Oil and Gas Norway report 2013 part 2

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Special Foreword by Håkon Skretting

The international success of Norway’s $65 billion oil service industry has been the fruit of a continual pursuit of innovation. Encouraged by Norway’s principal opera-tors and public funds, the service industry has pushed the technological envelope and these technologies, from drilling packages to subsea equipment, have redefined the international oil and gas business. In this climate, Norway continues to give birth to a large number of innovative and adaptable companies capable of convert-ing ideas quickly into game-changing technologies.

For much of the past decade Norwegian services have been conquering the world, in markets like Korea, Brazil, the UK, Singapore and Russia. Indeed, INTSOK projec-tions fell short of the true figure for technology exports in 2012 of $26 billion and our 2016 target of $34 billion may also be surpassed. Yet today’s booming activity on the NCS is stretching the Norwegian service industry’s domestic capacity. Some companies are now refocusing on the domestic market, but many will continue to secure their international growth, building up their presence abroad instead of sell-ing from their home office.

In order to meet the capacity challenges of the NCS the service industry will need to work in smarter and more efficient ways. At the same time, the stringent envi-ronmental, performance and safety standards in Norway will stimulate a new wave of innovation, increasing the competitiveness of Norwegian services on the global stage. I would like to invite the international oil and gas community to take a closer look at the industry here and I appreciate this initiative by Focus Reports to shed light on the key developments in 2013.

Håkon Skretting Regional Director of INTSOK

E-mail: [email protected]/oilandgas

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This sponsored supplement was produced by Focus Reports. Report Publisher: Ines Nandin. Project Director: James Waddell. Project Coordinator: Chiraz Bensemmane. Editorial Researcher: Teddy Lamazere. Editor: Eric Watkins. For exclusive interviews and more info, plus log onto www.energy.focusreports.net 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 NORWAY PART 2: ANYTHING BUT STANDARD

8 TETHERING TO THE HOME MARKET

8 VALUE CREATION VS. WAGE INFLATION

10 LOSING NEMO

10 THE HOME ADVANTAGE

10 INNOVATORS, NOT ENTREPRENEURS

11 A SEISMIC SHIFT IN THINKING

12 THE PATH TOWARDS COMMERCIALIZATION

13 NORWAY’S FIXED-ASSET PREDILECTION

15 AUTOMOBILES AND STANDARDIZATION

17 CLUSTERING AROUND THE “DRILLING BAY”

17 THE PATERNAL ROLE OF STATOIL

20 MARGINAL FIELDS NEED MORE SERVICES

20 THE BRAZILIAN STATOIL

21 IN-NORWAY-TION

22 3M: APPLIED INNOVATIONS

24 FUNDING NORWAY’S INNOVATIVE FUTURE

26 CARBON CAPTURE STORAGE IN THE VALLEY OF DEATH

28 INTERVIEW WITH Per Harald Kongelf, COO - Aker Solutions

30 INTERVIEW WITH Henrik O. Madsen, Group CEO - DNV

32 INTERVIEW WITH Jeff Lavers, VP & GM - Oil & Gas 3M

34 INTERVIEW WITH Håvard Devold, Group Vice President Oil & Gas Upstream at Abb

36 INTERVIEW WITH Sveinung Stohle President and CEO HOEGH LNG

38 INTERVIEW WITH Tor Henning Ramfjord, Managing Director and VP - Operations National Oilwell Varco (NOV) Norway AS

40 INTERVIEW WITH

Lars Mangal, Chief Commercial Officer and Terje Skeie, Senior Vice President – Europe Welltec®

42 INTERVIEW WITH

Claus Hemmingsen – CEO – Maersk Drilling

INTERVIEWS


Jåttåvågen, Hinna - P.O.Box 8024 - 4068 Stavanger, Norway Phone: +47 51 82 51 00 - www.oceaneering.no

Oceaneering is a global oilfield

provider of engineered services and

products, primarily to the offshore

oil and gas industry, with a focus on

deepwater applications. Oceaneering

has been operating in Norway since

1973. The presence in Norway has

given us world class expertise,

working with professional and

demanding clients and adhering to

strict rules and challenges related

to the harsh environment in our

waters. Our safely provided high-

quality solutions to our clients are

the foundation for our continued

success. We will strive to create

value, technological- and expertise

development for another 40 years!

FOUR DECADES OF OPERATIONAL EXPERIENCE IN NORWAY

CarOce_OGFJ_1305 1 4/23/13 1:52 PM

7

Jåttåvågen, Hinna - P.O.Box 8024 - 4068 Stavanger, Norway Phone: +47 51 82 51 00 - www.oceaneering.no

Oceaneering is a global oilfield

provider of engineered services and

products, primarily to the offshore

oil and gas industry, with a focus on

deepwater applications. Oceaneering

has been operating in Norway since

1973. The presence in Norway has

given us world class expertise,

working with professional and

demanding clients and adhering to

strict rules and challenges related

to the harsh environment in our

waters. Our safely provided high-

quality solutions to our clients are

the foundation for our continued

success. We will strive to create

value, technological- and expertise

development for another 40 years!

FOUR DECADES OF OPERATIONAL EXPERIENCE IN NORWAY

CarOce_OGFJ_1305 1 4/23/13 1:52 PM

This sponsored supplement was produced by Focus Reports. Report Publisher: Ines Nandin. Project

Director: James Waddell. Project Coordinator: Chiraz Bensemmane. Editorial Researcher: Teddy Lamazere.

Editor: Eric Watkins. For exclusive interviews and more info, please visit www.energy.focusreports.

net or write to [email protected]

ANYTHING BUT STANDARD

The second most valuable industry to the Norwegian economy after oil and gas production is the Norwegian oil service sector. Making a stand-ing start in the 1970s, this sector today generates $63 billion in revenues

with 40 percent ($26 billion) of that figure coming from the sale of Norwe-gian technologies to foreign markets. Unable to exploit any natural cost advan-tages, Norway’s international competitiveness has relied upon the strengths of its innovations and its ability to redefine existing industry standards. But how sustainable is this endless focus on the high-tech, high-cost solution?

NORWAY

Volstad Surveyor Varg Brace 2. Picture courtesy of Deep Ocean

advertisement


60 energy.focusreports.net May 2013 Oil & Gas Financial Journal • www.ogfj.com

Home to paradigm altering innovations like horizontal drilling,

multiphase flow, power-from-shore, 4D seismic and now “integrated

operations” and the “subsea factory”, Norway is the birthplace

of many of the offshore industry’s cornerstone technologies. The

remarkable aspect of this technological achievement is that it has

come from a country with a distinctly unremarkable technological

heritage – known for having invented not a great deal besides the

cheese slicer.

The Norwegian offshore industry has achieved this technological

feat by valuing innovation over the cheap solution, whether from

foreign contractors or domestic. But is Norway’s pursuit of the non-

standard product, which brought it so much success in the past,

now simply pushing up the cost curve? By focusing on the exacting

requirements of the Norwegian continental shelf (NCS) and riding a

wave of cost inflation, is the Norwegian service sector now under-

mining its international competitiveness? Or, as the Norwegian min-

ister of petroleum and energy Ola Borten Moe believes, are the high

costs now driving a new wave of innovation?

Tethering to the Home MarketIn 2012 the domestic market for oil services rose

to $24.7 billion and is projected to hit $37 billion

in 2013, making Norway the number one offshore

investment market globally. For David Smith, man-

aging director of offshore logistics and mooring

specialist IOS Intermoor, this marks a stark contrast

to the situation a few years ago.

Smith explained: “In 2009, IOS InterMoor was

looking internationally, as many Norwegian companies were, to

expand its business. At that time, most Norwegian companies

started to think that the industry’s end was in sight.”

At the lowest point of the global financial crisis,

the domestic base of Norway’s oil service sector was

in decline and companies were targeting interna-

tional markets. Then in 2010 and 2011, Lundin and

Statoil made their giant discoveries on the Utsira

High, turning the international perception of Nor-

way’s oil potential on its head and sparking a surge

of investment in the sector.

It is not for nothing that Smith regards 2011 as a benchmark year

for the Norwegian service industry. “A year after those huge dis-

coveries, most Norwegian companies’ target market is now domes-

tic,” he said, forecasting a mini-boom in activity over the next 3-4

years. IOS Intermoor has responded by redirecting resources to the

Norwegian market and significantly expanding on the facilities at its

main Norwegian base in Mongstad,.

One of the founding fathers of Norway’s export-focused oil and

gas association INTSOK Håkon Skretting agreed that Norway’s sec-

ond oil boom has refocused attention. He explained:

“With the current booming activity in Norway, Norwegian compa-

nies had never been as busy as today on the NCS. Therefore many

companies argue that there is no need to go to other countries like

Russia when they have everything in their home country to prosper.”

Value Creation vs. Wage Inflation: The downside of so much investment pouring into

the Norwegian market is an inevitable strain on

human resources, creating significant wage inflation

as companies seek to entice the country’s limited

retinues of engineers and offshore workers. In 2010,

the year that Lundin made its giant oil discovery on

Avaldsnes, labor costs rose by 12 percent and since

then employee wages have increased significantly as

a proportion of the industry’s total spend.

