sector, in power generation at least, Norway has estab-
lished real independence: today, over 99% of Norway’s electricity
production comes from hydropower plants. Around 850 small hydro-
electric plants situated all over the country generate almost all of the
country’s electricity. As a result, all of Norway’s produced gas and
most of its oil is exported.
OSLO’S HERITAGE
Until today, the Stavanger area has seen most of the effects of the
Norwegian oil boom; the city is widely referred to as the oil capi-
tal of Norway, despite being a town with a population of just under
125,000. The largest company in Stavanger, alongside a number of
large E&P players working and operating on the Norwegian Conti-
nental Shelf (NCS), is Norway’s national oil company (NOC) Statoil,
which has its headquarters located just outside town. Nevertheless,
an increasing number of oil-related firms are now setting up head
offices in Oslo.
Among the firms that decided to establish in Oslo is Lundin Petro-
leum, a Swedish independent oil and gas exploration and production
company with core operations in Norway and Southeast Asia. “That
we remained in Oslo was something new,” says Torstein Sanness,
Lundin’s Managing Director. Lundin, with its main offices in Lysaker
in the Oslo area, is involved in one of the largest oil discoveries ever
made on the Norwegian shelf, Johan Sverdrup, together with Statoil
and Det Norske Oljeselskap.
“In Oslo we take advantage of a larger talent pool. We have seen
quite a few companies wanting to participate on the NCS setting up
their offices in Stavanger. As a result these companies are facing chal-
lenges, as people stay for only two years then leave. For that reason,
companies are starting to move from Stavanger to Oslo. Naturally, if
you change out your crew every two years there is no continuity; it is
expensive and makes it impossible to establish a company culture,”
Sanness explains. Among other companies that have recently moved
to the Oslo region is also the French oil company Technip, which
hired an additional 100 staff in 2012.
NOVEMBER 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.NET 67
in 1972 that was acquired by Norsk Hydro in 1999. After the merger
between Norsk Hydro’s oil and gas division and Statoil it became a
part of the latter. “As a result of the merger in 2007, former Statoil,
Saga and Hydro people are dominating many of these newly estab-
lished companies in Oslo,” Tørum adds. He acknowledges that it is a
relatively new trend for oil and gas companies to establish themselves
in the Oslo area rather than Stavanger. “The most obvious explana-
tion is the availability of human resources, which is rather challenging
in the booming Stavanger,” he says.
PUSHING OUT EXPORTS
The shipping and offshore drilling industries present unique chal-
lenges anywhere in the world: high capital requirements, frequently
volatile markets and mobile assets that require special financing
structures. Swedish bank Nordea expects capital expenditure for off-
shore drilling and support vessels to rise to USD 22.3 billion in 2013
from USD 14.4 billion in 2012 before falling back to USD 14.6 billion
in 2014. "There is not enough money in the banks to fund the capital
Even though Statoil is headquartered in Stavan-
ger, the company has now opened a new 67,000m2
non-headquarters office in the Oslo area for 2,600
employees, which has corporate functions and
heads the NOC’s international operations. The
noteworthy structure, costing the company around
USD 313 million and comprised of nine-floor build-
ing blocks stacked vertically and horizontally, has enabled Statoil
to consolidate its activities and strengthen its position in the Oslo
region.
Amund B Tørum, Partner at law firm Schjødt, explains that the
heritage of Statoil derives from three major Norwegian petroleum
companies: Statoil, Norsk Hydro and Saga Petroleum, which were all
originally based in the Oslo area. “After the merger between these
companies, a number of excellent people in Oslo became available.
This explains the little boom of small to medium-sized oil companies
establishing in Oslo.”
Saga Petroleum was a Norwegian upstream company established
Amund Bjøranger Tørum, Partner, Schjødt
Weíre listening
����������������������������������� ���������������������������������������������
Oil & Gas Survey & GeoEngineering Alternative Energy Software Training
Partnership based on a close working relationship.
Senergy continues to grow
its energy business, delivering
integrated project and asset
development services to the energy
industry worldwide.
From concept and design through to implementation, we add value and ultimately enhance performance and productivity.
With over 700 people bringing an unrivalled breadth and depth of expertise together to challenge convention, Senergy gives you the right assets, the right team, the right solution ñ and the right results.
T: + 44 1224 213440 E: [email protected]
www.senergyworld.com
FocSen_OGFJ_1311 1 10/28/13 11:45 AM
11
NOVEMBER 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.NET 67
in 1972 that was acquired by Norsk Hydro in 1999. After the merger
between Norsk Hydro’s oil and gas division and Statoil it became a
part of the latter. “As a result of the merger in 2007, former Statoil,
Saga and Hydro people are dominating many of these newly estab-
lished companies in Oslo,” Tørum adds. He acknowledges that it is a
relatively new trend for oil and gas companies to establish themselves
in the Oslo area rather than Stavanger. “The most obvious explana-
tion is the availability of human resources, which is rather challenging
in the booming Stavanger,” he says.
PUSHING OUT EXPORTS
The shipping and offshore drilling industries present unique chal-
lenges anywhere in the world: high capital requirements, frequently
volatile markets and mobile assets that require special financing
structures. Swedish bank Nordea expects capital expenditure for off-
shore drilling and support vessels to rise to USD 22.3 billion in 2013
from USD 14.4 billion in 2012 before falling back to USD 14.6 billion
in 2014. "There is not enough money in the banks to fund the capital
Even though Statoil is headquartered in Stavan-
ger, the company has now opened a new 67,000m2
non-headquarters office in the Oslo area for 2,600
employees, which has corporate functions and
heads the NOC’s international operations. The
noteworthy structure, costing the company around
USD 313 million and comprised of nine-floor build-
ing blocks stacked vertically and horizontally, has enabled Statoil
to consolidate its activities and strengthen its position in the Oslo
region.
Amund B Tørum, Partner at law firm Schjødt, explains that the
heritage of Statoil derives from three major Norwegian petroleum
companies: Statoil, Norsk Hydro and Saga Petroleum, which were all
originally based in the Oslo area. “After the merger between these
companies, a number of excellent people in Oslo became available.
This explains the little boom of small to medium-sized oil companies
establishing in Oslo.”
Saga Petroleum was a Norwegian upstream company established
Amund Bjøranger Tørum, Partner, Schjødt
Weíre listening
����������������������������������� ���������������������������������������������
Oil & Gas Survey & GeoEngineering Alternative Energy Software Training
Partnership based on a close working relationship.
Senergy continues to grow
its energy business, delivering
integrated project and asset
development services to the energy
industry worldwide.
From concept and design through to implementation, we add value and ultimately enhance performance and productivity.
With over 700 people bringing an unrivalled breadth and depth of expertise together to challenge convention, Senergy gives you the right assets, the right team, the right solution ñ and the right results.
T: + 44 1224 213440 E: [email protected]
www.senergyworld.com
FocSen_OGFJ_1311 1 10/28/13 11:45 AM
12 Norway Oil & Gas report part 4 November 2013
68 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
expenditure requirements in the offshore explora-
tion and production sector," says Magnus Piene,
global head of offshore at Norway's DNB bank.
"Since the banks cannot perform the role they
used to, we are looking for alternatives, and we
hope that pension funds will join us and help
finance the Norwegian oil and gas export industry," Wenche Nistad,
CEO at the Norwegian Guarantee Institute for Export Credits (GIEK)
said. GIEK, established in 1994 as a public sector enterprise, pro-
motes investment and the export of Norwegian goods and services
by helping companies to secure competitive loans and by taking on
some of the investment risk. GIEK makes it simpler for a company to
obtain sound funding and secure key export agreements. The agency
is currently targeting pension funds for investment in the offshore
oil and gas export sector, as the Eurozone debt crisis and tighter
financial regulation mean that banks are not able to provide enough
funding.
In January 2013, GIEK and the Brazilian NOC Petrobras signed a
cooperation agreement with the aim of financing Norwegian exports
of capital goods and services. After the EU and
the US, Brazil is the country where Norway has its
largest investment abroad: currently, a quarter of
the offshore vessels operating in Brazilian waters
have Norwegian owners. The first agreement with
Petrobras in 2010 provided guarantees from GIEK
totaling USD 1 billion. “Under the existing agree-
ment, several Norwegian companies within the oil and gas industry,
including their sub-suppliers, have entered into business contracts
with Petrobras,” says Wenche Nistad, CEO of GIEK.
Critical in the capitalization and financing of the Norwegian oil sec-
tor from the early phases to today has been the Oslo Stock Exchange
(Oslo Børs). Many of the companies listed in Oslo are considered
industry leaders, and a listing in the same market as Statoil, Seadrill
and Subsea 7 will always be attractive for new international energy
companies. Per Gunnar, Listing Manager, Oslo Børs explains the role
that Norway’s global investment banks play in bringing investment to
Norway: “Norwegian investment banks have also built up top notch
competences in the oil and gas sector in terms of research capacity
THE NORDIC INVESTMENT POWERHOUSE
ABG Sundal Collier (ABGSC) is the result of a 2001 merger between ABG Securities and Sun-dal Collier & Co. The company has become an important force in the Nordic investment banking sector. Knut Brundtland, Chief Executive Officer of ABGSC, discusses ABGSC’s positioning and achievements since he took the reins in 2010.
What is ABGSC’s added value in the Norwegian and international markets?
ABGSC is a Nordic-based investment bank focused on three main areas: research, sales and distribution, and corporate finance. The company has a large footprint in Norway, Sweden, and Denmark, providing a wide range of investment banking services. Moreover, we are present in financial centers of London, New York and Frankfurt.
We provide superior distribution of Nordic securities to local and international investors. The combination of global reach, top-ranked research and high quality corporate fi-nance advisory services has established us as a preferred sup-plier in the markets where we compete. Our slogan is ‘Nordic companies, global money.’
Additionally, we serve the international investment com-munity with top-ranked equity research, sales, and seamless execution. ABGSC has been voted ‘best Nordic broker’ in the annual Thomson Reuters Extel survey, in which both local and international investors compete. ABGSC has won three
out of the four ‘grand slam’ titles: best sales team, best sales trading team, and best Nordic research team. Looking back at ABGSC’s 2012 achievements, what are you most proud of?
We are proud of our leading position as a lead manager for IPOs and our unique position within convertible bonds. Last year ABGSC was sole lead manager for two IPOs in Oslo. These transactions in combination with last year’s USD 400 million Petrominerales convert-ible bond illustrates the strength of our distribution platform and our global reach.
To illustrate our strengths with an example: if a large oil company has the desire to sell one of its branches on the stock exchange, we will advise the client from our corporate finance team and execute through our sales and sales trad-ing arm, all backed by independent research. Subsequently we will follow the client for our investors through regular research updates, roadshows and other events.
You were appointed Chief Executive Officer in 2010. What made you the right person to take charge of the company?
It is my background, which is a combination of business and law. As a lawyer, I advised on M&As, transactions, and IPOs, thus having a great deal of experience with the products that ABGSC offers to its clients. This allows me to make quick judgments and not to involve many external parties or follow long procedures.
Knut Brundtland, CEO, ABG Sundal Collier
Wenche Nistad, CEO, GIEK
Per Gunnar Ølstad, Listing Manager, Oslo Børs
13
NOVEMBER 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.NET 69
NORDIC PLAYING FIELD
In June 2013, the Norwegian Government
awarded 24 production licenses in the coun-
try’s 22nd licensing round: 20 in the Barents
Sea and four in the Norwegian Sea. 29 com-
panies were offered participating interests,
while 14 companies were offered operator-
ships. Among the winners is Lukoil Overseas
North Shelf, a part of the Russian Lukoil
group. Lukoil participated in the 22nd licens-
ing round in alliances with Lundin Petroleum
and North Energy, and was awarded two
production licenses in the Barents Sea. The
company will bring its knowledge and exper-
tise gained over decades of exploration and
production in the Russian Federation and
abroad.
In the words of Leonid Surguchev, Man-
and have a well proven ability to raise capital in the market on behalf of energy companies,
which is very important for such a capital intensive industry. In addition, many of the Norwe-
gian investments banks have offices around the world in cities such as Rio de Janeiro, London,
New York, Houston and Singapore, and we are confident that Oslo Børs is high on the agenda
when international oil and gas companies are considering going public.”
GIEK: A REFLECTION OF THE NORWEGIAN EXPORT INDUSTRY
Oil/gassupply
industry
Energy
Guarantees by industry
65
6,24,5
1 0.2 0.2
Key �gures year-end 2012
Maritime Otherindustry
Tota
l gua
rant
ees:
NO
K 7
7,5
bill
ion
Environment ICT/Tele
������� ������� �������
FocLuk_OGFJ_1311 1 10/28/13 11:39 AM
14 Norway Oil & Gas report part 4 November 2013
70 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
aging Director of Lukoil Overseas North
Shelf: “In Timan Pechora and in the Caspian
region, the company has been producing
fractured carbonate and low permeable het-
erogeneous reservoirs with new well and IOR
technologies. This experience of our geosci-
entists and reservoir engineers will be useful
for exploring and developing Permian for-
mations in the Barents Sea.” The Norwegian affiliate will also use Lukoil Overseas deepwater
exploration drilling experience from its West African projects, according to Surguchev.
Surguchev goes on to say that the long-term objective in Norway is to become a full-cycle
upstream company with projects in different stages of the upstream process: exploration,
development and production. “Over the years,” Surguchev explains, “we aim to have Lukoil
activities on a level comparable to major international oil companies operating in Norway.”
Repsol, active in exploration on the NCS since 2005, decided to open a permanent office in
Oslo in 2009. The company has since acquired participation rights in 17 production licenses
in the North Sea, Norwegian Sea and Barents Sea areas of the NCS. In the 22nd licensing
round the company was awarded four licenses, two as operators. “We have been active on
the NCS in recent years and we are now getting closer to the level we intend to reach. Our
objective is in the range of 20 to 25 licenses and drilling two or three wells a year in order to
make at least one discovery annually,” says Jaime Suarez Alba, General Manager of Repsol
Exploration Norge.
The Spanish company spudded its first operated exploration well in March 2013. The well
targeted the Darwin prospect, which is located in the Western Barents Sea. Currently, Repsol
is participating in another well in the Barents Sea and will spud its second operated well in
the North Sea later this year.
Leonid M. Surguchev, Managing Director of LUKOIL Overseas North Shelf AS and the Mayor of Oslo, Fabian Stang
Combining 25 years of Arctic experience and close to 1,000
engineering consultants, Ramboll Oil & Gas creates long-term sustainable
solutions that build bridges between business, nature and society.
STRONG ARCTIC
PARTNERSHP
WWW.RAMBOLL.COM/OIL-GASIma
ge
: D
an
clim
b
FocRam_OGFJ_1311 1 10/28/13 11:30 AM
FocReps_OGFJ_1311 1 10/28/13 11:47 AM
15
FocReps_OGFJ_1311 1 10/28/13 11:47 AM
16 Norway Oil & Gas report part 4 November 2013
72 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
Statoil, one of the company’s largest customers,
awarded Ramboll Oil & Gas the Polarled pipeline
project in January 2013. “This challenging project
will involve pipeline installation at water depths
reaching 4,150 ft, setting a world record for deep-
water installation of a 36” pipeline,” says Baade-
Mathiesen. “Furthermore, the job encompasses
installation assessment for the large diameter,
deepwater pipeline and mechanical design including wall thickness
optimization and buckle arrestor design.”
John Sørensen, Ramboll’s global Managing Director of Ramboll,
describes the company’s key strengths: “we have trained ourselves
to be cost-efficient and very innovative engineering partners to the
industry.”
365 DAYS AT THE HELM OF LUNDIN
The Johan Sverdrup oil field was the largest oil discovery in the
world in 2011, with reserves estimated at between 1.7 and 3.3 billion
barrels of recoverable oil. Johan Sverdrup was initially believed to
consist of two fields, four miles apart: Avaldnes, discovered by Lundin
in 2010, and Aldous, discovered by Statoil in 2011. Further explora-
tion activities revealed that they actually constitute one giant field,
Alba explains that the two operated blocks
awarded in the last licensing round have been a
milestone for Repsol in Norway. “This has made
us a serious player in operational activities on the
NCS and it is definitely recognition of the Norwe-
gian authorities. Now it is up to us to fulfill expecta-
tions,” he says.
For engineering consultancies, the growth of the Norwegian
energy market represents immense opportunities. Ramboll Oil &
Gas, headquartered in Denmark, holds offices in Norway, Qatar, Abu
Dhabi, Russia and India, and ranks among the top five consultancies
in Norway. The company expects to grow its Norwegian operations
significantly in the coming years.
In 2010, Ramboll published a strategy for its global oil and gas divi-
sion, which set the bar high: in 2010, the division employed 500 staff.
That number is 1,000 today, with aims to reach 4,000 staff by 2020.
“In Norway we are betting big on the early phase and conceptual
studies and Front End Engineering Design (FEED). We have contracts
with major operators, including Statoil, ENI, ConocoPhillips, RWE
Dea and Petoro. In the longer term we will also focus on detail design
and smaller EPC projects,” explains Gro Baade-Mathiesen, Managing
Director of Ramboll Oil & Gas Norway.
SENERGY: EXPANDING ITS REACH
“What fascinates me in the service sector is that you have to earn the right to grow. You have to make money today in order to invest in tomorrow,” said Frode Linge, Regional Manager Scandinavia at Senergy. A global organization built around 750 people, the company has a network of locations around the world including the UK, Scandinavia, the Middle East, Australia, Southeast Asia and the Americas, and worked on 1,460 projects in 84 countries throughout 2012.
Founded in 2005, Senergy delivers services and solutions to all segments of the energy sector. These services span the full project lifecycle of any energy development, from initial evaluation of the opportunity, its associated risks, challenges and outputs, through to full delivery and operation.
The organization reinforced its growing Norwegian foot-print by opening new business premises in Oslo in 2011. Sen-ergy appointed highly regarded industry figure Frode Linge to strengthen the company’s position in Oslo. Linge has 25 years
of experience with Shell, which took him to work in the Neth-erlands, Brunei, the UK, Nigeria, United Arab Emirates, Oman and Russia. With his extensive background in the oil and gas industry, having worked in technical, planning, commercial, general management and business development, Linge has an impressive breadth of expertise. “Having worked on both sides of the equation, both E&P and consulting, I felt that I had something to offer,” Linge says.
Ranked the UK’s tenth fastest growing international busi-ness, Senergy is rapidly expanding its capabilities and service offering in Norway. In August 2013, the consultancy secured its first major business agreement with Statoil for its projects on the NCS. “Although Senergy has operated in Norway suc-cessfully for a number of years, the agreement with Statoil, an NOC and the major resource holder in Norway, represents a significant development for us as we seek to internationalize and grow the business,” Linge explains. The company aims to double its Norwegian operations over the next three to four years
.
Frode Linge, RM Scandinavia, Senergy
Gro Baade-Mathiesen, Managing Director, Ramboll Oil & Gas Norway
Jaime Suarez Alba, General Manager of Repsol Exploration Norge
17
NOVEMBER 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.NET 73
for capital expenditure for the Johan Sverdrup, Edvard Grieg and
Luno fields, and the other half for exploration and appraisal wells.
Full speed ahead!”
ADAPTING STRATEGIES
Energy is a major part of the makeup of the Oslo Børs exchange:
when Statoil, the largest company in Norway by market capitaliza-
tion, listed in 2001, energy became the dominant sector. However,
the Oslo Børs used to be known primarily for listing companies in the
maritime industry. Oslo is an important center of maritime knowledge
in Europe.
Oslo is home to approximately 980 companies and 8,500 employ-
ees within the maritime sector. Shipping companies represent the
largest segment of the Norwegian maritime industry, and shipping
is Norway’s largest export industry after oil and gas. Traditionally,
Norwegian shipyards have focused on four main areas: offshore ves-
sels, small specialist vessels, fishing vessels and passenger ferries.
However, this is changing thanks to global demand for Norwegian
vessels in the global oil and gas sector: in 2012, 95 percent of the ves-
sels ordered at Norwegian shipyards were offshore vessels tailored
for supply to oil and gas related companies. In the words of Eivind
Reiten: “the only way a society can benefit from oil and gas income
is to bring it into the economy. As a result, Norwegian society as a
which was renamed Johan Sverdrup in 2012.
Discussing the progress of the exploration activi-
ties, Torstein Sanness, Managing Director of Lundin
Norway says: “Since 2012, a total of 15 wells have
been drilled at the Johan Sverdrup field. During
the first quarter of 2013, two wells and one side-
track were completed and one additional appraisal
well has commenced drilling. We will probably need to drill another
two or three additional wells within the license area PL501, where
Lundin Norway is the operator with a 40 percent stake.”
Sanness explains that the Swedish company is looking to gather
as much quality data as possible before making a decision on field
development. “The reserve figure is so large that even a minor
change in the recovery factor could have a significant impact, as we
are looking at half a million barrels a day,” he says.
Fortunately, Lundin has both the financial muscle and the experi-
ence to handle such a demanding project. “In 2013, Statoil will drill
25 appraisal and exploration wells, while Lundin will drill 18. As a
result, Statoil and Lundin will be the two largest explorers on the
NCS,” says Sanness. “After Statoil and ConocoPhillips, Lundin has
the largest capital expenditure budget on the NCS. Almost all of the
company’s budgeted development expenditure for 2013 is focused
on development projects in Norway. Half of our budget is allocated
BUILDING A NEW SONGA.
Drilling costs in Norway are much higher than in other North Sea nations. Øystein Mi-chelson, EVP of Development & Production at Statoil, said recently that the NOC was pushing for a different ownership model of drilling rigs on the NCS and targeting more ‘fit-for-purpose’ rigs to reduce the high cost of drilling.
Bjørnar Iversen, Chief Executive Officer of Songa Offshore, one of the leading mobile drilling players on the NCS, explains that Statoil currently has eight rigs under construction, all of them through suppliers. Out of these eight are four jackup rigs and four semi-submers-ible rigs. The latter four are Songa’s and in line with Statoil’s strategy, Songa is bringing in assets with higher efficiency and more tailored to the conditions of the NCS.
After some turbulent years, Songa has started to imple-ment important steps to streamline the group and restore li-quidity, and has strengthened both board and management in
order to achieve this. Iversen was appointed Chief Executive Officer of Songa, effective June 1, 2013. His mission is to build a new Songa.
The company currently owns and operates five semi-sub-mersible mid-water rigs. Three rigs are operating in the North Sea on contracts with Statoil, the other two in Southeast Asia. Songa is currently building four identical drilling units that Statoil has developed together with the industry.
“This will materialize into operational excellence and sub-stantial synergies on equipment, personnel and logistics which will give us a competitive advantage compared to other com-panies that have a mixed bag of equipment,” Iversen explains. “Songa’s objective is to become a leading mid-water rig op-erator in harsh environments. With seven rigs operating in the North Sea on contracts with Statoil, we are in a position to achieve that goal.” Due to its unique relationship with Statoil, Iversen believes that Songa is well placed to become one of the flagship rig companies on the NCS.
.
Torstein Sanness, Managing Director, Lundin Petroleum
Bjørnar Iversen, CEO, Songa Offshore
18 Norway Oil & Gas report part 4 November 2013
Fig. 1: THE ENERGY SECTOR AT OSLO BØRS
Equipment and services:32 companies55%
Drilling:12 companies21%
Integrated oil & gas and E&P:15 companies25%
As per July 2013
Based on Global Industry Classi�cation Standards® GICS
74 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
capacity away from commercial shipbuilding
to offshore. Industrial group Kvaerner, which
builds heavy offshore equipment including
oil platforms, recently warned of fierce com-
petition, particularly from Asian firms. In the
last year, Kvaerner lost a significant number
of engineering, procurement and construc-
tion (EPC) contracts to South East Asian
competitors. All of these contracts have
been awarded for projects off the coast of
Norway.
The listing of the new Kvaerner on the Oslo
Børs in July 2011 marked a revitalization of
an almost 160 year old brand: once part of
the Aker group, the company was once again
spun off as a separate business with a spe-
cific focus on the delivery of platforms and
onshore plants.
whole has benefitted from the oil and gas industry.”