The effect on Norway’s oil industry is a total lifting cost, which

has climbed to around $75 per barrel, threatening to increase the

threshold of what is considered to be a marginal field. However, the

effect on the service industry is arguably more deleterious. Further

disadvantaged in exports by the strength of the Norwegian krone,

Norway’s fabricators have been losing work to international com-

petitors in countries where the cost of labor is several times cheaper.

For nine years until the 2011 demerger, Aker Solutions and

Kvaerner operated as one company and the history of their collabo-

ration dates back more than 40 years. Even after the separation,

these Norwegian firms remained close allies in bidding rounds for

major projects, but the conclusion drawn at Aker Solutions’ Q42012

briefing was that this flagship Norwegian pairing cannot endure

much longer.

USD 43 billion

USD 34.5 billion

USD 25.9 billion

USD 17.2 billion

USD 8.6 billion

0

Turnover Norway

Turnover internationally

2000 2003 2006 2009 2011

Gap Closing between international and Domestic Revenues until Lundin’s Discoveryin 2010, Gap Widens thereafter

Source: Rystad Energy study for the Ministry of Petroleum and Energy (2012)

The industry has been able to grow abroadand meet record high demand at home

David Smith, managing director, Intermoor

Per Harald Kongelf, COO, Aker Solutions ASA

Håkon Skretting, regional director, Intsok

CarTGS_OGFJ_1305 1 4/23/13 1:46 PM

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CarTGS_OGFJ_1305 1 4/23/13 1:46 PM



a more general trend towards consolidation where: “Smaller, bespoke

subsea specialists are becoming few and far between. The major com-

petition is between the big players: FMC Technologies, Kongsberg,

Cameron, GE and a few others. We are witnessing increased ‘produc-

tification’ and standardization. As such it is hard for the smaller players

to survive.”

Apply has completely pulled out of a subsea sector, which is predicted

to double in size between 2012 and 2016. The company will instead

concentrate on its competitive position in the MMO segment, which,

according to Sortland presents sufficient room to grow market share,

though dominated by Aker Solutions and Aibel.

The consolidation at the top end of the market is driven by the pro-

curement strategies of its main operators. Procurement officers are now

attempting to contain costs in a new era of cost inflation by dealing

with fewer contractors and transferring risk from buyer to supplier. As a

result, the structure of the service industry is going through some major

changes.

The Home AdvantageNorway’s drive towards consolidation in the service market does not

mean the end of the small players. For Stig Dahl, managing director of

Dahl Oilfield Services, a downhole equipment supplier, small local play-

ers have unbeatable advantages over the large internationals in a market

renowned for high standards a preference for bespoke technologies.

“As a local Norwegian company, we are aware of the advantage

we have when conducting business with other Norwegian companies.

Large international companies with many offices around the world can-

not reach the level of influence and knowledge in Norway compared to

a local Norwegian company like us - which has 90 percent of its activity

based here.”

Standardization may be the weapon of choice for the multinationals

in cost-reduction, but Dahl Oilfield Services has opted for outsourcing

its supply chain to low-cost countries like Ukraine and China to stay

competitive.

In addition, Dahl explains that the stringent NS1 standards in the

Norwegian market created a degree of protection for those companies

purely focused on the Norwegian market. He said:

“As the standards are higher in Norway than in other countries, we

realize the advantage our drill pipes have in respecting high quality stan-

dards [of the Norwegian continental shelf]”.

Innovators, not Entrepreneurs: In a wry observation, Ståle Kyllingstad, CEO of the industrial group

IKM, characterized Norwegians as “innovators, not entrepreneurs.” Kyl-

lingstad described a situation in which would-be entrepreneurs were

often sidetracked from the arduous and long-term commitment to their

companies by the good life offered by Norwegian society. For him,

Norwegian culture is the root cause of a phenomenon of Norwegian

The Norwegian partners lost all of their Q4 bids to international chal-

lengers as Jon Arve Haugan, Kvaerner’s president and CEO, wrote

in their 2012 annual report. He stated, “in the most recent round of

awards, topside EPC contracts were awarded to Asian yards and jacket

contracts to European yards. Needless to say, we are not satisfied with

the outcome.”

As Aker Solutions recognized, the key factor in losing these bids was

a lack of price competitiveness. For Aker Solutions COO Per Harald

Kongelf, the poor performance signaled that, “Norwegian fabricators

as well as Aker Solutions need to work on competitiveness including

our subcontracting strategies and relationships with suppliers.” In an

era where the Korean behemoths of Daewoo, Hyundai and Samsung

are turning their hungry gaze on the oil and gas industry, to offset the

decline in global shipping, the ‘Made in Norway’ premium for offshore

fabrication appears conspicuously high.

On the back of more technologically driven business units, especially

subsea equipment, Aker Solutions actually enjoyed a strong 2012 with

revenues climbing by $1.44 billion to $7.68 billion; the let down was

based on labor-intensive fabrication. And as Kongelf announced that

Aker Solutions was seeking, “more flexibility regarding our [their] bid-

ding partners,” the 40-year partnership between Aker Solutions and

Kvaerner became another casualty of Norwegian cost inflation.

Losing Nemo Better to be a big fish in a small pond than a small fish

in a big one, was the rationale behind the decision of

leading Norwegian contractor Apply to sell its sub-

sea division Apply Nemo to Kongsberg last year. For

Apply’s CEO Peder Sortland, “The subsea segment

is becoming a serious game, played by the very large

subsea specialists.” He explained that although a big

name in the Norwegian industry, Apply did not have

the balance sheet to remain competitive in the segment. Sortland sees

Revenues and average EBIT-margins

Source: Rystad Energy study for the Ministry of Petroleum and Energy (2012)

68.7

60

51.5

42.9

34.3

25.7

17.2

8.6

12%

10%

8%

6%

4%

2%

0%

USD

Revenues Average of EBIT

2007 2008 2009 2010 2011

Peder Sortland, CEO, Apply

11

www.ogfj.com • Oil & Gas Financial Journal May 2013 energy.focusreports.net 63

demand from the operators to broaden the scope of contracts, which is

pushing the larger service providers to meet these needs.”

This in part explains the relative aggressivness of the M&A activity in

Norway over the last couple of years. In 2010 the transation market in

Norway represented $8 billion, marking the start of a continual climb in

M&A activity. For its part, Oceaneering’s expenditures on acquisitions

were almost triple its yearly average for the period 2006-10.

Whether Norwegians prefer their blue overalls to their business suits,

or whether the funding model stunts growth at the point it is most

needed, the tide of Norwegian intellectual capital being swept up by

Western multinationals remains unabated. The pickings are just too rich

to be ignored and operators now seem to demand it.

A Seismic Shift in Thinking: Bridging the gap between the realms of innovation and entrepre-

neurship is a Norwegian/American business model, which has trans-

formed the world of seismic: multi-client surveying. Not a technolog-

ical innovation per se, but rather a business innovation, multi-client

surveying has reshaped the relationship between governments,

oil companies and seismic contractors. This model evolved in the

North Sea and Gulf of Mexico and was pioneered by two compa-

companies moving swiftly along a conveyor belt from

innovation to acquisition by American multinationals.

“There is something fairly unusual about Norwegian

culture,” Kyllingstad said. We sell our companies a long

time before they do in other countries.”

For Kyllingstad, the unfortunate outcome of this phe-

nomenon is that, “compared to the technical successes

in Norway the number of companies which have gone abroad and made

an international success is relatively low.”

For other observers, the question is not simply one

of national character. Bjarte Fagerås, CEO of Octio, a

Norwegian start-up pioneering the technology for per-

manent seabed monitoring, may represent exactly the

type of Norwegian innovator about whom Kyllingstad

was talking. Fagerås started up five companies prior

to his present brainchild and has spent his life working

with technology. However, in his view, the reason that

Norwegian tech wizards sell early is not so much an issue of culture as

one of financing.

“It is easy in Norway to get the first funding, because of the support

from the government and various research institutions. The social wel-

fare system also provides a safety net in case you fail in your business.

However, after initial funding, it is very hard to secure funding for the

next stage. The only groups who are willing to invest and who see the

value are large international, French, British and American companies

who take over the company.”

The principal beneficiaries of this “willingness to sell”

are the well-known multinational service companies

like Halliburton, Schlumberger, Weatherford, GE and

Cameron. Oceaneering, the global leader in remotely

operated vehicle (ROV) services, certainly sees Norway

as a crucial component within its global technological

progress. VP & Country Manager of Oceaneering Erik

H Saestad said, “Norway is an important place to look

for new technologies … the Norwegian oil and gas

cluster has been in the forefront with respect to developing and apply-

ing technology within areas Oceaneering operates in.”

NCA Group, acquired by Oceaneering in 2011, was one of the biggest

aqcuisitions for the company, and gave it a key foothold in the decom-

missioning market. Saestad said, “in the decommissioning market we

needed the expertise of the NCA Group to complement our services to

approach this market.” For Saestad, the idea was to broaden the scope

of operations, a key component in Oceaneering’s competitive interna-

tional standing against other ROV providers.

As an Ernst & Young 2013 paper highlights, broadening the portfolio

is one of the biggest drivers of M&A in the global oil service industry.