With few signs of recovery in the global shipbuilding sector, Chinese and South Korean
yards are also eager to win contracts in the offshore construction markets, including rigs, to
compensate for the dip in new ship orders. On the NCS, South Korean shipyards are coop-
erating with Western European engineering companies, and are turning their manufacturing
Lundin Norway - Ambitious Exploration
��������������������������� ��������������� �������
������������������������������ �������������������������� �������
2004������������������������������������������ ���������������������
2005��������������������������������������������������������
2007������������������������������������������������������������������������������������ �����
2010�������������������������� ������������������������������������ �����������������������������������������������������������������������������
���������������������� ������������������������������������������������������������������������������������������� �������������������������������������������������������������������������������������������������������������������������������������������� ����������������������������������������������� ���������������������������������������������������������������������������������� ���������������� ��������������������������������������������������������������������� ��������������������������������������������������������������������������������������������������������������������������������� ��
��������������������
+100%
increasein
production
B¯ylaBrynhild
+100%
increasein
production
JohanSverdrup
10-15
exploration wells per year
EdvardGrieg
35
,70
0
33
-38
,00
0
Other contingentresources not includedin production forecast
boeod
2012 2013 2014 2015 2015 2016 2017 2018 2019 2020
2012-2020 ��������������������������������������� ���������
���
�����
����
����
����
���
����
���
FocLun_OGFJ_1311 1 10/28/13 10:39 AM
19
Fig. 1: THE ENERGY SECTOR AT OSLO BØRS
Equipment and services:32 companies55%
Drilling:12 companies21%
Integrated oil & gas and E&P:15 companies25%
As per July 2013
Based on Global Industry Classi�cation Standards® GICS
74 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
capacity away from commercial shipbuilding
to offshore. Industrial group Kvaerner, which
builds heavy offshore equipment including
oil platforms, recently warned of fierce com-
petition, particularly from Asian firms. In the
last year, Kvaerner lost a significant number
of engineering, procurement and construc-
tion (EPC) contracts to South East Asian
competitors. All of these contracts have
been awarded for projects off the coast of
Norway.
The listing of the new Kvaerner on the Oslo
Børs in July 2011 marked a revitalization of
an almost 160 year old brand: once part of
the Aker group, the company was once again
spun off as a separate business with a spe-
cific focus on the delivery of platforms and
onshore plants.
whole has benefitted from the oil and gas industry.”
With few signs of recovery in the global shipbuilding sector, Chinese and South Korean
yards are also eager to win contracts in the offshore construction markets, including rigs, to
compensate for the dip in new ship orders. On the NCS, South Korean shipyards are coop-
erating with Western European engineering companies, and are turning their manufacturing
Lundin Norway - Ambitious Exploration
��������������������������� ��������������� �������
������������������������������ �������������������������� �������
2004������������������������������������������ ���������������������
2005��������������������������������������������������������
2007������������������������������������������������������������������������������������ �����
2010�������������������������� ������������������������������������ �����������������������������������������������������������������������������
���������������������� ������������������������������������������������������������������������������������������� �������������������������������������������������������������������������������������������������������������������������������������������� ����������������������������������������������� ���������������������������������������������������������������������������������� ���������������� ��������������������������������������������������������������������� ��������������������������������������������������������������������������������������������������������������������������������� ��
��������������������
+100%
increasein
production
B¯ylaBrynhild
+100%
increasein
production
JohanSverdrup
10-15
exploration wells per year
EdvardGrieg
35
,70
0
33
-38
,00
0
Other contingentresources not includedin production forecast
boeod
2012 2013 2014 2015 2015 2016 2017 2018 2019 2020
2012-2020 ��������������������������������������� ���������
���
�����
����
����
����
���
����
���
FocLun_OGFJ_1311 1 10/28/13 10:39 AM
NOVEMBER 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.NET 75
on the other.”
This also applies to Interoil Exploration & Produc-
tion, a Norwegian junior with a strategic focus on
onshore exploration and oil production in Colombia
and Peru. The company went through a period of
comprehensive restructuring in 2013; the company
was on the verge of bankruptcy when Erik Sandøy and Thomas Fjell took
over in January 2013 as CFO and CEO respectively. The company is
reducing operating expenses by minimizing corporate overheads, termi-
nating related-party consultancy agreements and optimizing the operat-
ing structure of the group.
Fjell, today the CEO of Interoil, explains that in order to salvage share-
holder value, Interoil needed to increase production and fund invest-
ments through equity. “In March this year [2013], we completed an
equity issue of USD 35 million,” he explains. “This enabled us to fund an
expansive drilling program in Colombia of approximately 65 wells. As of
today, we are in the process of executing the first phase of this drilling
program and have so far completed seven wells in the first phase.”
According to Jan Arve Haugan, CEO of Kvaerner,
the demerger and establishment of the new Kvaerner
in 2011 was a response to customers’ requests for
more flexible and specialized EPC contractors.
“More flexible, in the sense that Kvaerner would be
able to meet low cost requirements through strategic
partnerships, and local content requirements through
regional partnerships. More specialized, in the sense that increased
attention to cost and risk efficiency is a prerequisite for a global EPC
player and requires a dedicated management focus on project execu-
tion and risk management.”
When asked about where his company sees the biggest demand for
oil and gas services in Oslo, Christer Tryggestad, Director at McKin-
sey & Company, confirms the trend that companies like Kvaerner have
adapted to: “We increasingly help our clients crafting global strategies
and setting up global organizations: striking the right balance between
the centralization to benefit from economies of scale, skills, and tech-
nologies on the one hand side, and local autonomy and specialization
Jan Arve Haugan, President and CEO, Kvaerner
Thomas Fjell, CEO Interoil
Lundin Norway - Ambitious Exploration
��������������������������� ��������������� �������
������������������������������ �������������������������� �������
2004������������������������������������������ ���������������������
2005��������������������������������������������������������
2007������������������������������������������������������������������������������������ �����
2010�������������������������� ������������������������������������ �����������������������������������������������������������������������������
���������������������� ������������������������������������������������������������������������������������������� �������������������������������������������������������������������������������������������������������������������������������������������� ����������������������������������������������� ���������������������������������������������������������������������������������� ���������������� ��������������������������������������������������������������������� ��������������������������������������������������������������������������������������������������������������������������������� ��
��������������������
+100%
increasein
production
B¯ylaBrynhild
+100%
increasein
production
JohanSverdrup
10-15
exploration wells per year
EdvardGrieg
35
,70
0
33
-38
,00
0
Other contingentresources not includedin production forecast
boeod
2012 2013 2014 2015 2015 2016 2017 2018 2019 2020
2012-2020 ��������������������������������������� ���������
���
�����
����
����
����
���
����
���
FocLun_OGFJ_1311 1 10/28/13 10:39 AM
20 Norway Oil & Gas report part 4 November 2013
76 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
tive and high quality technologies that are growing in demand as oil
companies start drilling in deeper and deeper waters. Around the
world, the average rate of recovery of oil in place is approximately
35 percent. Statoil however, plans to increase the average oil recov-
ery rate from its fields on the NCS to 60 percent.
“The North Sea has a wonderful history of innovation, and of the
innovative use of technology. New and more advanced technology
for improved recovery is no exception. New technology to develop
methods to improve reservoir monitoring and thus improve recov-
ery has always been high on the agenda in Norway,” says Jarle Tau-
tra, Managing Director of Eureka Pumps.
Eureka Pumps, a market leader among companies servicing oper-
ators on the NCS, has recently strengthened its presence in Hous-
ton, Texas. Tautra explains that the company is in the process of
expanding its business both internationally and in Norway, in order
to build close customer relationships and win customer confidence.
Eureka Pumps has served customers for more than 100 years, and is
a leading manufacturer of various types of pumping systems for the
offshore oil and gas industry, including firewater pumps, seawater
lift pumps and cargo pumps.
The best solution to deal with Norway’s high-cost environment is
efficiency. Statoil leads by example: at the end of 2012, Statoil had
only 23,028 employees: a tiny figure for a company characterized
as being among the most profitable and geographically developed
in the world. This low employee count has enabled Statoil to have
the highest rate of production per employee in the industry, at an
average of 78.4 bpd/employee in 2012.
Providing solutions that offer this type of effi-
ciency is key for companies like PG Marine Group.
Roy Norum, CEO of PG, explains that the com-
pany’s aim is to manufacture smart solutions that
will provide high value and diversification to its
customers. “Frankly, PG has an impressive track
record in efficiency over the last ten years, and at the same time,
the majority of PG’s solutions are logic-engineered, object-specific
and customized,” he says.
PG, a technology-focused company specialized in liquid han-
dling solutions, established a pump engineering division in order to
increase its focus on solutions for customers. The company adjusts
In Peru, the company’s licenses were due to expire in March 2013.
However, Interoil was awarded an injunction to continue operating
these licenses due to force majeure caused by El Nino (1998-99
and 2002-03) until October 2014 in the case of Block III, and until
March 2016 in the case of Block IV. “We are currently in arbitration
proceedings with licensing agency PeruPetro”, says Fjell, “to deter-
mine whether Interoil has the right to extend the term of its origi-
nal licenses in Peru until October 2014 (Block IV) and March 2016
(Block III).” The work towards a long-term extension will recom-
mence if the arbitration case is won, unlocking 18 million barrels of
2P reserves.
NAVIGATING A HIGH-COST ENVIRONMENT
A report published in 2012 by Swiss bank UBS crowned Oslo as
the world's most expensive city. Meanwhile, according the study,
workers in Oslo enjoy the fourth highest wages on the planet. While
figures confirm that executive pay in Norway is modest, even low,
compared to other countries, the average oil worker makes USD
180,300 a year, the highest salary anywhere in the world, recruit-
ing firm Hays said in a 2012 report: USD 93,000 more than a UK
oil worker makes and above the USD 177,000 pay for the average
US CEO.
Asked about this high cost operating environment, Jarle Tautra,
Managing Director of Eureka Pumps responds: “In order to survive
in a high cost country like Norway, you need talented and moti-
vated people, state of the art technology, top-notch facilities and
efficient execution. In other words, the fundamentals must be in
place.” Looking at the company’s progress in recent years, he con-
tinues: “Over the course of the last year, Eureka Pumps has invested
significant amounts into our people, systems and facilities. Reve-
nues from international new-built pumps last year were around 30%
of our total business. This is expected to increase to 50% over the
next two to three years. However, as we continue to expand inter-
nationally we have to consider moving our assembly operations to
other locations to get closer to customers and cut cost,” he adds.
A decrease in production from North Sea oil fields over the last
decade has led the government to encourage technological innova-
tion as a new means of competing internationally in the oil sector.
Over the years, Norwegian firms have built a reputation for innova-
Roy Norum, CEO, PG Marine Group
21
PG Marine Group
PG is a specialized manufacturer / supplier of highly efficient, safe
and most intelligent solutions for liquids handling on rigs, ships and subsea
PG-MACS - the next generation below deck cargo handling solution - has proven its performance in the toughest environment
Drill Cuttings and Rig Slop transported
below deck, were triggers for PG-MACSÆ
development, but the full flexibility of all
bulk material dry- or wet- have proven its
performance in the North Sea, and now
even in Brasil and other regions.
Drill Cutting transportation below deck,
athmospheric, flexible tank clusters for
wet and dry bulk, and extremely high
capacities for Recovered Oil are hallmarks
of this novel, w.w. patented solution
PG-Hyde Ballast Water Treatment Systems have proven exceptionally well suited for OSVs, during numerous installations
Through its modular design, and flexible lay-out options
PG-Hyde GUARDIAN BWTS offer competitive solutions in
combination with PGs vast experience with maritime
installations.
Among the first IMO Type Approved systems, and
based on the most efficient technologies, the Hyde
modules have won market shares at high pace in
International as well as Domestic markets. More than
100 installations secured, and first fleet
agreements signed confirm competitiveness
and trust to products and partners
Skidded units, or modularized to fit the most
space-limited footprints at retrofitting ships
OSV's are supposed to deliver to the rig, the same mud as they receive on shore - this is often challenged
PG-Submix 60/80 is the solution, when high yield
drilling mud shall be kept in suspension over extended
time - typically for deep water fields, far ashore as many
of the current, major oil & gas fields are developed.
Slow running, high torque, vertical circulation (highest
velocity in the bottom of the tank) with typical vaues
Primary Pump Flow between 8.000 and 15.000 m3/h
Superior to any other agitation method, the Submix
hydraulically driven agitators secure the quality of
both product delivered to rig, and avoiding settling
of weight components in the drilling mud during the
long hault voyages and storage onboard
www.pg-marinegroup.com [email protected] +47 66 77 56 00
VARD 06 MACS PSV
PG-HYDE HG 150 Skid
PG-Submix 80 Viscoprop 35∞
FocPGM_OGFJ_1311 1 10/28/13 11:43 AM
22 Norway Oil & Gas report part 4 November 2013
78 ENERGY.FOCUSREPORTS.NET | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2013
depends mainly on the daily rate of the drilling
rig, which is around half a million USD per day.
For that reason efficiency and quality is critical for
operators. The service AGR provides is less than
5% of total project costs. This does not make a
significant difference for our client. What does
make a substantial difference is the access to our experienced
team.”
The day-to-day work in other sectors has changed as a result of
Norway’s oil expansion. Consultancy firms such as Boston Con-
sulting Group and McKinsey & Company have set up their global
centers of competence in Oslo. McKinsey & Company’s oil and
gas group in Oslo is one of three global clusters, together with
Houston and Amsterdam. Christer Tryggestad, Director at McKin-
sey, acknowledges that Norwegian companies are seen as techni-
cally highly competent. “My impression is that their competence is
sought after internationally. Many of our clients are in the midst of
significant global expansion.”
existing products and brings new innovations to the table, and has
presented many novel, smart solutions to the market over years.
“This makes our products significantly more challenging to copy
than commodity-oriented products,” he adds.
In August 2013, PG inaugurated a new 8,750m2 factory, and a
new unit known as PG Fabrication. This is a brand new, tailor-made
facility will present the PG Group with unprecedented possibilities
for future business, including subsea-pump tests pits with up to
1.4MW fixed power capacity.
Norum has taken PG to a new level in international markets,
bringing its annual export turnover from USD 13.5 million to more
than USD 108 million in 2013: more than 70 percent of the com-
pany’s current revenues. “Today, we see demand for our products
in Korea, China and Singapore, but also North and South America:
we have had a significant market share since 2000 in Brazil, a critical
market for the oil and gas industry,” he says.
Discussing the high-cost environment related to offshore opera-
tions, Åge Landro, Group CEO at AGR, stresses: “The cost of a well
Age Landro, CEO, AGR Group
�������� ���������� ���� ����� ����� � � ������� ����� ��� �� �������� ������������� ���
�������� ������ ��� �������� �������� ���� ���� ��������� ���� ���� ���� ���������� ����
��������� �������� ���������� ������� �������� ������� ��������� ����� ������� ������
���������� ������� ���� ������ ������� ����� ��������� �� ����� ������ ��� ��������� ����
��������� ���� ����������� ���� ��������� �������� ����������� ��� ����� ��� ������������ ����
����������� �������� ���� ���������� ������ ��� ���� ���� �������������� ��������� ����
������� ��������� ��� ������ �� ������ ������ ��� ����������� ���������� ���������� ����� ���
�������������� ��������������� ��������� ������������� ������� ���� �������������
������� ������ ��� � ������� ���������� ���� �� ���� ��� ������ �� ������ � � � � ��� ���� ���� �� ���� � ��� ���� ���� �� �� � � � � � � � ������������
FocEur_OGFJ_1311 1 10/28/13 11:41 AM
23
For exclusive ITVs and more insights, log on to energyboardroom.com
24
Per Gunnar Ølstad, Senior Adviser of Oslo Stock Exchange
Per Gunnar Ølstad, SENIOR ADVISER OF OSLO STOCK EXCHANGE
Focus Reports: Would you start by giving us an idea of the importance of oil and gas for the Oslo Stock Exchange? PER GUNNAR ØLSTAD: Both the Oslo Børs and the Oslo Axcess are heavily weighted towards the energy sector in Norway. Indeed the energy sector represents around 40-50 per-cent of the market capitalization and within the energy sector, we have identified three main segments: drilling, equipment and ser-vices and the traditional E&P sector. Today we have major representatives from all three sub-sectors.
Energy has been a major feature of the Oslo Stock Exchange for many years, although we used to be known primarily for the mari-time industry. Ever since Statoil, which is our largest company by market capitalization, listed in 2001, energy became the dominant group within the exchange. In recent years, there has also been a large growth of new-comer E&P companies entering this market. Norway also has a very large oil service sector, present on the exchange.
Our success is based on choosing to focus our attention on key sectors. Therefore although the energy sector is already a very large portion of the business today, we will still be looking to further expand in this area. We eventually hope to be a preferred exchange for the energy market.
FR: How good is access to capital for energy companies listed on the Oslo Exchange? PER GUNNAR ØLSTAD: Good companies will always attract capital, however in 2012 the equity markets were challenging in Norway and worldwide. Over this period, Oslo was a
better place than most to raise equity capital for the energy industry or through bond funding. This is also because Norway has some strong investment banks within the energy sectors, though a very large portion of investment actually comes from non-Nor-wegian investors. More than two thirds of trading is non-Norwegian investors, so this is a truly international exchange.
We have also introduced new fast-track listing processes, which are more efficient, allowing companies to list faster. We feel that this could be especially interesting for new-comers to the Norwegian market. The listing process now only takes four weeks on the fast-track scheme and our normal listing pro-cess is only six weeks, making it much faster than global averages.
Another strong attribute to the Norwe-gian exchange is the strong tradition of doing private placements. A typical transaction in the Norwegian is to announce an IPO at the close of the market in the afternoon and raise the funds throughout the evening and night and then announce the private placement the following morning. This is a very fast way to raise equity capital.
FR: To what extent is the energy sector sucking up most of the interest on the exchange relative to fishing or maritime industries? PER GUNNAR ØLSTAD: I do not believe that there is a general preference for one sector over another. The three sectors on which the Oslo Exchange focuses its attention are all per-forming well in attracting interest. Moreover the attention that one sector gains on the
Interview with: Per Gunnar Ølstad, Senior Adviser of Oslo Stock Exchange
25
Per Gunnar Ølstad, SENIOR ADVISER OF OSLO STOCK EXCHANGE
exchange positively affects the interest in other parts of the exchange. All companies listed in Oslo therefore benefit from the high-level visibility of the oil and gas industry on this exchange. I would also mention that of the four IPOs launched since the start of 2013, only one has been an energy company.
FR: Hans Christian Kjelsrud of Nordea highlighted the growth of the bond mar-ket in Norway. How significant is this trend towards bond financing? PER GUNNAR ØLSTAD: The bond market has indeed become a major aspect of Norwegian financing. Interest in bond financing is pri-marily generated as a result of the stringent financial requirements with respect to Basel III regulations. The global effect of these reg-ulations is to shrink the balance sheet of banks and this pushes players seeking to access capital into the bond market. We are seeing many new companies entering the bond market that have never taken this option before.
The oil and gas industry is extremely cap-ital intensive and the bond market provides a useful alternative to traditional bank debt financing. We see that companies are increas-ing supporting their operations on three legs: equity funding, bank funding and bond financing.
The Norwegian bond market has attracted many internationally recognizable compa-nies over the last year. We even see companies with shares listed on the London AIM market seeking to raise debt capital on the Norwe-gian bond market. Investors increasingly want the bonds that they are investing in to be listed as this guarantees transparency of trading.
FR: Why did Norway emerge as a cham-pion of the bond market? PER GUNNAR ØLSTAD: I think that there are three reasons. First, there are some very strong Norwegian investment banks in the three
focus sectors for the Oslo Stock Exchange and many of the companies that have utilized the bond market are in the three sectors that we have highlighted. Second, there are strong analysts that are dedicated to these three sec-tors and they provide valuable insights on the Norwegian market. Third we also have effi-cient documentation packages in relation to bond issuing in Norway. These attributes allow us to generate a heavy international interest in the Oslo Exchange’s bond market.
FR: How do you see the Oslo Stock Exchange’s role in raising capital over the coming years? PER GUNNAR ØLSTAD: We currently hold an important role and given the new finds on the Norwegian Continental Shelf, new invest-ments are flowing into Norway. This enhances the need for raising equity and debt capital and given the position that we already hold, we believe strongly that we will play an inte-gral role in the development of the energy industry in Norway.
The traditional oil service and equipment sector is our largest in the energy portfolio and this sector will benefit a lot our work. We want to be a preferred listing destination for international companies. We have no ambi-tions to rival the New York Stock exchange, but in our focus areas we expect to take a global leadership position. Increasingly we are seeing international companies choosing to establish themselves in Oslo and recent rat-ings now show that Oslo is the strongest financial market in the Nordic region. Oslo is gathering greater international attention and it is respected for the quality and good regu-lation of the equity market.
It should be noted that we also run the Oslo ABM market, which is actually more popular than the traditional markets with around 1,000 listings at the moment. It is well regulated like the main markets but there is no requirement for a prospectus or IFRS reporting.
26
Eivind Reiten, former CEO Norsk Hydro, current Chairman Norske Skog
Eivind Reiten, FORMER CEO NORSK HYDRO, CURRENT CHAIRMAN NORSKE SKOG
Focus Reports: Mr Reiten, you are well known throughout the industry as the former Chief Executive Officer of Norsk Hydro. The company had a significant presence in the oil and gas industry until October 2007 when the oil business merged with Statoil. Prime Minister Stol-tenberg said at the time: “the merger is the start of a new era”. To which extent does the reality today stroke with the vision you had at the time of the merger? EIVIND REITEN: The most obvious reason to merge was that both parties realized that we had been successful in developing the Norwe-gian Continental Shelf for the last 30 years. Hence, the focus of the next 30 years would be more towards expanding internationally and managing a more mature Norwegian Shell in a productive and efficient way.
Norsk Hydro and Statoil found their selves increasingly competing for international assets. Naturally it was not by accident that we ended up competing for similar assets as we came out with equal competences and leg-acy. As a result both companies fell in love with assets in places such as Brazil, Angola and the Gulf of Mexico where we could deliver most value.
On behalf of our shareholders and Norwe-gian society as a whole it became clear to take advantage of these unique competences and join forces instead of fighting each other inter-nationally. In that respect the merger has worked out very well—Statoil is internation-ally very successful with operations in more than 30 countries.
What we did not see at that time are the fortunate findings on the Norwegian Shelf over the last years. This has come to a positive surprise to all of us. Nevertheless, the new discoveries do not change the fact that the Norwegian Shelf is being emptied in a pretty high speed when it comes to oil. There is a steep decline in production.
FR: Earlier this year you gave a presenta-tion at RWE Dea where you said that: “Rapidly increasing costs associated with drilling could, despite recent new discov-eries, have significant and negative con-sequences for the industry as a whole”. Do you believe that the “Dutch disease” might become a treat to Norway?EIVIND REITEN: Costs that come with offshore operations have significantly increased com-pared to 2005 in West Africa, Golf of Mexico and even more so in Norway. My concern is that the industry has not sufficiently fought the cost side of their operations.
The Norwegian oil industry is sort of living in a bubble regarding its cost level, salary level and working conditions. However these costs are not affordable for other parts of the Nor-wegian society.
The oil industry is creating a tremendous challenge for itself because costs to drill a standard production well to increase or main-tain production are becoming almost too expensive. We run the risk of leaving too many resources undeveloped.
Cost pressures have already begun to have serious consequences for the entire industry,
Interview with: Eivind Reiten, former CEO Norsk Hydro, current Chairman Norske Skog
27
Eivind Reiten, FORMER CEO NORSK HYDRO, CURRENT CHAIRMAN NORSKE SKOG
which will undermine profitability. As a result of these booming costs we simply cannot afford to drill sufficiently to maintain produc-tion. That is today a serious problem because so many of the big oil fields of the North Sea are coming to a life end.
FR: Drilling costs in Norway have been dou-bled between 2000 and 2010 and are about 40 to 45 percent higher than in the U.K., how do you explain this?EIVIND REITEN: In fact, enhanced oil recovery was the main theme of an expert committee appointed by the Minister of Petroleum and Energy. In the report from the committee pre-sented in 2010, one of the key recommenda-tions was to establish an expert committee to review how to increase drilling and well activ-ities. This committee, which I chaired, was established by the Norwegian government at the end of 2011 with the mandate to identify possible obstacles that may reduce the capacity for drilling and well operations on the Norwe-gian continental shelf and to recommend mea-sures that may minimize or even eliminate these obstacles.
The government must consider regulations on working hours for offshore personnel. Under current rules, oil service workers in Nor-way can legally work 1,582 hours a year before overtime, compared with 2,160 in the U.K. The pay each receives per hour, the salary level as such is not that much higher than in the U.K. but if we include the 2/4 (2 weeks on, 4 weeks off) arrangement and overtime the salary cost level is about 60% to 70% above the U.K. sal-ary level.
Frankly, we did not deliver any great news from our analysis as we basically confirmed what we already knew. Nevertheless, the report was received very well by those who are concerned by the cost level. I wrote an article in the Norwegian financial newspaper elabo-rating on the outcome of the report. The CEO of Statoil was happy about the analysis as the outcome goes hand in hand with his view.
However politically it is not easy because we need to start discuss issues that have been negotiated between employer and trade orga-nizations. This is not only to blame the workers association but also the industry that has grad-ually given in on those things—it is a shared responsibility.
My main concern on behalf of the next gen-eration is that we leave too much oil and gas undeveloped. It is not about the sexy new finds. Prospects will eventually be drilled, either tomorrow or in ten years but if the oil is there it is there. However if we do not take out the last millions barrels in mature fields, it will never be taken out and we will lose them for-ever. This is really a loss of value!