But in the Norwegian context there is an additional factor driving con-

solidation. According to Saestad, Norway is subject to “an ever-greater

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CarSea_OGFJ_1305 1 4/23/13 1:45 PM

Stale Kyllingstad, CEO, IKM

Bjarte Fagerås, CEO, OCTIO

Erik H. Saestad, vice president & country manager, Oceaneering



among multiple buyers. However, this model changes the nature of

competition between oil companies, which no longer compete over

the data itself, but over the interpretation of the data.”

The model also works out better for the seismic companies,

according to Isaksen. “When the model functions correctly and

depending on the attractiveness of the data, a seismic company can

potentially earn a lot more from a seismic survey since they have

multiple buyers.”

However, despite all of the benefits of this model, Isaksen pointed

out that there were challenges in gaining acceptance for multi-client

in some countries. In any country with a monopoly on production,

nies: American TGS and Norwegian Nopec, which merged in 1998

to form TGS Nopec.

Stein Ove Isaksen, TGS Nopec senior vice presi-

dent of the eastern hemisphere, explained that the

model has come a long way in the last 30 years in

replacing the two former models of seismic survey-

ing. For Isaksen, the first model (proprietary seismic)

involved seismic surveying work remaining a fully

in-house competency of an oil company. This gave

way to a model (contract seismic), where oil compa-

nies outsourced survey work to specialized seismic

contractors.

TGS Nopec has been working towards building the market for the

third model: multi-client. Isaksen described the functioning of multi-

client surveying:

“In this model, seismic companies are the ones identifying pro-

spective areas for seismic operations. The seismic companies will fre-

quently conduct seismic surveys with only a part of the cost under-

written by oil companies and so will be exposed to financial risk (the

level of which will vary depending on the proportion of oil company

commitment obtained). In this system, the profitability of seismic

companies is fully dependent on the attractiveness of the data they

generate, and the number of oil companies that are willing to buy

these data.”

Isaksen describes this business innovation as a win-win-win situ-

ation, referring to the three principal stakeholders benefiting from

the model: governments, oil companies and seismic contractors. For

governments, the multi-client model means that seismic data is no

longer the exclusive property of a handful of oil companies, but sold

to whomever is willing to pay. Because the initiative is undertaken by

seismic companies, governments can open up unexplored frontier

E&P areas faster, thereby providing an early stimulus for investment.

In a study by consultants Wood Mackenzie, multi-client data has

actually been shown to lead to a greater number of exploration wells

and to the collection of ten times more seismic data, compared to

traditional contract seismic. Isaksen explains that this is because

the incentive models form multi-client are very different to contract

seismic.

“Oil companies are seeking to minimize their expenses on seismic

surveying. Therefore, when an oil company makes a discovery fol-

lowing a seismic survey campaign, they have a tendency to high-

grade the assets early and perform minimal additional surveys in the

immediate area around the discovery. In the multi-client model, the

incentives are the opposite. Multi-client seismic companies seek to

maximize interest in their data by covering as wide an area as pos-

sible and producing as much data as possible.”

Isaksen continues: “From an operator perspective, the cost of

obtaining data is reduced with the financial costs being spread

Stein Ove Isaksen, senior vice president Eastern hemisphere, TGS

THE PATH TOWARDS COMMERCIALIZATION:

Former CEO of Norwegian flow-assurance

company Roxar (bought by Emerson in

2009) Morten Tønnesen did not see the sale of

Norwegian intellectual capital as inevitable. To

the contrary, for Tønnesen, the gap between in-

novation and commercialization in Norway was

actually one of the easiest in the world to bridge

and it should, in theory, be easy for companies

to go it alone.

However, Tønnessen observed that too often on the road

to commercialization, Norwegian oil service companies fell

into certain pitfalls, one of them being a tendency to become

overly reliant on Statoil funding.

“The Norwegian market is big, but not big enough…[ser-

vice companies] become complacent, pleased to have Statoil

as a client and then they just sit there supported by the funds

from software sales and recurring maintenance revenues.”

However, he warned against the other extreme of listing

too early on the stock market, letting financiers dominate the

strategy, killing innovation, and eventually forcing a sell-out

to international service companies. In his view, this was the

fate of Roxar.

For Tønnesen, the solution of how to commercialize Nor-

wegian technology successfully abroad lies in Norwegian

companies pooling resources, establishing networks and

common marketing budgets.

“Funding is not where the problem lies since that is readily

available,” said Tønnesen. “It is more in the area of over-

lap where work is needed: smaller Norwegian companies do

overlap too much on the administration, marketing, sales and

distribution side of things. So, we can all benefit from coordi-

nation and partnership on this.”

Morten Tønnesen, managing director, Geocap

13


there are not enough buyers for multi-client to make economic sense nor can the model

function in any country wishing to restrict information about its resources. This makes it

apparent why multi-client grew out of the mature and open-access production environment

of the North Sea.

However, for seismic companies to move into this mode of operation marks a significant

break in their traditional way of working. Norwegian seismic company Spectrum moved into

multi-client work completely when it acquired CGG Veritas’ multi-client 2D library in 2011.

Spectrum president and CEO Rune Eng explained that while investors in the UK, the US and

Norway appreciate the asset-light nature of their multi-client business model, seismic com-

panies are working with a greatly increased risk-profile.

Eng said that multi-client seismic companies are transforming themselves

into early explorers by conducting surveys in areas, which they predict will

become interesting to oil companies years down the line. “We think and act

very much like an oil company in the early phase of exploration… If you had

asked anyone five years ago whether Lebanon or Israel would be hot spots

for exploration, people would probably have laughed at you. Today, this is

truly a major E&P region thanks to Noble's gas discovery in the Levantine

basin…We have recently been opening up Brazil's Northern Margin, which

will likely come up in the 11th licensing round.”

Multi-client companies are taking on more financial risk, because oil companies do not

underwrite the costs of exploration. In theory, the profitability of these companies could be

completely undermined by a range of political risks including policy reversals, regional insta-

bilities and environmental disasters, among others.

In addition, the profitability of these companies depends on the company’s ability to sell

the data. Eng said that, “we have to come up with our own exploration stories and think like

an oil company. To this end, we have employed three former exploration managers from oil

companies. They are the ‘storytellers’ in our company and they have more credibility, having

worked for the oil companies.”

Yet despite the challenges of adaptation, the multi-client model is gathering momentum,

and it looks set to rapidly expand on what Eng believes is already a $2 billion market.

Norway’s Fixed-Asset Predilection:“You might ask, is the Norwegian oilfield service industry different from

those in other countries? I would reply that in Norway, service companies

like owning fixed assets: rigs, ships, heavy machinery, etc,” explained John

Avaldsnes, global advisory oil & gas leader at Ernst & Young.

He continued, “Norwegian service companies have traditionally taken

more risk or have been more opportunistic than other countries. At the

moment, this can be an advantage for us because we do have the assets to

supply to Brazil, West Africa, etc already on the balance sheet and there is

no need to request financing for new assets.”

However, this predilection for fixed assets and acceptance of risk has been the undo-

ing of several formerly successful Norwegian companies. One of the most notable financial

falls from grace in recent years was the situation in which Norwegian FPSO designer Sevan

Marine found itself in 2011. Sevan Marine president and CEO Carl Lieungh contrasted what

he viewed as the remarkable success of pioneering a completely new innovation to global

players, such as Petrobras and ENI, against the huge financial black hole engulfing the com-

pany just before he took over.

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CarGeo_OGFJ_1305 1 4/23/13 11:41 AM

Rune Eng, president & CEO, Spectrum

John Avaldsnes, partner EMEIA oil & gas leader, Ernst & Young


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Lieungh admitted, “when I joined the company

in May last year, I understood the job would entail

restructuring Sevan Marine, but I really had no idea

of the magnitude of the task I was taking on.” After

exhausting the possibility of a private placement,

Lieungh moved towards the bondholders including

Jens Ultveit-Moe, one of Norway’s largest industrial

investors and one of the key figures in the restructur-

ing of PGS, Norway’s flagship seismic company.

The main challenge facing Lieungh was that, “the company was

not financed from the top on a fleet level, but rather the bonds

were assigned to individual vessels. Each bond-holder had their own

agenda. An important step in facilitating the process was the bond-

holders reaching agreement on a common set of financial and legal

advisers to harmonize the company’s restructuring.” Eventually, in

the autumn of 2011, Canadian ship-owner Teekay offered to finance

the entire restructuring of Sevan Marine and the Sevan Voyager, an

offer that Sevan Marine’s bondholders accepted.

As a result of this cooperation with Teekay, Sevan Marine has

changed its business model completely, moving away from the Nor-

wegian tendency for fixed assets. The company transformed “from a

build-own-operate model to a design and technology company and

project developer. Sevan Marine is now concentrating on concept

studies that will lead into feed studies and a license contract like the

project for ENI’s Goliat Field.”

Seismic contractor Seabird Explorer, which simi-

larly found itself over-leveraged on its assets, is

another company abandoning the fixed-asset predi-

lection. Dag Reynolds, founder and CEO of Seabird

Explorer, explained that the 2D seismic market is

buoyant, but highly volatile. He said: “When there

is an upswing we swing quickly upwards and this

explains the strong performance in Q3. However, in

a downturn we nose-dive and this is why we have been working on

making the company more scalable.”

Reynolds continued: “In a good market situation, we want to

increase our capacity, but we do not want to add fixed assets to our

balance sheet. We are looking to be more opportunistic and have

more short-term contracts.”

Seabird Explorer has therefore switched to a tactic of chartering

vessels and focusing on operating them as efficiently as possible.

For Reynolds,“Seabird has some key strengths within the market,

and I would say the principal value is that we can take 2D vessels and

operate them more efficiently than anyone else. For example, we

can operate a seismic vessel at less than 50 percent of the cost of a

PGS-operated vessel, and this gives us a significant market edge.”

This comes in especially valuable given the current oversupply of

seismic vessels and low contract rates.

Dag Reynolds, CEO, SeaBird Exploration

Carl Lieungh, president & CEO, Sevan Marine

There is also an external factor limiting the Nor-

wegian tendency to add large assets to the bal-

ance sheet: limited bank financing. The withdrawal

of many European banks from shipping finance and

the introduction of Basel 3 regulations is restricting

access to capital for many players in the maritime

industry. However, Sveinung Stohle, president and

CEO of Norwegian LNG specialist Hoegh LNG, out-

lined the variation he saw in asset financing:

“Particularly in Europe, the financial markets are challenging, how-

ever last week we raised $250 million in bank debt for the Lithu-

anian project, showing that despite banks choosing not to lend to

any shipping company at the moment, Hoegh LNG can still receive

money. This is because we are not strictly in shipping, but in energy

and infrastructure in long-term contracts.”

Hoegh LNG has been moving from LNG carriers into floating

regasification and storage units, pioneering a market, which four years

ago did not exist and recently winning major contracts in Lithuania

and Indonesia. Particularly in relation to Southeast Asia, Stohle sees

his company assist the regionalization of LNG markets, allowing con-

sumption to occur in the same region as production for the first time.

However despite these ambitious projects and the growth of the

LNG market, Stohle admits that he does not have the all the finan-

cial capabilities needed to expand as he wishes. Financing assets

upward of $300 million is a challenge in the current financial envi-

ronment even if your business model is favored by the banking sec-

tor. In order to expand on his capital options, Hoegh LNG therefore

launched an IPO in 2011, in line with a growing trend for Norwegian

companies to focus more on the bond and equity markets, rather

than the traditional banking sector, to finance their assets.

Automobiles and Standardization:With service companies being asked to ramp up their throughput at

the same time as reducing their prices, John Avaldsnes, global advi-

sory oil & gas leader at Ernst & Young, feared that they would have

to sacrifice their margins. He said:

“As companies still try to increase throughput and grow their

operational capacity, more pressure is being placed on margins. At

some point, these suppliers will have to make some arrangements

with the oil and gas companies or their own suppliers in order to

produce sustainable margins.”

Eirik Bergsvik CEO of Norwegian downhole equipment and plug

supplier Interwell and former managing director of the Norwegian/

American giant National Oilwell Varco (NOV), explained that indus-

Sveinung J.S. Stohle, President and CEO, Hoegh LNG

gas

FLOATING REGAS

CarHoe_OGFJ_1305 1 4/23/13 1:50 PM

15

There is also an external factor limiting the Nor-

wegian tendency to add large assets to the bal-

ance sheet: limited bank financing. The withdrawal

of many European banks from shipping finance and

the introduction of Basel 3 regulations is restricting

access to capital for many players in the maritime

industry. However, Sveinung Stohle, president and

CEO of Norwegian LNG specialist Hoegh LNG, out-

lined the variation he saw in asset financing:

“Particularly in Europe, the financial markets are challenging, how-

ever last week we raised $250 million in bank debt for the Lithu-

anian project, showing that despite banks choosing not to lend to

any shipping company at the moment, Hoegh LNG can still receive

money. This is because we are not strictly in shipping, but in energy

and infrastructure in long-term contracts.”

Hoegh LNG has been moving from LNG carriers into floating

regasification and storage units, pioneering a market, which four years

ago did not exist and recently winning major contracts in Lithuania

and Indonesia. Particularly in relation to Southeast Asia, Stohle sees

his company assist the regionalization of LNG markets, allowing con-

sumption to occur in the same region as production for the first time.

However despite these ambitious projects and the growth of the

LNG market, Stohle admits that he does not have the all the finan-

cial capabilities needed to expand as he wishes. Financing assets

upward of $300 million is a challenge in the current financial envi-

ronment even if your business model is favored by the banking sec-

tor. In order to expand on his capital options, Hoegh LNG therefore

launched an IPO in 2011, in line with a growing trend for Norwegian

companies to focus more on the bond and equity markets, rather

than the traditional banking sector, to finance their assets.

Automobiles and Standardization:With service companies being asked to ramp up their throughput at

the same time as reducing their prices, John Avaldsnes, global advi-

sory oil & gas leader at Ernst & Young, feared that they would have

to sacrifice their margins. He said:

“As companies still try to increase throughput and grow their

operational capacity, more pressure is being placed on margins. At

some point, these suppliers will have to make some arrangements

with the oil and gas companies or their own suppliers in order to

produce sustainable margins.”

Eirik Bergsvik CEO of Norwegian downhole equipment and plug

supplier Interwell and former managing director of the Norwegian/

American giant National Oilwell Varco (NOV), explained that indus-

Sveinung J.S. Stohle, President and CEO, Hoegh LNG

gas

FLOATING REGAS

CarHoe_OGFJ_1305 1 4/23/13 1:50 PM



Cars now contain a large number of add-ons pre-

installed, which you cannot use unless you pay for

them. It is cheaper for the manufacturer to sup-

ply the add-ons even when they are not paid for

because of standardization.”

Bergsvik saw the possibility of applying this think-

ing, even to the downhole industry, even though

every well is different. In Bergsvik’s view, by manufacturing prod-

ucts with a broader operational span, he could even apply “add-on

thinking” to downhole plugs, having previously tried to apply this

thinking to NOV during his tenure there. In cooperation with Sam-

sung Heavy Industries, Bergsvik was pushing to standardize the drill-

ing packages delivered by NOV in order to increase efficiency and

reduce cost, in its international business.

Current NOV Managing Director Tor Ramfjord is the beneficiary of

this push towards standardization to a certain extent. NOV is Nor-

way’s tenth biggest exporter and much of its business depends on

the link with Southeast Asian Shipyards – Daewoo, Samsung and

Hyundai. Ramfjord explains that there has been a shift in the opera-

tional model over the last ten years. He said:

“The whole business model of constructing for the oil and gas

try clients were aggressively trying to negotiate down supplier con-

tracts, thereby reducing the topline for the supplier industry.

“[They] claim oil service companies are setting their prices too

high. In fact, we are not the ones responsible for this, but rather our

country’s wealth and standard of living. Cost drivers are therefore

outside of our control, and when companies like Statoil or Cono-

coPhillips attract employees with high salaries and social benefits,

we must align with them if we want to find the talent we need.”

Moreover, Bergsvik explained that operators were not willing to

see any reduction in standards, which could potentially lead to a fall

in costs.“The fact is that if we genuinely believe that these standards

cannot be compromised, then we must simply accept higher cost

levels and move on with our work.”

Bergsvik explained that his company had been working on

expanding the supply chain to low-cost labor countries, however he

believed that this would not be enough. Bergsvik saw the greatest

potential in standardization and took inspiration from the automo-

tive industry. He explained that two cars could:

“Look identical but one will cost $10,000 and the other will cost

$30,000 because under the hood and inside, certain elements have

been tweaked to optimize the performance and comfort of the car.

Eirik Bergsvik, CEO, Interwell

S e v a n M a r i n e

Teekay’s “Piranema Spirit”, the world’s

first cylindrical FPSO, has been

operating for Petrobras S.A. on the

Piranema field offshore Brazil since

2007. “Piranema Spirit” symbolizes

Sevan Marine’s expertise.

Modification of the Sevan 300 FPSO,

“Voyageur Spirit”, is completed and

the FPSO is now on contract to E.ON

and will operate on the Huntington

field, UK North Sea, for five years with

an option for extension.

Eni Norge has selected the Sevan

1000 FPSO concept for the sub-Arctic

Goliat field in the Barents Sea. The

Sevan 1000 FPSO is currently under

construction at Hyundai Heavy Indus-

tries in Korea.

With strong focus on research and development, Sevan Marine, the original designer and world leader

of cylindrical FPSO Technology, continues to provide innovative solutions. As field developments move

to deeper waters and harsher environments Sevan Marine is changing the shape of the FPSO market.

Sevan Marine ASA, Kittelsbuktv.5, 4836 Arendal

www.sevanmarine.com

N o r w e g i a n Te c h n o l o g y f o r C h a l l e n g i n g E n v i r o n m e n t s

CarSev_OGFJ_1305 1 4/23/13 11:47 AM

17


industry has changed from drilling contractors being

at the center of the value chain, managing vendors

and shipyards, to them only establishing the specifi-

cations and negotiating frame contracts. The rest of

the responsibility has been transferred to the ship-

yards for a turnkey delivery of a rig or drillship.”