FR: Naturally Norway is fortunate with its resources. However on the other side we see ordinary businesses suffering from ris-ing costs in the oil and gas industry and increasing wages in the public sector. Where is the end?EIVIND REITEN: It is not something that is start-ing to hurt—it has been affecting our economy since the mid-eighties. At that time I was in the government where we discussed the suc-cessful development of the oil and gas industry without squeezing out the traditional indus-tries.
The government has always been conscious about the situation but has been unsuccessful in preventing other industries to be squeezed out. Looking at the statistics you will see that the numbers of workers and activity in tradi-tional industries – except for fish farming – has declined since the eighties.
That being said, the only way a society can benefit from oil and gas income is to bring it into the economy. As a result the society as a whole has benefitted from the oil and gas industry. For that reason, we should not be sorry about a certain level of squeeze out—it is a result of macroeconomics.
28
Jan Arve Haugan, CEO - Kvaerner
Jan Arve Haugan, CEO - KVAERNER
Focus Reports: Kvaerner’s history goes back to 1853. In 2011 Kvaerner re-emerged and got listed on the Oslo stock exchange. Could you start by giving an introduction of Kvaerner today and explain the ratio-nale behind the demerger?JAN ARVE HAUGAN: The demerger from Aker Solutions and the establishment of the new Kvaerner in 2011 was a response to custom-ers’ requests for more flexible and specialised EPC contractors. More flexible, in the sense that Kvaerner would be able to meet low cost requirements through strategic partnerships and local content requirements through regional partnerships. More specialised, in the sense that increased attention to cost and risk efficiency is a prerequisite for a global EPC player and requires a dedicated manage-ment focus on project execution and risk management.
The listing of the new Kvaerner on Oslo Børs in July 2011 is a revitalisation of an almost 160 years old brand and is a result of a process where the previous Aker Solutions’ activities for delivery of platforms and onshore plants were established as a separate corporation - the new Kvaerner. Kvaerner leverages the previous organisations’ com-bined offshore experience and expertise built up over more than 40 years.
Today, Kvaerner is a specialised engineer-ing, procurement and construction (EPC) company focusing on executing demanding projects for oil and gas operators, industrial companies and other engineering and fabri-cation providers. It is an international com-pany headquartered in Oslo, with offices and operations in nine countries which deliver
turnkey solutions to its customers, who include some of the world’s major oil and gas companies.
Kvaerner possesses the full value chain of EPC service offerings, providing project man-agement, engineering, procurement and con-struction expertise. In addition to its own resources and two fully-owned fabrication yards in Norway, the company ensures flex-ibility and capacity through a wide range of partnerships and subcontractors within engi-neering and fabrication.
Our project execution model (PEM) is developed based on best practice from many of the industry’s most challenging projects. This ensures safe and efficient project execu-tion and risk management. That being said, PEM is our product—based on that we can deliver power plants in the United States and a concrete substructure in Newfoundland.
Jackets is typically a regional business as you do not transport them over large dis-tances. We have developed and continuously refined our Jacket PEM for execution of EPC contracts fully integrated with our in-house design office and in continuous and close cooperation with the supply chain including steel manufacturing, rolling of tubulars and provision of cast nodes.
The issue related to onshore and offshore production facilities is the inherent complex-ity. Looking at a drilling rig for example, they are built according a known standard and are moveable. However, the offshore topsides are built for a specific reservoir. If a drilling rig is late, someone else can drill the first well. If the topside is late there will be delay in the production. Time is extremely important for
Interview with: Jan Arve Haugan, CEO - Kvaerner
29
Jan Arve Haugan, CEO - KVAERNER
those who are investing in offshore field devel-opments which are big investments executed under strict weather conditions. All compo-nents have to be delivered and installed on time, and therefore we say that on-time-deliv-ery is so essential.
Based on the competence that we have built over the last 40 years in the North Sea, our aim is to conduct complex jobs in harsh environ-ments within a certain time window. In order to deliver in time you need to manage concur-rent project activities. The critical path in such an execution is what we monitor: we handle the risk, control the delays and know to accel-erate. Over these 40 years, project manage-ment has become one of our core competences.
FR: What have been Kvaerner’s main growth drivers?JAN ARVE HAUGAN: The demand for EPC products and services is driven by the global demand and consumption of oil and gas for transporta-tion, industrial activities and energy produc-tion. It is estimated that global energy demand will rise by one-third by 2035, with the major-ity of this increase coming from the Middle East, India and China ). This demand is a key driver for increased capital spending in the development of oil and gas fields.
Several new fields have been discovered, particularly in Kvaerner’s home markets on the Norwegian and UK continental shelves. The accumulated growth in EPC spending between 2012 and 2020 is expected to be approximately USD 75 billion1). This represents an increase of almost 20 percent compared to the market forecast made when Kvaerner was stock listed in July 2011.
Our growth drivers are also related to the oil and gas price. History shows that when the financial crisis hit such as in 2008, companies put their brakes on. For that reason, I believe that the market drivers will be the oil and gas price—trending from crude to LNG and prob-ably heading to floating LNG. Thus having the right technical solutions to meet market trends
is what we consider to be our drivers of growth.Naturally maintaining our market share is
also a growth driver. If we would do a quick cross reference I would say that looking at everything that has been built in the North Sea, close to 75% has been built by Kvaerner. We see a huge upside in the industry as a result of the discoveries over the last couple of years. Companies such as ENI and Statoil are moving further North. How is Kvaerner adapting to this trend?We do already have a track record of designing and delivering solutions into the Arctic harsh environment.
The concrete substructures we provide are an important product in this respect. Harsh environment challenges as we have in the Arc-tic region require technical solutions that with-stand weather challenges. In the Caspian Sea region, where we have had substantial business through the Kashagan hook-up project, we are coping with Arctic weather during the winter and a tropical climate during summer. In this region we built a technical design that can withstand 40 plus and 30 minus degrees Cel-sius.
Technically, we do have experience in meet-ing requirements of harsh environments due to our 40 years of experience in the North Sea.
FR: As a final question, could you give our readers two reasons why they should by shares of Kvaerner?JAN ARVE HAUGAN: The market is prosperous and the regions we are focusing on are very robust.
Moreover I believe that the value of the company is driven by our ability to deliver. We are aiming to deliver on our commitments and that is what we are communicating to the mar-ket. We are not promising glory days but pre-dictability.
The more predictability we demonstrate, the more it will reflect on the price of the com-pany in the long term.
30
Jon Edvard Sundnes, CEO – Tschudi Shipping
Jon Edvard Sundnes, CEO - TSCHUDI SHIPPING
Focus Reports: Mr Sundness, could you start by giving an introduction to Tschudi Shipping?JON EDVARD SUNDNES: Tschudi Shipping Com-pany AS’s history dates back to 1883 when the shipping company Tschudi & Eitzen AS was established. The founders of Tschudi & Eitzen AS were both Captains on board the world’s first sailing tankers. Tschudi Ship-ping Company AS was established on its own in 2003 when Tschudi & Eitzen AS was demerged and the company is now owned by the fourth generation of the Tschudi family.
What put Tschudi stronger on the map in Norway as well as Russia was the pur-chase of Norwegian mining company Syd-varanger AS located in Kirkenes in 2006. We saw this opportunity and grabbed it within a short timeframe. We believed this basis located in the far north of Norway to be a vital potential for future activities in the Barents Sea
Naturally Tschudi is not a mining com-pany but we acquired Sydvanger in order to obtain good access to the port. At the time we had no concrete plans for reopening the mine but we evaluated the possibility and in 2009 it was reopened. For this we needed external investors and the mine was listed in Australia. More than NOK 2 billion has been invested. The quays and industrial areas that also can be used for new business are still owned by Tschudi through the company Tschudi Kirkenes AS.
In 2010 Russia and Norway ended a dis-pute over their maritime borders and
signed a treaty that will allow for new oil and gas exploration in the Arctic region. This development is a confirmation that we are on the right track.
It is fair to say that Tschudi Group has been focussing on logistics in the Northern seas between Norway and Russia—east west movement of cargo’s. The Tschudi Group subsidiary, Tschudi Arctic Transit AS, develops and implements transport and transhipment solutions for oil products to and from Russia using Kirkenes and Honningsvåg as deep water and ice-free transit ports. Due to the shallow waters and ice conditions in many Russian ports, it is more economical to tranship oil car-goes to conventional vessels in ice free, deep waters for further transportation.
The Tschudi Group currently owns a fleet of multipurpose container vessels, tugs and offshore vessels in addition to operating container lines between north-ern European ports in the Baltic and North Sea. In fact we operate the biggest door to door container carrier into the Oslo area.
Globally we are operating through Tschudi Offshore & Towage—this has been in fact always been one of our core activi-ties. Tschudi Offshore & Towage was previ-ously called ITC. ITC was started in 1973 and since 2003, has been a wholly owned subsidiary in the Tschudi Group.
FR: Arctic Bulk AG, a venture between Prominvest SA and Tschudi Arctic Tran-sit AS, promotes and facilitates North-ern Sea Route shipments. How impor-tant has this direction been for the
Interview with: Jon Edvard Sundnes, CEO - Tschudi Shipping
31
Jon Edvard Sundnes, CEO - TSCHUDI SHIPPING
growth of the company over the last years and will be for the years to come?JON EDVARD SUNDNES: Frankly, the Northern Sea Route has not been that important with regards to volumes yet. The opening has so far not represented any large cargo trans-ports, but it is getting increasing interest.
We seized the initiative in 2008 when, in collaboration with the Norwegian Ship Owners Association and supported by the Norwegian Ministry of Foreign Affairs, we established the international and indepen-dent non-profit Centre for High North Logistics as the preferred knowledge net-work for creating efficient and sustainable logistical solutions in the High North through research projects between busi-ness, academic institutions, organisations and public authorities.
What was unique was that in 2010 due to a strong partnership between Tschudi Shipping, Nordic Bulk Carriers, Promin-vest, Sydvaranger Gruve and Rosatomflot we initiated the first truly international transit shipment through the Northern Sea Route – a non-Russian cargo carried on a non-Russian flag ship between two non-Russian ports. This proved that the NSR was a commercially viable alternative avail-able to the whole shipping community. The Northern Sea Route from Europe to Asia shortens the distance of traditional ship-ping links through the Suez Canal signifi-cantly depending on destination.
FR: What does the oil and gas industry represents within your portfolio?JON EDVARD SUNDNES: Tschudi Offshore & Towage based in the Netherlands has a strong presence in the offshore support ves-sel industry. Moreover we have logistics activities related to oil and gas, much of this is done through Tschudi Project Trans-ports AS.
More important is that we are well posi-
tioned for the oil and gas development in the Northern region. With energy and min-eral resource development now accelerat-ing, this is an area where transportation and logistical solutions will be of increasing importance. We see for example an increas-ing demand for oil export solutions within Russia and through our subsidiary Tschudi Arctic Transit we are in the advantageous position to offer Russian clients a wider range of competitive services for ship to ship transfers.
FR: What for you is the main project you would like to launch over the next few years?JON EDVARD SUNDNES: Personally, I would like to see Kirkenes offering a fully integrated logistic base area. At the moment we have an area covering 1 million square meters and could potentially grow to the biggest port in Norway. It is situated close to the Russian/Norwegian border and offers good deep water quays, sheltered location, effi-cient customs handling and predictability and will also offer good indoor and outdoor storage possibilities when completed. The development of this area is something we can either do on our own or together with users or partners,
Further ahead it is also interesting to see that the Finnish authorities now look towards the North for the country’s rapidly developing, and increasingly landlocked, mining industry. There is currently a dis-cussion in Finland about the possibility to construct a railway line to the Arctic coast. If built, the new railway line would connect the Barents Sea and Kirkenes with the Northern part of Finland. This could become an important gateway for Finnish export and for import of energy. There will most likely be much “stranded gas” in the high North in the future. Finland is a potential user.
32
Knut Brundtland, CEO – ABG Sundal Collier
Knut Brundtland, CEO – ABG SUNDAL COLLIER
Focus Reports: ABG Sundal Collier (ABGSC) is the result of the merger between ABG Securities and Sundal Collier & Co in 2001. The company has become an important force in the Nor-dic investment banking sector. Can you start by giving a brief introduction to the company and why the company is interesting for the market?KNUT BRUNDTLAND: We are a true Nordic based investment bank focusing on three main areas: research, sales and distribu-tion and corporate finance. ABGSC has a strong footprint in Norway, Sweden, and Denmark, providing a wide range of investment banking services.