For Ramfjord, the effectiveness of this model has

come from generating standardization in drilling

packages and removing the drilling contractors from

the production process. He believed that rig contractors were so

obsessed with trying to optimize everything that the fabrication slot

was often missed and projects overran.

Ramfjord sees the necessity of maintaining a delicate balance

between standardization and innovation. He said: “Our success will

depend on a combination of standardized products and tailor-made

equipment. In the past, Norway probably favored tailor-made equip-

ment too much.”

He continued:

“Korean yards are excellent at managing the different vendors,

procuring the equipment and delivering a rig. We have an extremely

successful track record working with these yards. Between 2007 and

2011, 38 deepwater rigs have been delivered on time from Korea

using NOV’s complete packages.”

The Korean market has grown over the last decade to become

Norway’s largest export market for oil and gas services, ahead of

the other top-five markets: Brazil, the UK, Singapore and Russia.

This relationship has recently been strengthened by the collapse of

global shipping Korean yards have had to make a challenging tran-

sition into the offshore market, partnering with Norwegian suppli-

ers to gain access to high end technologies. The high volume work

given to this successful international partnership is helping Norwe-

gian contractors move towards more cost-efficient standardization.

Clustering Around the “Drilling Bay”Tucked away in the verdant region of South Norway, near the city

of Kristiansand, is a technology cluster that has transformed Nor-

way’s position as an exporter of drilling technology. Following NOV’s

acquisition of Bjarne Skeie’s Hydralift and the establishment of Aker

Solutions, a cluster of companies has transformed this area into what

is now known internationally as “the drilling bay”, producing around

85 percent of the world’s offshore drilling packages.

Part of the success of this region comes from the collaboration of

companies within the Norwegian Offshore Drilling and Engineering

(NODE) cluster, which was established in 2006. Since then the cluster

has grown to 9,000 people from 1,500 and revenues have climbed to

$45 billion from $5 billion. NODE is one of 12 Norwegian National

Centers of Excellence and is a big draw for companies seeking to

gain access to key Norwegian intellectual capital.

In 2012, a third major player joined this cluster, when global leader

in flow equipment Cameron made a NOK 1.55 billion ($270 million)

acquisition of TTS Group’s drilling division in Kristiansand. Through

this merger Cameron gained work on drilling packages for the ultra-

deep-water drill ships allowing Cameron to seriously compete with

both Aker Solutions and NOV.

Cameron’s global CEO Jack Moore saw the acquisition of this Kris-

tiansand based company as an essential component in moving into a

tough ultra-deep-water drilling market. And curiously, the company

which recently awarded Cameron with a major drilling package con-

tract, Sigma Drilling, is backed by none other than the founder of

Hydralift Bjarne Skeie.

The Paternal Role of Statoil: Though the complex production challenges of Norway apparently

serve as a muse for the creation of new technologies, they are not

exceptional. So why then did Norway become the center of excel-

lence for all things offshore?

For Lars Mangal, chief commercial officer of Welltec, a lot

depended on how the operators chose to focus their attention and

he believed that in the case of Norway it was Statoil’s leading role

Tor Henning Ramfjord, managing director & VP operation Norway, NOV

CarDah_OGFJ_1305 1 4/24/13 11:16 AM



in seeking to maximize recovery, which allowed

this Danish pioneer of well-tractor technology to

develop.

“From the very early days in Norway there was a

strong focus on maximizing recovery which became

the overriding driver of why production mainte-

nance and well work activities have been so strong

here compared to other markets,” he said.

Norway has been at the global forefront of techniques to increase

oil recovery and horizontal drilling, techniques which were enabled

by Welltec’s technology. Øystein Michelsen, Statoil’s executive vice

president of drilling and production in Norway, explained that his

focus was on taking the recovery factor to over 60 percent, fur-

ther widening the gap between Norwegian ambitions and global

standards.

For Mangal, this drive has, “forged a partnership between Welltec

and Statoil from the very early days to bring technologies that were

going to complete the portfolio, enable the step change and sup-

port continuous strides to improve the recovery factors from the off-

shore NCS.”

Håvard Devold, group vice president oil & gas upstream of ABB,

similarly believes the answer lies in the innovative

environment established by Statoil, Petoro and the

international majors at the dawn of the industry in

the 1970s. He explained:

“The entire regime was designed to favor the

development of the supplier industry. The positive

environment was not just about Norwegian suppli-

ers being favored in tenders; the system was set up

to allow for ‘active mentorship’ of the supplier industry.”

Devold contrasted the Norwegian environment with that in other

jurisdictions where risk-averse attitudes predominate and 5-year

proven track records are demanded -- even to this day. Devold

believed that unlike other jurisdictions Norway was willing to test out

technologies, which would take years to penetrate other markets.

He highlighted the example of ABB’s first major project with Statoil:

“Our first significant project was to install the control systems for

Statoil’s Gullfaks platform. Working with Statoil, we had the opportu-

nity to develop our latest control system into a fully distributed con-

trol system architecture. It took a further 20 years for these control

systems to reach full maturity in other markets.”

Devold saw this trend continuing with new projects like Statoil’s

subsea factory and integrated operations. Asked whether he saw the

same type of active mentorship with the newcomer operators on the

NCS, Devold replied:

“The minor companies do not have the same approach to technol-

ogy. They have their own role in developing resources, which require

a more lean and mean approach. As a consequence, their approach

to development is much more similar to other places in the world

from Southeast Asia to Africa, and they take fewer risks in trialing

out new technologies.”

Whether the newcomers and the minors are willing to invest in

technology or not, the list of companies choosing to invest in new

technologies is definitely not restricted to Statoil, Petoro, Cono-

coPhilips and a few other majors. The Norwegian tax regime has

proven to be a major success in encouraging research and develop-

ment in Norway. The state SkatteFUNN scheme, established in 2002,

allows companies to offset innovation costs through tax credits. This

scheme allows for intramural expenditure of $950,000 and funds for

partnerships with research associations potentially receiving up to

$1.9 million.

While not the largest incentives in the world, this innovative tax

regime has seen companies claiming back more than $200 million

in deductions and has boosted research and development (R&D)

expenditure. For service companies, this has created a climate of

innovation in Norway. Wolfgang Wandl, managing director of Viking

Seatech Norway, commented on the willingness to adopt technolo-

gies between Norway and the UK. Wandl said:

“There have been cases where we presented ideas to an E&P

CarWel_OGFJ_1305 1 4/23/13 4:16 PM

Lars Mangal, chief commercial officer, Welltec

Terje Skeie, senior vice president, Welltec

19

company in the UK, and the UK office asked the Norwegian sister

company to test out the product first before it would be used in the

UK. Norwegian companies are apparently more willing to try out

new ideas, and several of our products have been supported by Det

Norske, Statoil and other Norwegian players.”

In developing a pre-lay mooring technology for

the NCS, which effectively cuts the rig move time

from four or five days down to around four hours,

Viking Seatech is focused on innovation for the sake

of efficiency. Wandl reported that thanks to using

this technology, Norwegian junior oil company Det

Norske would be able to drill one extra well over

its rig contract period. For Wandl, these efficiency-

driven innovations alone are enough to create demand.

“Norway is an efficiency driven market,” he said.“In Norway, work-

ers do two weeks on, four weeks off and in the UK they work two

weeks on and two weeks off for the same pay. When labor and rigs

are under-supplied to the market, the only solution to maximize on

these limited resources is to be efficient.

In the UK, they work to a minimum price and it may mean standing

off four or five days during the winter. In Norway, they instead say:

tell me what you can do to have zero days off. If Norwegians can

eliminate inefficiency, they will do it – no matter the cost.”

This willingness to trial new innovations has been extremely useful

for Norway’s own service industry in its international expansion, a

point highlighted by Even Gjesdal, CEO of Norwegian mud cleaning

technology company Cubility.

“Even though the validation process of a new technology entering

a market is long, especially in Norway, we feel that the recognition of

our technology from the leaders of the NCS will give us the support

to continue our quest in other waters. Statoil is crucial to our tech-

nology, and we are aware that other companies outside of Norway

trust Statoil’s choices for newly implemented technologies.”

Gjesdal emphasized that Norway had managed to resist the strict

Positioned for innovation

Viking SeaTech provides consistent service, expertise and

innovations globally to meet the demands of the worldís

offshore energy assets.

Our clients welcome the breadth and depth of our service.

From conception to completion, from marine engineering

to equipment supply & rental, from positioning, mooring

& inspection to maintenance & manpower projects, our

offshore seatech services consistently increase customer

uptime.

Our innovation and performance will change the way the

world sees offshore SeaTech services.

- Marine Engineering

- Survey & Positioning

- Moorings

- Inspection

- Maintenance

- Manpower

www.vikingseatech.com

[email protected]

��

positioned for innovationTH

CarVik_OGFJ_1305 1 4/23/13 11:37 AM

Viking Seatech

Wolfgang Wandl, managing director, Viking SeaTech



will be less oil per well. This means that the oil service industry will

grow significantly. The supplier industry will take a greater share of

national value creation.”

In Haugane’s conception, the onus of technology development

will fall more on service companies themselves, and they will take

a greater share of the work of production, thereby redefining their

relationship with oil companies. So whilst there may be less money

for oil companies to spend, the demand for services is unlikely to

subside.

The Brazilian Statoil The idea of using international partnerships to nur-

ture the development of a strong domestic ser-

vice industry is nothing new, and it forms the main

motivation for every local content policy. However,

no country has come close to developing a service

sector as strong as Norway’s on the back of interna-

tional collaboration. Brazil, nonetheless, is making a

stab at it and engaging with Norwegian partners in

the process.

Chairman of the Brazilian-Norwegian Chamber of Commerce Terje

Staalstrom said that there were around 130 Norwegian companies

operating in Brazil, 100 of them in the oil and gas industry. In fact,

oil and gas represent roughly two-thirds of the real trade balance of

$1.7 billion between the two countries. However, Staalstrom admits

that,“the biggest challenge is for companies to meet the require-

ments for local content… we [Norway] had similar prerequisites for

local content in the late 1970s and early 1980s.” However, today

the Norwegian sector has matured to have more than 50 per cent

foreign ownership.

Oftentimes, it seems that Brazil is prioritizing local content even

at the expense of their own ambitions, with a restricted labor force

undermining significant projects. Those projects, which do proceed,

employ Brazilian employees on extremely high salaries. Staalstrom

mentions that, “to build an FPSO in Brazil today may be double the

price of Korea, and even 20-30% more expensive than building in

Norway.” Brazil is now far from a low-cost country in which the inter-

national service sector can establish itself.

Though onerous local content regulations provide a significant

impediment to Brazilian-Norwegian service sector cooperation, the

Brazilians have adopted one aspect of the Norwegian formula rea-

sonably well: active mentorship.

Sevan Drilling, the spun-off drilling division of FPSO designer

Sevan Marine, has managed to build a strong partnership with Petro-

bras. It was Petrobras which first took on the Sevan Marine FPSO in

2004. It was Petrobras which then took the initiative to develop the

Sevan design for a potential drilling rig. And it was Petrobras which

awarded Sevan Drilling (then part of Sevan Marine) the first contract

financial target to retrieve oil rapidly and move on.

“We believe Norway to be the best place to start

our technology on its international road to success,”

he asserted.

Shell Technology Ventures has recently commit-

ted to spending several hundred million dollars on

emerging technology companies on the NCS. So, it

appears that the spirit of active mentorship is far from dead, even if

the composition of operators on the shelf is evolving.

.

Marginal Fields Need More ServicesOne of the concerns for the future of Norwegian R&D funding is that

the fields being discovered are smaller than the giant developments

of the past. Therefore, the focus of companies will be on the eco-

nomic development of fields, not on piloting risky new technologies.

However, Erik Haugane, CEO of Norwegian junior Det Norske sees

the challenges of smaller and trickier fields as more of a call to action

for the Norwegian service industry rather than a omen of its demise..

“As a more mature province, which we expect to be in 2020, we

will need fifty fields to produce two million barrels. So, the number of

engineers and service companies necessary will increase, and there

CarCub_OGFJ_1305 1 4/22/13 5:57 PM

Jon H. Willmann, CFO & deputy CEO, Sevan Drilling

Even Gjesdal, CEO, Cubility

21


for the Gulf of Mexico and then a second contract in 2008.

John Willman, CFO & Deputy CEO of Sevan Drilling, explained:

“Petrobras has been extremely supportive of both Sevan Marine

and Sevan Drilling. Without this company, it is clear that neither

company would be in the market today. Petrobras took a bet on

this company, awarding contracts without any track record, which is

pretty bold, and they have been extremely important in developing

this company.”

The first unit, the Sevan Driller, suffered severe cost overruns due

to what Willman saw as unrealistic expectations placed on COSCO

shipyards. Nonetheless, Petrobras stuck by the technology. Willman

believes that the Brazilian company should have been able “to pro-

pose discounted rates for these drilling units because there was no

buyer competition for this untested concept.” However, the proj-

ect needed to attract financing to get off the ground and Willman

believes that “the agreement was reached in order to prioritize the

development of this concept, rather than cost savings for Petrobras.”

Despite its challenges, the Brazilian market is still projected to be

valued at/worth $42 billion in 2015. So, the draw for the Norwe-

gian service industry is evident, and in spite of local content regula-

tions, Petrobras seems capable of championing the types of high-

end technology produced by Norway over cost efficiency – thereby

adapting Statoil’s role on the NCS for the Brazilian market. Brazil is

just setting out on a path Norway took 40 years ago. So, time will tell

whether it succeeds in replicating the Norwegian forumula.

In-Norway-tion Recent criticisms about Western economies have

often been centered on whether these countries are

still innovating and adding economic value. With

Asia spending almost double that of Western econ-

omies on research and development, are we about

to witness a steady tide of value creation flowing

towards Asia?

Not so, said Henrik Madsen, Group CEO of Norwe-

gian foundation DNV.

“I would not agree that there is a lack of innovation in Europe, I believe

the opposite is true. Even if spending in Asia is much higher, Europe

has an educational system and philosophy which is strong in promoting

innovation; in Europe you are allowed to fail and this means that people

are more willing to take bigger risks. Europe will survive as an economic

power because we remain at the forefront of innovation.”

��

� ��

� ��

CarDri_OGFJ_1305 1 4/24/13 11:20 AM

Henrik O. Madsen, group CEO, DNV

22 Norway Oil & Gas report part 2 May 2013Norway Oil & Gas report part 2 May 2013

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Car3M_OGFJ_1305 1 4/23/13 1:55 PM

3M: APPLIED INNOVATIONS

Probably best known as the people who make office station-

ary, 3M has an incredible depth of technologies ranging across

many industries, from healthcare to oil and gas. In fact, 3M has been

nominated as the third most innovative company in the world after

Apple and Google by Booz & Co. Focus Reports therefore caught

up with 3M VP and GM of Oil & Gas Jeff Lavers to ask what Norway’s

innovative oil industry represented within this industrial constellation.

FOCUS: What is Norway’s Role within 3M’s oil & gas innovation?

LAVERS: Norway is a primary market for 3M globally, for the very

fact that it is a key site of innovation in the oil and gas industry. Nor-

wegians value technology, and they are adept at building new tech-

nologies – traits that are extremely valuable for a technology-driven

company like 3M.

Innovation is the magical blend of invention with practical application

and to be truly innovative, you need to have that mix. By continuing to

work in the Norwegian market in an industry like oil and gas, our ability

to innovate on a global level is much higher than it would otherwise be.

One of the main issues that 3M is facing as a com-

pany right now is that we have traditionally used the

approach with products defining the market. However,

the market dynamic is playing an ever more important

role in steering the company, and we are now starting

to see within 3M a shift towards allowing markets to

increasingly inform our innovative processes.

FOCUS: How does Norway fit within 3M’s oil

and gas brand recognition?

LAVERS: 3M's strategy is to target the early adopters to see how

products can benefit our markets, and then try to replicate this suc-

cess with the other companies in the industry to build a broad base

of acceptance.

We have identified some regulatory developments as "one-offs",

where they arise out of a particular local dynamic, but they will not be

replicated in other parts of the world.The interesting thing about the

various regulatory and technology fronts in the Norwegian market, is

Jeffrey Lavers, Vice President and General Manager,3M Mining, Oil and Gas Solutions Division

23


The global oil and gas industry

faces many different challenges.

3M has years of proven innovation in

material sciences to build and support

advances in technology, meeting the

demanding requirements for this critical industry.

This gives us the resources to provide you with a

continually evolving range of world-class solutions for

upstream, midstream and downstream applications:

• to protect your people and the environment

• to extend the life of critical assets

• to improve productivity in your operations

To discover more, contact 3M.com/oilandgas 11©

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CarDNV_OGFJ_1305 1 4/23/13 11:01 AM

Madsen went on to point out the distinguishing feature between

Western and Asian innovative models. Westerners are more prone to the

creative destruction or Schumpeter model of value creation, where ideas

are created and destroyed with the success of their host companies. Asia

Norwegian Past Innovation: the Condeep Platform by Jan Ulriksen/Statoil/Norwegian Petroleum Museum

that they are actually replicated in other markets.... Norway has a

leadership role in the industry.

FOCUS: As a major consumer of hydrocarbons, how would

you describe 3M’s own relationship with oil and gas?

LAVERS: If you look at the recent trends in US gas prices, which

have dropped dramatically simply because the industry has man-

aged to become more efficient in extracting gas, this has deliv-

ered huge savings to American industry. As a major industrial

consumer, 3M has gained a lot from this price movement as our

variable costs have gone down and we have been able to use

these savings to fund more R&D investment and commercial

opportunities.

3M, as a company, does consume a lot of oil and gas both on an

operational basis and as the feedstock for a lot of our products. This

makes our search for efficiencies a circular initiative. We are often

looking to benefit as a company from the same efficiency-driven

products that we provide for the oil and gas industry.



“Given the country’s strategic positioning in the

Arctic Circle, Norway is still our focus in technology

development for Arctic environments… However,

even here the R&D for Arctic environments is shared

across Russia, Alaska, Canada and Norway. These

different research environments can be leveraged to

benefit our work in Norway.”

Expanding from a relatively small base of compa-

nies in 2009 to more than 35 offices today, Scandpower accelerated its

internationalization by integrating with various subsidiaries of the Lloyd’s

Register group.