We provide superior distribution of Nordic securities to local and interna-tional investors. The combination of global reach, top ranked research and high qual-ity corporate finance advisory services has established us as a preferred supplier in the markets where we compete. Our slo-gan is: Nordic companies, global money.
Additionally, we serve the international investment community with top ranked equity research, sales and seamless execu-tion. As an example, ABGSC has been voted “Best Nordic broker” in the annual Thomson Reuters Extel survey, in which both local and international investors par-ticipate. ABGSC has won three out of the four ‘grand slam’ titles; Best Sales team, Best Sales Trading team and Best Nordic research team.
FR: What have been the key drivers for ABGSC’s growth?
KNUT BRUNDTLAND: ABGSC has upheld and even strengthened the quality of its ser-vices in a tough business environment. Quality is a value that is deeply rooted in our company`s culture and we have man-aged to ensure quality of our services all the way through the value chain in all sec-tors.
Being an independent Investment Bank makes us depend and rely on the quality and network of our staff. Relative to the larger integrated banks, we cannot depend on the balance sheet doing any work on our behalf, and we must at any time put in all efforts and hard work required to ensure successful transactions. We focus on market transactions and advisory backed by strong research. ABGSC is well known for its extensive and consistent track record of market capital transactions such as IPO’s.
To illustrate our strengths with an example: if a large oil company has the desire to sell one of its branches on the stock exchange we will advise the client from our corporate finance team and exe-cute through our sales and sales trading – all backed by independent research. Sub-sequently we will follow the client for our investors through regular research updates, road shows and other events.
We provide the full range of services: the presentation to the market, the execu-tional transaction and the follow up of the transaction. It is here where ABGSC’s strengths are obvious.
FR: You were appointed Chief Executive
Interview with: Knut Brundtland, CEO – ABG Sundal Collier
33
Knut Brundtland, CEO – ABG SUNDAL COLLIER
Officer in 2010. What made you the right person to take over the reins of the company? KNUT BRUNDTLAND: I believe it is my back-ground, which is a combination of a busi-ness man and a lawyer. As a lawyer I advised on M&A’s transactions and IPO’s thus hav-ing a great deal of experience with the prod-ucts that ABGSC offers to its clients. This allows me to make quick judgments and not to involve many external parties or follow long procedures.
I have managed and overseen many kind of business which is helpful when accessing opportunities on the market.
Moreover, it has been tough times for the industry looking at low trading volumes and pressure from the regulators on best prac-tice. We are cautious regarding costs and have taken down costs significantly. It is my task to protect the business and to protect the brand in the shareholders, partners and employees best interests.
FR: Looking at your client portfolio, how is the balance between international and domestic companies?KNUT BRUNDTLAND: On the investor side 80% of our clients are non-Norwegian in terms of volumes as well as revenues. That is because we serve the international markets with a presence in: Oslo, Stockholm, Gothen-burg, Copenhagen, Frankfurt, London and New York.
On the corporate side it is the other way around with a majority of Norwegian cli-ents.
UK listed IGas Energy plc recently announced the arrangement of a five year, USD 165 million senior secured bond issue listed on the Oslo stock exchange. ABGSC acted as sole arranger and bookrunner for the bond issue.
Furthermore, ABGSC has over years become a significant player in the convert-
ible bonds market, acting as a book runner for several major convertible bond offerings in the Nordic market but also in Canada.
FR: ABGSC has an impressive brand name and leading market position regarding placing Nordic companies on the inter-national stage. Could you illustrate this with an example that you are most proud of?KNUT BRUNDTLAND: We are proud of our lead-ing position as a lead manager for IPO’s and our unique position within convertible bonds. Last year only ABGSC has been sole lead manager for two IPO’s in Oslo: one com-pany active in the chemical industry and the other a real estate developer. These transac-tions in combination with last year’s USD 400m Petrominerales convertible bond all illustrates the strength of our distribution platform and the importance of a global reach. Furthermore, it illustrates that we can compete across instrument classes, sectors and borders.
We are recognized as a leading distribu-tor of Nordic securities to Nordic and inter-national investors. Our global relationships, coupled with our unique understanding of the Nordic region’s economy, industries and culture, help us to consistently deliver unique local insight, investor views and mar-ket intelligence. We have a strong presence in the major financial centres such as Lon-don, New York and Frankfurt. This broad international presence differentiates us from most domestic competitors.
ABGSC has been voted “Best Nordic broker” in the annual Thomson Reuters Extel survey, in which both local and international investors participate.
34
Paul Bellamy: Managing Director, Amund B. Tørum: Partner
Paul Bellamy and Amund B. Tørum, SCHJØDT
Focus Reports: Can you start by giving a brief introduction to the firm and explain why Schjødt is interesting for the market?PAUL BELLAMY: Schjødt has an extremely long and successful history. The firm was established in 1936 and developed to be one of the leading law firms in the country, at first renowned for their leading position in litigation. This was quite unique as the other major firms primarily focused on cor-porate matters.
Over the years we have aggressively built up our corporate practice, which has become the largest in the country. We have advised on more M&A transactions than any other Norwegian firm in recent years and we have an unparalleled track record in litigation and arbitration.
FR: Mr. Tørum, you are a co-author of the standard textbook on Norwegian petroleum law. In your view, how has the Norwegian legal system changed over the course of Norway’s petroleum history?AMUND B. TØRUM: The Norwegian oil and gas era started in the 1960s. After years of exploration the first large discovery was made in the 1969 (Ekofisk, that time being the largest oil field offshore in the world). In contrast to many other oil countries, Norway implemented a strong concession system—the state took control of the resources from the very beginning. As Nor-way did not have any experience from off-shore development projects, the Norwegian Government the first years had to rely heavily upon the experience and financial strength of international oil majors. From
the middle of the eighties the Norwegian governmental oil company, Statoil, was capable of being operator of major offshore development projects. The Norwegian oil era has also contributed to the develop-ment of a number of world leading oil ser-vice companies.
The Norwegian petroleum model has been very successful and contributed to the fact that Norway has been able to extract, export and benefit so much from our oil and gas reserves. Norway has been able to capture a lot of income, even from certain minor/marginal fields. Norway’s oil indus-try has been a huge success in generating per capita wealth.
An interesting dimension is that Nor-way’s concession system has been a model for other countries. As an example several countries in Africa have implemented ele-ments of our system to ensure that their petroleum resources benefit the society as a whole. The Norwegian Agency for Devel-opment Cooperation (Norad), a specialised directorate under the Ministry of Foreign Affairs, has launched a program to support developing countries in managing petro-leum resources in a sustainable way.
I would add that Norwegian petroleum law has from the very beginning been a very stable and predictable system. Despite relatively heavy taxes it has been very attractive to invest in the oil and gas indus-try since the beginning. The last years the fiscal system has been changed to facilitate exploration activities.
FR: How would you describe Schjødt’s presence and positioning in the Oil and Gas sector in Norway today?
Interview with: Paul Bellamy and Amund B. Tørum, Schjødt
35
Paul Bellamy and Amund B. Tørum, SCHJØDT
AMUND B. TØRUM: We have unquestionably a leading position within dispute resolution and transactions in the oil & gas industry. Among the Norwegian “magic circle” of firms in Norway, we are the only firm with an office in Stavanger. Our Stavanger office provides advice daily on regulatory issues and transactions. Dispute resolutions and other financial issues are mainly handled from our Oslo office. Schjødt has managed to recruit excellent and talented lawyers for its Oslo as well as its Stavanger office.
In contrast to our main competitors we have been a leading provider of legal advice within the oil and gas sector from the very start of the Norwegian oil adventure in the 1970’s.
FR: Would you agree that newcomers in the oil and gas industry rather establish in the Oslo area?AMUND B. TØRUM: We do see a trend here. The most obvious explanation is availability of human resources, which is rather challeng-ing in the booming Stavanger.
The heritage of Statoil derives from the three major Norwegian petroleum compa-nies Statoil, Norsk Hydro and Saga Petro-leum that were all based in the Oslo area. After the merger between these companies, a number of excellent people in Oslo became available. This explains the little boom of small to medium sized oil compa-nies establishing in Oslo. As a result of the merger, former Statoil, Saga and Hydro people are dominating many of these newly established companies.
FR: How has the transaction market been shaping up in Norway the first half of 2013?PAUL BELLAMY: In general it has been a little slower. We have seen few listings and that, of course, influences the market. There is certainly not a downturn, because Norway
is still doing quite well compared to sur-rounding countries. The private equity mar-ket remains strong.AMUND B. TØRUM: However, for the oil and gas sector, it is very good. One of the rea-sons is Statoil, whose divestments have triggered quite some movement. The pur-chase of producing assets in Norway is con-sidered to be extremely attractive. For that reason many newcomers, such as Centrica and Wintershall, have come to Norway and purchased producing assets.
In order to ensure predictability and simplify the process for being qualified to be a player on the Norwegian Continental Shelf, a system for prequalification of oil companies was introduced in 2000. This system has attracted many new players to the NCS over the past thirteen years, sub-sequently triggering M&A activity on the NCS.
FR: Schjødt has been one the leading firms in Norway. It won the award for best law firm in the Nordic Region in 2012. What is your strategy to main-tain this position in the coming five years?PAUL BELLAMY: As far as going forward is concerned, recruitment and specialization is essential. Over the past three years we have grown 67%. This growth will con-tinue; however, beyond a certain stage, such strong growth is not necessarily advis-able if we want to ensure continued focus on specialist skills and quality client ser-vices.
What differentiates us as well is our 24/7 attitude. Availability and response time is absolutely key. AMUND B. TØRUM: We must simply continue to recruit the most talented lawyers and further develop our performance culture.
36
Torstein Sanness, Managing Director – Lundin Norway
Torstein Sanness, MANAGING DIRECTOR – LUNDIN NORWAY
Focus Reports: When we met you last year you stated that 2012 would be the final proof that Johan Sverdrup is as large as you hoped. This would become apparent over the next five wells drilled over the next six months. One year later where do we stand?TORSTEIN SANNESS: We are still within the ban that we set two years ago. A total of 15 wells have now been drilled on the Johan Sverdrup field. During the first quarter of 2013 two wells and one side track were completed and one additional appraisal well has commenced drilling. We will probably need to drill another two or three additional wells within the license area PL501 were Lundin Norway is the operator with a 40 percent interest.
All parties in license areas PL501 and PL265 (Statoil is operator) have agreed a timetable for the Johan Sverdrup field with development concept selection to be made by the fourth quarter of 2013, a plan of development is scheduled to be submitted by the fourth quarter of 2014. The current forecast remains for Johan Sverdrup first oil by the end of 2018 with full production in 2019 or 2020.
Currently we are looking to set the data as good as possible before making a decision on field development. That being said, the reserve figure will to such an extent that a minor change in the recov-ery factor could have a significant impact as we are looking at half a million barrels a day.
FR: 2013 has begun with positive news:
Lundin has been awarded seven explo-ration license interests in the 2012 Norwegian Licensing Round. Can you elaborate on the key targets and expected results?TORSTEIN SANNESS: It is fair to say that we are happy with the result of the 2012 licensing round. In fact since we started our operations in 2004, Lundin Norway has been content with all licenses we have participated in.
In 2013, Statoil will drill 25 appraisal and explorations wells and we will drill 18. That being said, Statoil and Lundin are definitely the two largest explorers on the NCS. Moreover we have the third larg-est – after Statoil and ConocoPhillips – capital expenditure budget on the NCS. Substantially all of the 2013 budgeted development expenditure relates to ongo-ing development projects in Norway. Half of our budget is allocated for capital expenditure for the Johan Sverdrup, Edvard Grieg and Luno fields and the other half for exploration and appraisal wells. Full speed ahead!
FR: To prepare itself for activity in the Barents Sea Lundin has taken its own rig up North and opened an office in Harstad. In June Lundin has won one license during the 22nd licensing round in the South Eastern Barents Sea. Is the outcome in line with your expectations?TORSTEIN SANNESS: Frankly we are not happy with getting merely one block. If we are going to sustain the amount of
Interview with: Torstein Sanness, Managing Director – Lundin Norway
37
Torstein Sanness, MANAGING DIRECTOR – LUNDIN NORWAY
drilling we require more than one license when applying for a licensing round.
Therefore we definitely take up the opportunity to discuss the outcome with the Norwegian Petroleum Directorate and the Ministry of Petroleum & Energy. In line with our discussions we conduct with aforementioned parties we will prepare ourselves for the upcoming licensing round.