“Ten years ago the Norwegian staff represented around 75 percent

of our employees whereas today they represent around 30 percent. In

addition, we have global centers of excellence such as Lloyd's Register’s

Global Technology Center in Singapore and in Southampton.”

Value creation is clearly moving into an interna-

tional arena for Scandpower. However, the most

recent merger between ABS and Safetec shows yet

another mode. ABS and Safetec have not integrated

to the same extent as Scandpower and Lloyd’s group.

According to Jan Morten Erstaas CEO of Safetec

and Vice-President of Offshore Oil & Gas, ABS

Group the value of the merger comes from sharing

knowledge and methodologies.

“We have not physically integrated with ABS Group, and the manage-

ment of Safetec has been fully maintained. Safetec is an ABS Group

company, but we have maintained our brand name and recognition in

the market. We are simply looking at how the two companies can ben-

efit from each other's experiences and methodologies. We are concen-

trating on how to share knowledge.”

For Safetec, Norway therefore remains the hub of

R&D. Rather than transferring to a new location, inno-

vation is becoming globalized, and while that might

threaten Norway’s dominant position in certain fields,

it does diminish its role in innovation overall. Particu-

larly, in the case of ABS and DNV, Norwegian exper-

tise remains at the center of global innovation.

Funding Norway’s Innovative Future:Despite the private bent of the Norwegian model of innovation, the

Norwegian state is regarded as playing a major role in the development

of new technologies. State funding to the oil and gas sector is delivered

through two principal funding bodies Petromaks and Demo2000, which

distribute a budget of $70 million to the industry. Petromaks handles all

funding for basic research, while Demo2000’s rationale is to co-sponsor

pilot projects for applied technologies. Anders Steensen, program coor-

dinator of Demo2000 explains:

“Government spending has traditionally been a major part of R&D

tends to adopt more incremental innovation model, where innovations

are slowly established within a few continuously operating research cen-

ters. As a consequence, according to Madsen, “Asia does not have the

same number of small entrepreneurs willing to develop their ideas.”

Madsen continued on the subject of where value would be

created.“DNV has made two commitments to value creation in Nor-

way and the first is that the headquarters of the organization will always

remain in Norway. Secondly the majority - 80 to 90 percent - of our R&D

will be conducted in Norway.”

He clearly saw Norway maintaining a dominant role in the world of

innovation. However, one of the telltale signs of an industry running low

on in-house value creation is the tendency towards mergers and acqui-

sitions. Looking at the risk management sector over the past couple

of years, DNV has merged with Kema, Scandpower has merged with

Lloyd’s Register and, most recently, Safetec has merged with ABS. So is

this a sign that value creation is suffering in Norway?

Bjorn Inge Bakken, CEO of Scandpower, sees it differently. For him,

Scandpower’s merger with Lloyd’s Register in 2009 brought with it great

opportunities to launch joint international projects. Even in the field of

Arctic R&D, Norway is far from alone as a source of expertise and Bak-

ken highlighted the joint research potential:

CarABS_OGFJ_1305 1 4/22/13 5:54 PM

Bjørn Inge Bakken, CEO, Scandpower

Egil C. Legland, country manager, ABS

Jan Morten Ertsaas , VP of offshore oil & gas, Safetec

25


spending in Norway and has played the role of encouraging private sec-

tor investment in innovation… From Demo 2000’s inception in 1998, the

export of Norwegian technology in the oil and gas business has increased

from 30 billion NOK ($5 billion) to 152 billion NOK ($26 billion) today.”

Steensen believes that the majority of the success can be attributed to

the involvement of the private sector in the technology forum, including

a range of players from Statoil to Total and Lundin. This involvement

helps to keep public funding directed at the most useful technologies.

Anna Aabø of the International Research Institute of Stavanger (IRIS)

agreed “One of the strong aspects of the Norwegian R&D environment

so far has been the applied nature of our research in oil and gas.”

Aabø emphasizes the necessity of making research relevant, stat-

ing that while 30-70 percent of funding can come from the public

sector:“The rest of our financing has to come from the industry itself and

they need to find our project interesting in order to invest. The system is

therefore set up for research to be relevant.”

IRIS functions as one of the connection points for the public and pri-

vate sectors, establishing a link between diverse international research

bodies from NASA, which is looking to adapt Norwegian drilling tech-

nologies for use on Mars, to other Norwegian clusters, the University of

Stavanger and the private sector.

We have significant growth ambitions, and we are looking for skilled persons to our 32 offices around the world. We can promise you an exciting position in an international company.

We are a subsidiary of Lloyd’s Register Group Limited. Together we form a world-leading, independent risk management organisation that works to improve our clients’ quality, safety, environmental and business performance throughout the world, because life matters.

Read more at www.scandpower.com

Will you GROW with us?

CarSca_OGFJ_1305 1 4/23/13 1:42 PM

SWEDEN

FINLAND

NO

RW

A

Y

NCE Instrumentation

NCE Aquaculture

NCE Maritime

NCE TourismFJORD Norway

NCE Subsea

NCE Culinology

NCE Node

NCE Raufoss

NCE Oslo Cancer Cluster

NCE Systems EngineeringKongsberg

NCE Micro-and Nanotechnology

NCE Energy and Emissions Trading Halden

NorthSea

A r c t i c O c e a n

NorwegianSea

Baltic Sea

Gulfof

Bothnia



tially explode. However, they do not accept the storage of a perfectly

inert gas in their country.”

Though, as Haugan puts it, the naysayers currently have the upper

hand, Norway’s steadfast publicly funded commitment to this technol-

ogy and the recent opening of the new Technology Center in Mongstad.

“Norway could end up playing a crucial role in reversing the swing.”

Carbon Capture Storage in the Valley of DeathThe value of long-term public funding in the area of research and devel-

opment is clearly evident in the story of carbon capture storage (CCS).

Bjorn-Erik Haugan of Norway’s publicly funded CCS-focused research

institute Gassnova explained:

“Going back just over two or three years, there where

huge expectations being placed on CCS technology in

terms of how fast it might contribute to combat global

warming. Reality has now set in, in the sense that a

lot of the projects for the development of CCS tech-

nology have not materialized at the pace that people

expected. We are now in what others might refer to as

the “valley of death” in CCS innovation.”

Haugan said that the popular mandate for exploring this type of tech-

nology had subsided with climate change being taken off the agenda,

and a carbon market has not emerged. Even Germany has bowed down

to popular misconceptions.

“Germany has practically banned the storage of CO2 because the

government has bowed to popular but erroneous belief. This has led to

the situation where they are quite happy to accept the storage of natural

gas under their football stadium in Berlin – which is a gas that can poten-

Bjørn-Erik Haugan, managing director, Gassnova

The next issue in our series of reports on Norway will be published in a late summer edition of

Oil & Gas Financial Journal

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2

3

4

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CarCam_OGFJ_1305 1 4/22/13 5:56 PM

Carbon storage at Sleipner, Photo Alligator film, BUG, Statoil

27

For exclusive ITVs and more insights, log on to



28

INTERVIEW WITH:

Per Harald Kongelf, COO - Aker Solutions

Per Harald Kongelf, COO - AKER SOLUTIONS

Focus Reports: 2012 witnessed a 90 percent rise in Aker Solutions' share price. Do you see the company being able to justify simi-lar increases in 2013, based on your perfor-mance projections? PER HARALD KONGELF: We will have to let the stock market be the judge, but back in 2010 Aker Solutions launched an ambitious 5-year plan where we aimed to double our revenue and significantly increase our EBITDA per-formance by 2015. In 2013 we are on track to meet this objective and we believe the cur-rent market fundamentals will support this growth. Our performance should be of inter-est to the stock market in 2013 as well.

FR: An Ernst & Young paper points to sup-pressed margins for the oil service industry throughout 2013. To what extent will Aker Solutions also be affected? PER HARALD KONGELF: Our 2015 target implies a growth in our operating margins, and, as I said, we are still on track to meet that tar-get. So far, we have not seen any evidence of a huge pressure on margins. In any case, the pressure on margins is no greater than we predicted when we formulated our targets three years ago.

Of course, growth in margins will have to come from a continuous focus on improv-ing our performance. Gaining greater con-trol over the key elements of our operation is a fundamentally important task for the company in 2013.

In 2012 Aker Solutions experienced 750 million NOK (USD 132 million) losses

through mistakes/quality costs. If we man-age to reduce these quality costs further we can significantly increase our financial per-formance. This quality cost figure was also based on a very tight definition of what con-stituted a quality cost. Therefore if we broaden the definition further we see plenty of scope for improvements in margins. Attacking this area will be a key strategy for Aker Solutions in 2013.

FR: Aker Solutions is expanding aggres-sively with more than 3,000 employees being brought into the organization last year, 60 percent of whom were interna-tional. How do you see the conflict between rapid expansion and improving quality? PER HARALD KONGELF: Of course, we are exposed. However, as with any risk the most important task is to understand the risk you are taking on. We are trying to mitigate the challenge brought about through this expan-sion as much as possible. The management team of Aker Solutions is highly focused on the onboarding and training of new people with the elimination of quality costs as a result of our expansion being a key motiva-tion.