FR: As discussed Lundin has won 7 licenses in mature areas while being one licence awarded in the Barents Sea where the potential for petroleum is less explored and where fewer infra-structures are built. What does this mean in terms of investment and tech-nology?TORSTEIN SANNESS: We have put together a good acreage block before the discovery of oil in the Barents Sea at Skrugard and Havis, now renamed Johan Castberg. Lundin has a significant part of the neigh-bouring acreage towards the East of those discoveries. That area will be drilled over the next coming years. Our aim is to drill two wells annually as an operator in the Barents Sea. In 2013 we will drill two exploration wells on the Gohta and Lan-glitinden prospects.
In fact the drilling of one exploration well has commenced in July. The well will target the Gohta prospect, which is located some 150 km northwest of the Norwegian coast and 65 km south of the Johan Castberg discovery. The well will be drilled using the drilling rig Trans-ocean Arctic.
FR: Lundin has its operations on the NCS, however its HQ is based in Oslo. In your opinion, what role does Oslo play in the Norwegian Oil and Gas industry?
TORSTEIN SANNESS: Lundin has made the decision to stay in Oslo and not to divide the company. There is ample competence in Oslo. People have been on the train back and forth and finally there was a company that moved to Oslo. In fact, Statoil has quite a few people in Oslo too. But again, that we remained in Oslo was something new.
We have been lucky being able to attract the right people. Actually in Oslo we take advantage of a wider screen of people. We have seen quite a few compa-nies wanting to participate on the NCS subsequently setting up their tents in Stavanger. As a result these companies are facing challenges as people are staying two years and leave. For that reason play-ers are moving from Stavanger to Oslo. Naturally if you change out your crew every two years there is no continuity, it is expensive and unable to establish a company culture.
FR: Do you still consider Lundin Nor-way to be a junior?TORSTEIN SANNESS: Naturally we are a young company as we started in 2004. However the average age of our employees is 51 years. Our crew has the experience and that is way we have been able to grow significantly over a relatively short period of time. It is the experience of our people that counts.
In 2013, Statoil will drill 25 appraisal and explorations wells and we will drill 18. That being said, Statoil and Lundin are definitely the two largest explorers on the NCS.
38
Wenche Nistad, Chief Executive Officer - GIEK
Wenche Nistad, CHIEF EXECUTIVE OFFICER - GIEK
Focus Reports: Norwegian Guarantee Insti-tute for Export Credits (GIEK) is a Norwe-gian government agency that has been established in 1960? What was the ratio-nale behind establishing GIEK and how have the services evolved over time? WENCHE NISTAD: GIEK is the export credit agency of Norway. We are there to help all Norwegian exporters reaching out for new markets. By providing guarantees on behalf of the Norwegian government, we make it simpler for a company to obtain sound fund-ing and secure key export agreements.
What is special about Norway is that equip-ment for the oil and gas industry and offshore services has grown to be a very important business in the country. For that reason the oil and gas and maritime sectors dominate our portfolio. In fact, approximately a 100 bil-lion NOK or 85% of our portfolio is repre-sented by oil and gas and 5,5 billion NOK or 5% by maritime.
By providing guarantees on behalf of the Norwegian government to foreign buyers, we make it simpler for Norwegian companies to obtain sound financing and secure export con-tracts. This is how we help enable Norwegian companies to compete for contracts with for-eign buyers in other markets and countries. In this way GIEK creates growth for Norwe-gian companies, their employees and commu-nities in Norway.
GIEK’s activities have contributed to his-toric growth for Norwegian export industries, which has created growth for Norwegian com-panies, their employees and local communi-ties in Norway.
In 2000 it was decided to establish GIEK
Kredittforsikring AS as a separate subsidiary, in order to look after the needs of SMBs and ensure the provision of credit insurance. The company’s capital came from its own funds and from the repayment of capital that in pre-vious years was used to pay compensation for long-term credit facilities. This company sup-ports short term business such as the export of fish.
Between 2004 and 2012 our operations have grown significantly. On April 30th this year GIEK has a 117 billion NOK in total guar-antees. 82 billion NOK in guarantees and 35 billion NOK in offers (promise of guarantee). This represents an overall increase of 13 bil-lion NOK from year-end. In addition 10 billion NOK in new applications, 59 billion NOK in total applications per April 30th.
The key factors of our growth have been a challenging financial market, the offshore boom, the Euro crisis and as a result the higher capital requirements of banks.
FR: What is a typical profile of a company that knocks on your door?WENCHE NISTAD: It is shipowners, Norwegian shipyards, or drilling companies that need drilling equipment when they construct a drilling vessel for example. Or any other com-pany that is active in the offshore service.
It is the large companies such as Petrobras, PMX, Reliance but also drilling companies such as Seadrill and other offshore companies that are operating internationally.
FR: What influence does Norwegian flag-ship player Statoil have on suppliers mov-ing abroad?WENCHE NISTAD: Important in Norway is that
Interview with: Wenche Nistad, Chief Executive Officer - GIEK
39
Wenche Nistad, CHIEF EXECUTIVE OFFICER - GIEK
we have a demanding environment. The North Sea is demanding and challenging but Norwe-gian companies have worked there for decades. This has given us experience and has stimu-lated a healthy technological development. In this way we have found new solutions and Nor-way is considered in the forefront from a tech-nological point of view. Naturally companies like Statoil have been important in that respect but I believe that also other international oil companies have been important for our indus-try.
FR: To what extent is your financial agenda linked to a more political agenda?WENCHE NISTAD: GIEK operates on a commercial basis—Norway’s politicians do not get involved in our operations. GIEK even have an indepen-dent board of Directors, appointed by the min-istry of trade and finance.
We conduct our business with a commercial evaluation. If Norwegian exporters aim to export to Brazil for example we will support them when we find the risk good enough.
FR: Earlier this year an agreement between Kexim, a Korean Export-Import Bank, and GIEK was concluded for expansion of the co-operation regarding financing and export guarantees. How would you define Norway’s relationship with Korea? WENCHE NISTAD: Historically, Norway and Korea have been doing a lot together. Drilling rigs and vessels manufactured in Korea are full of Nor-wegian equipment. Norway and Korea work together on a significant amount of projects not only drilling units but also many other rigs built in Korea.
For many years, GIEK has been co-operating with Kexim, in the same way GIEK has co-oper-ated with other Export Credit Agencies. The co-operation, which is now being strengthened through the agreement, deals with the exchange of information, experience and com-petence related to the financing of large proj-ects where Korean and Norwegian suppliers are involved.
Furthermore, there are always several banks involved covering risks. Norwegian DNB is one of the banks often contributing to financing. Hence, DNB was hosting the signing of the agreement between Kexim and GIEK.
We are trying to do the same with The Bra-zilian Development Bank (BNDES). We have not conducted a first transaction yet but aim to do so this year.
FR: What is a project that you are most proud of and represents GIEK at his best?WENCHE NISTAD: This question is too hard to answer. We have participated in many projects. We are particularly proud of how we have been able to promote and assist the Norwegian off-shore oil- and gas related shipping industry through our financial guarantee schemes. Nor-wegian shipyards have succeeded in being at forefront of the highly demanding interna-tional offshore service industry. In addition a wide range of subcontractors have expanded their business through technological innova-tion and development. We are proud to play our part in financial issues, adding to our exporters’ competitiveness. The cost of a PSV is typically 300-400 million NOK, where GIEK’s guarantee covers 70 % of the total loan of the shipowner). I should certainly mention the industry around drilling and rig equipment for the oil and gas industry, which has grown considerably over the last years. We are there for them as well, and all together most of our portfolio is related to the various parts of off-shore oil and gas related activities. An excep-tion to be proud is the renewable energy sector, where we have paid particular attention for a couple of years now. Scatec Solar will supply and take partly ownership of solar power plants Dreunberg (75 MW) and Linde (40 MW) in South Africa. The company has developed solar power plants with a total of 270 MW, first in Europe and now in South Africa. According to the company, guarantees from GIEK are cru-cial for securing financing and implementation of projects.
40
Thomas Fjell and Erik Sandøy, InterOil
Thomas Fjell and Erik Sandøy, INTEROIL
Focus Reports: Looking at a subsidiary level in Peru and Colombia, could you elaborate on your current portfolio?THOMAS FJELL: The challenge for Interoil was that due to its high overhead cost and highly leveraged financial structure, the company had very little left for CAPEX. The main reason for this was that in 2010 the company obtained USD 90 million through bank facilities in Colombia and Peru and a USD 50 million bond in Nor-way. Due to the licence situation in Peru, which is about to expire shortly, the banks required steep amortization profiles and the bond had a very high interest rate of 15%. This caused a severe drain on cash and the company did not have sufficient funds to mitigate the natural declination of our fields. As a consequence production decreased from 10,000 to 4,000 barrels of oil per day. As a consequence the compa-ny’s cash flows became so low in January 2013 that the company was unable to meet its commitments.
We realized that in order to salvage some of the shareholder values we needed to increase production and that the invest-ments that this required would have to be funded through equity. So in March this year we completed an equity issue of USD 35 million. This enabled us to fund an expansive drilling program in Colombia of approximately 65 wells. As of today we are in the process of executing the first phase of this drilling program and have so far completed 7 of the first phase. The main objective of these wells was to increase cash flows, and therefore we care-
fully selected low risk well locations that would commercial. We note with satisfac-tion that so far all wells have been in line with our expectations.
The next phase of the drilling program will be initiated in December / January. This will consist of approximately 20 wells. In addition to securing cash flows the main objective of this phase is to acquire new data on reservoir distribution, quality and productivity in the vicinity of existing producers and new areas. The results of this drilling campaign will be crucial to the value of our Puli-C license in Colom-bia.
Interoil also has an exploration license in Colombia – LLA-47, which we believe can contribute substantially to our share-holder value. However, in line with what we have communicated to the market we are aiming to reduce the operational risk in Interoil and we are therefore seeking to farm out a portion of this license. We expect to initiate this farm down process once we have the results from the 3D seis-mic
In Peru Interoil operates two produc-tion licenses. According to the initial term our license expired in March this year. However, Interoil was awarded an injunc-tion to continue operating the licenses in Peru due to force majeure caused by El Nino (1998-99 and 2002-03) until Octo-ber 2014 in the case of Block III and until March 2016 in the case of Block IV. We are currently in arbitration proceedings with licensing agency PeruPetro to determine whether Interoil has the right to extend
Interview with: Thomas Fjell and Erik Sandøy, InterOil
41
Thomas Fjell and Erik Sandøy, INTEROIL
the term of its original licenses in Peru until October 2014 (Block IV) and March 2016 (Block III). A final decision on these proceedings is expected within the first half of 2014. We feel quite comfortable with our case so will continue to operate these licenses until the aforementioned periods. Given the uncertainty of the license situation, all investments carried out will have a short payback time.
We are seeking for long term extension for our licenses as we believe that these have a significant upside potential—18 million barrels of 2P reserves that can be developed. We have already developed a Field Development Program for this field and according to this we would be able to increase production to 7000 barrels of oil per day by 2015. Our new shareholders have clearly stated that they are willing to contribute in funding this development program. It is also clear that Interoil is the only company that would be able to increase production rapidly on blocks III and IV as other operators would need to qualify and obtain the required permits which will take a significant amount of time.
FR: For the investors who like to take risk, is this not the right time to buy shares of Interoil?THOMAS FJELL: Definitely it is. I do like to stress that a license extension will be a significant value contributor to Interoil. Hence, we are working very hard on dif-ferent routes to obtain that extension, and we are getting positive feedback from senior officers within Peruvian govern-mental agencies related to this issue, although there is still work to be done in order to achieve said extension.
The fundament that is value creating in Peru is the organization we have there. That represents a significant value to the company and its shareholders. The prob-
lem in Peru is perhaps not that there is a lack of licenses but not enough competen-cies within the oil and services industry. Interoil has the strength that many other companies do not have and we intend to utilize that strength by acquiring addi-tional acreage and growing the asset port-folio.
FR: Could you each give one good reason to buy shares of Interoil?ERIK SANDØY: Unlike large E&P companies, where significant events often have little impact on their share price, Interoil offers many more triggers and volatility in its share price. This makes it a more risky share but is more based on company spe-cific issues rather than macroeconomics.
Interoil has a troubled background but has changed significantly with a clear strategy going forward. Colombia in itself is a strong value case and little value is attributed to Peru. We will have to dem-onstrate success before the market recog-nizes this, but if we can deliver what we say, the Interoil share could perform well. THOMAS FJELL: I do not believe that the stock market has fully recognized all the changes we have made yet. Our strategy going forward is low cost, production ori-ented and therefore represents a low risk. It is all about continuing producing on the assets we have in Colombia.
The opportunity we have by being in Peru is quite unique. Interoil has a good local organization and has been there for many years. Many opportunities are open-ing up in the country. I view the oil and gas industry in Peru to be where Colombia was 10 to 20 years ago. The companies that were in Colombia and acquired attractive acreage at that time have created signifi-cant value for their shareholders.
42
Roy Norum, Chief Executive Officer -PG Marine Group
Roy Norum, CHIEF EXECUTIVE OFFICER -PG MARINE GROUP
PG Marine Group - Ing Per Gjerdrum ASWhat were the priorities you set when you took over the reins at PG Marine Group?ROY NORUM: PG has historically been a tech-nology-focused company; our engineers have set the parameters for development. The company established a pump engineer-ing division in order to increase its focus on solutions for customers. We adjust existing products but are always excited to bring new innovations to the table, and have presented many novel, smart solu-tions to the market over years.
Today, clients are looking for fewer sup-pliers that take more responsibility and offer larger packages, all through a single point of contact. The advantage we have in this industry is that we have been working closely with offshore infrastructure for many years, and have seen many pumping-functions migrate from rigs to vessels, and now to the seafloor. Our understanding of the market is what we have based the busi-ness on, and this has reaped rewards for us.
Under my leadership, we have taken PG to a new level in international markets: from 4 percent to in excess of 70 percent of our revenues coming from the export market, bringing our annual export turn-over from €10 million to more than €80 million in 2013. Today, we see demand for our products in Korea, China and Singa-pore, but also North- and South America: we have a significant market share since 2000 in Brazil, a critical market for the oil and gas industry.
PG’s philosophy is based on insourcing rather than outsourcing, as we build in-house competence and capacity. PG main-tains partnership agreements around the world with leading maritime product pro-viders for local sales and distribution. However when markets become saturated it is harder to obtain capacity and quality. For that reason we established business units such as PG Automation, which builds control and automation systems in-house. This strategy enabled us to increase the depth of both our competence and our capacity. Now, we can sign broader con-tracts with bigger customers.
Ultra-deepwater developments and the move away from platforms have also changed the way clients are selecting equipment. Our research and experience has placed us at the forefront of developing new solutions for this evolving market. One of these is the PG-MACS (Multi Appli-cation Cargo Solution), which was devel-oped in 2006-2007. PG-MACS is a flexible under-deck cargo handling system for liq-uid and dry bulk offshore cargo – including drill cuttings and rig slop, available for both vessels and rigs, which can signifi-cantly enhance the vessels cargo facilities – not least flexibility of cargo carried
Another example is PG-MAPS, a com-pact, lightweight and cost-effective pump-ing system for a range of subsea and top-side applications, including subsea mud and drill cuttings handling for managed pressure drilling, tophole drilling, subsea or topside high pressure injection of water or chemicals, subsea liquid boosting, and
Interview with: Roy Norum, Chief Executive Officer -PG Marine Group
43
Roy Norum, CHIEF EXECUTIVE OFFICER -PG MARINE GROUP
well intervention and fracking. PG-MAPS boasts several technical and cost-efficient advantages, including improved energy efficiency.
Both the PG-MACS cargo solutions and PG-MAPS subsea pumps are products that were developed, manufactured and pat-ented in-house by PG. Together with our Ballast Water Treatment systems for the offshore service vessels segment, these ground breaking solutions will be the main drivers of PG’s future expected very strong organic growth.
As a company focused on innovation, how difficult is it to convince your cli-ents to accept new technologies, in an industry that is considered to be extremely conservative?ROY NORUM: Our products are generally well received by the industry, but as you men-tion, the oil and gas industry remains a conservative business. For an innovative company like PG this is quite a challenge because everybody loves our new ideas and novel products, but people are always wait-ing for someone else to go first.
This leads to a ‘chicken and egg’ situa-tion. We have to find that one company that is open to pioneer with us. But once you are recognized as a trusted partner, it is possible to have a very favorable position in the market chain. In fact, last week (August 2013), PG inaugurated a new 8,750m2 factory, and a new unit known as PG Fabrication. This is a brand new, tailor-made facility that will present the PG Group with unprecedented possibilities for future business, including subsea-pump tests pits with up to 1,4MW fixed power capacity.
How is PG dealing with challenges in Norway’s high-cost environment? ROY NORUM: There are only two solutions to this challenge: either move operations
abroad, or be extremely efficient. I’ll give you an example: At the end of
2012, Statoil had only 23,028 employees – a tiny figure for a company characterized as being among the most profitable and geographically developed in the world. This low employee count has enabled Statoil to have the highest rate of production to employees in the industry, at an average of 78.4 bpd/employee in 2012.
This type of efficiency is also the key for PG. Our aim is to manufacture smart solu-tions that will provide high value, and diversification to our customers. Frankly, PG has an impressive track record in effi-ciency over the last ten years, and at the same time, the majority of PG’s solutions are logic-engineered, object-specific and customized, which makes our products sig-nificantly more challenging to copy than commodity-oriented products.
PG holds and builds competencies within the company but occasionally buys capacity from external sources, for exam-ple by purchasing simple steel structures in countries such as Lithuania, Vietnam or Poland. In addition we have a partnership with a well-known Indian company that provides us with high capacity of skilled engineers if necessary.
Under my leadership, we have taken PG to a new level in international markets: from 4 percent to in excess of 70 percent of our revenues coming from the export market, bringing our annual export turnover from €10 million to more than €80 million in 2013
44
Leonid M. Surguchev, Managing Director of LUKOIL Overseas North Shelf AS
Focus Reports: How do you translate LUKOIL expertise gained in Russia to the Barents Sea?LEONID M. SURGUCHEV: LUKOIL has several decades of exploration and production expe-rience in Russia and abroad. In Timan Pechora and in the Caspian region LUKOIL has been producing fractured carbonate and low permeable heterogeneous reservoirs with new well and IOR technologies. This experience of our geoscientists and reservoir engineers can be useful for exploring and developing Permian formations in the Bar-ents Sea. We will also use LUKOIL Overseas deep water exploration drilling experience from the West Africa projects.
FR: LUKOIL Overseas North Shelf builds its business platform as an active license partner, when will we see the transfor-mation into operatorship?LEONID M. SURGUCHEV: In our first license round in Norway our main goal was to obtain participation in the prospective licenses and enter in the joint ventures with our partners. The long term objective in Nor-way is to become a full cycle upstream com-pany having projects in different stages: exploration, development and production. Over the years we aim to have LUKOIL activ-ities on the level comparable with major international oil companies operating in Norway.
In Russia legislation reserves the right to operate offshore fields to companies owned at least 50 percent by the state and having at a minimum five years of offshore experi-ence. These limitations mean that only the
State owned companies ROSNEFT and GAZ-PROM may develop offshore fields. How do the latest developments in Norway fit within LUKOIL’s strategy to move towards the Rus-sian Arctic?
LUKOIL Overseas Company in Norway is focused on the Norwegian Continental Shelf. Recently new offshore licenses in Rus-sia have been awarded to ROSNEFT and GAZPROM, some of them in cooperation with foreign companies. Last year the Rus-sian government also invited Russian pri-vate companies to consider possible coop-eration with the State companies on the terms similar to their cooperation with for-eign companies. I think, taking into the account the size and resources of the Rus-sian Continental Shelf, such cooperation between State and Russian private compa-nies in the Arctic will take place in the future.
FR: The Barents Sea is a very sensitive region from an HSE and environmental perspective. Would you tell us a little about the work LUKOIL is doing on envi-ronmental protection and HSE?LEONID M. SURGUCHEV: LUKOIL understands the importance of preserving fragile marine environment in the Northern Seas in Nor-way. The company is paying significant attention to environmental protection in all its projects complying with national require-ments and regulations. LUKOIL budget for environmental measures is exceeding 750 million USD per year. As an example LUKOIL has been closely monitoring its environmen-tal footprint in the Caspian since it began
Interview with: Leonid M. Surguchev, Managing Director of LUKOIL Overseas North Shelf AS
Leonid M. Surguchev, MANAGING DIRECTOR OF LUKOIL OVERSEAS NORTH SHELF AS
45
exploring the area in the mid-1990s. LUKOIL offshore policy is following a zero harmful discharge program ensuring no waste dis-charge to the sea. In the Baltic Sea LUKOIL is conducting continuous satellite environ-mental monitoring program for its offshore operations.
The Northern Caspian area, where LUKOIL is producing Y.Korchagin field and now developing V.Filanovsky field, is espe-cially environmentally sensitive due to shal-low waters and unique ecosystem. In the same time winter periods in the Northern Caspian can be compared to Arctic harsh weather regions due to strong winds and very low continental temperatures plum-meting below -30°C.
In Norway LUKOIL will use environmen-tal protection experience from the Baltic and Caspian Seas and from deep water West Africa operations.
LUKOIL Overseas QHSE responsible manager in Oslo is a very experienced per-son with long term major oil company inter-national experience.
FR: To be successful in the Barents Sea high quality staff is key. How do you attract and retain the best talent?LEONID M. SURGUCHEV: Finding talent is quite hard these days in Norway as well as inter-nationally. LUKOIL and LUKOIL Overseas have secured funding programs with leading Russian universities, such as Gubkin in Mos-cow and University in Tyumen and many others. Also a special management and expert training program is lunched by LUKOIL at Skolkovo Science and Innovation City in Moscow. Gubkin University and Arkhangelsk Pomor University over several years have been cooperating with universi-ties in Stavanger and Tromso and have joint Master programs. Graduates from these Russian-Norwegian education programs are now working in Russian and foreign compa-nies all over the world. In Oslo we see also
strong G&G expertise among geoscientists graduated from Oslo University and experts working with many service, engineering and seismic companies.
During the preparation for the 22nd licensing round we have actively involved experts from LUKOIL Engineering, where many of our G&G colleagues have been working previously for many years with the Russian Barents Sea and Pechora Sea regions in Murmansk and Komi republic in Russia. We also plan to involve them in our active preparation now for the 23rd license round in Norway together with our geoscientists in LUKOIL Overseas corporate centre and geoscience centre in London.
FR: In addition to being the Managing Director of LUKOIL Overseas North Shelf AS you are also a Member of the Norwegian-Russian Chamber of Com-merce. How would you describe the rela-tions between Russia and Norway?LEONID M. SURGUCHEV: In my opinion the rela-tions between our two countries and between our people are very good. One example - the tombs of Soviet soldiers and prisoners of the World War II are always cov-ered with fresh flowers, preserved and taken good care of by local Norwegian communes in many cities in the country. It shows the attitude, good feelings and respect to the Soviet soldiers who were fighting against Nazi invasion and died on the Norwegian soil. Important historical fact is that our two counties with common border in Europe have not been in war against each other for more than one thousand years!
Regarding the Norwegian-Russian Chamber of Commerce I think the work it is performing is professional, done with enthu-siasm and brings positive results. According to the representatives from the Russian side the work of this Chamber in promoting cooperation between our two countries can be an example for other countries in Europe.
Leonid M. Surguchev, MANAGING DIRECTOR OF LUKOIL OVERSEAS NORTH SHELF AS
46
PAST REPORTS
47
Company indexMinistry of Finance ..........................................................................1
McKinsey & Company .................................................... 1, 8, 11
Pareto Group ...........................................................................................2
Lundin Petroleum ..............................................................2, 3, 4, 6
Statoil ........................................................................................2, 3, 5, 10
Det Norske Oljeselkap ....................................................................2
Technip ........................................................................................................3
Schjødt .........................................................................................................3
Nordea Bank ............................................................................................3
DNB Bank .................................................................................................3
GIEK ......................................................................................................... 3, 4
Petrobras .....................................................................................................4
ABG Sundal Collier ............................................................................4
LUKOIL Overseas North Shelf ...............................................4
North Energy ........................................................................................4
Repsol ...................................................................................................... 4, 5
Ramboll Oil & Gas .............................................................................5
ENI ..................................................................................................................5
ConocoPhilips ........................................................................................5
RWE DEA ..................................................................................................5
Petoro ............................................................................................................5
Senergy ........................................................................................................7
Oslo Børs .............................................................................................. 7, 8
Kvaerner ......................................................................................................8
Interoil Exploration & Production ................................ 8, 9
Songa Offshore .....................................................................................9
Eureka Pumps .....................................................................................10
PG Marine Group ..................................................................10, 11
AGR Group ............................................................................................11
Boston Consulting Group .........................................................11
48 Norway Oil & Gas report part 4 November 2013