FR: Following the divestment of Kvaerner, Aker Solutions has remained a close part-ner of the Norwegian fabricator in tenders. However, having lost a series of tenders in Q42012 how are you now reassessing your partnership with Norwegian fabricators? PER HARALD KONGELF: Aker Solutions and

Interview with: Per Harald Kongelf, COO - Aker Solutions

29

Per Harald Kongelf, COO - AKER SOLUTIONS

Kvaerner have worked together for 40 years, and we will continue to cooperate with Kvaerner in the future. However, we would also like to have more flexibility regarding our bidding partners. This is because there are many parameters, which decide which particular company constellation will be suc-cessful in securing a project. Relying on one partner is not an effective strategy in this environment.

It is true to say that Norwegian fabrica-tors as well as Aker Solutions need to work on competitiveness including our subcon-tracting strategies and relationships with suppliers. However, I am not that pessimis-tic with regard to Norwegian fabricators and their future. They will need to develop and rethink their assembly lines and facilities as well as their supply chain logistics, which I am sure they are doing.

I think there is still a space for Norwegian fabricators in the market, as when it comes to advanced modification projects, it is hard to see the Koreans being able to compete. Before this happens foreign yards will also need to prove that they can deliver to the stringent Norwegian standards.

FR: Many Norwegian companies have tried to make a success of the Brazilian market, but many have struggled. Given Aker Solu-tions' huge investments in the Macaé facil-ities last year, how will you make this mar-ket work? PER HARALD KONGELF: Aker Solutions needs to take a broad and holistic approach to this market. We have been in Brazil for many years, back to the days of the paper mills in the 1970s. We constructed our subsea facil-ity in Curitiba where we developed our ser-vice offerings in drilling and subsea.

Unfortunately we encountered a major challenge with the business growing out of its comfort zone a few years ago. The man-agement of Aker Solutions at the time was

not close enough to the ground to deal with this development. However, we quickly took action, restructured the business, brought in some of our best people to ensure knowl-edge transfer and focused on building a solid organization on the ground in Brazil. I am confident that on the back of this restructur-ing it will become a strong business for us.

FR: As Aker Solutions increases its share of international staff, as it localizes its man-agement structures and as it continues to carry out a greater share of its business overseas, is it fair to say that the company is not really Norwegian anymore?PER HARALD KONGELF: Aker Solutions would like to see itself as multinational company, however the major part of our company's brain and heart derive from Norway. Most of our best practices have been developed in Norway. The NCS has provided a terrific training ground - a laboratory for testing advanced solutions

We would now like to expand our Norwe-gian business culture and modus operandi to overseas markets and believe that this can be a strong competitive advantage. We will continue to apply our existing Norwegian management principles across all of our international markets. Roughly half of our business is generated from the Norwegian market, and in the 2015 plan to double the business, Norway will still represent about 50 percent of the business.

Of course, we are exposed. However, as with any risk the most important task is to understand the risk you are taking on. We are trying to mitigate the challenge brought about through this expansion as much as possible.

30

INTERVIEW WITH:

Henrik O. Madsen, Group CEO - DNV

Henrik O. Madsen, GROUP CEO - DNV

Focus Reports: You have in the past described DNV as a science-driven foundation, rather than a money-driven company. How much focus is there on the growth of the business?HENRIK O. MADSEN: It would be hard to grow much faster than we have done. Since 2006, our organic growth has been around 10-12 percent and my feeling is that growing any faster would generate challenges in main-taining the coherence of the organization and might compromise on the quality of our work.

I am happy with the progress so far and if we wish to grow faster in the future then I am confident that we will have the resources to do so. Although the founda-tion may seek interest in stock listed com-panies, it will never itself be stock listed. It will always be a self-owned not-for-profit organization. Maintaining that sta-bility and long-term planning is impor-tant for both our development and the confidence of our client base.

FR: DNV is probably the Norwegian com-pany with the largest global reach, it man-ages 10,000 employees and generates USD 1.7 bn in revenues. What does it say about DNV that it is headed up by a research pro-fessor from Greenland? HENRIK O. MADSEN: In DNV there are many career tracks, one of which is the specialist track where you can really concentrate on your discipline. Then there is the manage-ment track, but even though this is focused

on the strategy of the company, you really have to have a deep interest in technology, otherwise you do not do well in the com-pany and you will not earn the respect of your peers.

FR: With Asia outspending the West in R&D by almost double, there has been some criticism of Western value creation through innovation. How do you see DNV's role in Norway's innovative environment? HENRIK O. MADSEN: DNV has made two com-mitments to value creation in Norway and the first is that the headquarters of the organization will always remain in Norway. Secondly the majority - 80 to 90 percent - of our R&D will be conducted in Norway. As a Norwegian foundation this is part of our heritage and we are committed to the country. This does not mean that the R&D is done exclusively by Norwegians, far from it, in fact we have around 30 nationalities working on technology development in Norway so this remains the site of value creation, and the technology is then dis-seminated around the world.

However, I would not agree that there is a lack of innovation in Europe, I believe the opposite is true. Even if spending in Asia is much higher, Europe has an edu-cational system and philosophy which is strong in promoting innovation; in Europe you are allowed to fail and this means that people are more willing to take bigger risks. I can tell you only one ship type that was not invented in Europe: the container ship.

Interview with Henrik O. Madsen Group CEO DNV

31

Henrik O. Madsen, GROUP CEO - DNV

If you look at the Norwegian Continen-tal Shelf and oil and gas industry then there is so much innovation going on, whether in the major R&D departments of substantial Norwegian companies or at the level of the small entrepreneur. Asia does not have the same number of small entrepreneurs willing to develop their ideas.

FR: How do you view the challenge of gen-erating HSE standards for completely new industries? HENRIK O. MADSEN: DNV starts with recom-mended practices and then sets official standards. In order to do this we need to maintain our position at the cutting edge of technology. It is very common in the oil and gas industry for companies to introduce new technology before there is a standard. In these instances, you must qualify the technology from a first prin-ciples standpoint, which requires us to have very strong technical competence.

FR: How did DNV as a Norwegian orga-nization, traditionally associated with offshore and maritime standards, end up involved in the American shale gas revo-lution? HENRIK O. MADSEN: It was actually some of the most inf luential operators in the shale gas industry who approached DNV and asked us to get involved. They stated that they did not feel that they had the trust of the general public or the govern-mental regulators in developing the industry and so they wanted an indepen-dent certification company to develop a set of standards which they could then follow. I think the fact that DNV was approached, indicates a pretty strong international standing for the company and we are proud to have made a contri-bution.

FR: What is your perspective on risk man-agement in the Arctic? HENRIK O. MADSEN: The first thing I would mention is that the Arctic is not in any way homogeneous as a production area. There are huge differences between Greenland and the Norwegian part of the Arctic. The Nor-wegian part of the Arctic is actually not very different from parts of the North Sea: it is slightly colder and darker in the winter and there is not the same infrastructure in terms of search and rescue services and there may be more icing on the infrastructure, but oth-erwise the differences are not so large.

Going to Greenland is a completely dif-ferent question. If there is an oil spill and the region is covered with drift or pack ice, we do not yet have the technology to con-duct a cleanup and so this should not be the current focus of E&P.

DNV is working closely with Russia in looking at Arctic production. The Russian authorities have a lot of experience in devel-oping good onshore standards and a lot of data on ice meaning that they have a lot to bring to the table. The Russian authorities might be more prescriptive than we are in Norway, where our standards are more per-formance-based. Particularly where you have a lot of development, we feel that per-formance-base standards are better and once technology is mature you can then be more prescriptive. Aside from this differ-ence in approach there is a lot this partner-ship between Norway and Russia can bring to the development of Arctic standards.

Our Barents 2020 program was an ini-tiative promoted by the Norwegian foreign ministry to harmonize the offshore devel-opments of Norway and Russia, making it much easier for rig contractors and other offshore service providers to work on both sides of the Barents Sea. There has been a strong collaborative environment within this partnership.

32

INTERVIEW WITH:

Jeff Lavers, VP & GM - Oil & Gas 3M

Jeff Lavers, VP & GM - OIL & GAS 3M

Focus Reports: What would you say is the main issue you seek to address in your offering to the oil and gas industry? JEFF LAVERS: In the industry today, I would say that the most influential cost-factor for oil and gas companies is labor. In some of the oil and gas markets that we have addressed, labor costs have recently risen more than 250 percent. 3M is therefore looking at its technologies and asking the question: how can we improve labor effi-ciency and thereby increase the efficiency of production?

The price of oil will probably be sus-tained at around USD 100 per barrel, so the question that we have to ask now is what to do about the continuing rise in overall oil production costs, which have been rising over the last 5-10 years. The rising prices can eventually start to cause problems for the industry. 3M is therefore seeking to build services and products which will counteract this upward trend in production costs.

FR: On the supply side of the equation, high oil prices will raise the production costs of many of your own products. What impact has this had on your business model? JEFF LAVERS: 3M as a company does con-sume a lot of oil and gas both on an opera-tional basis and as the feedstock for a lot of our products. This makes our search for efficiencies a circular initiative. We are often looking to benefit as a company from the same efficiency-driven products that we provide for the oil and gas industry.

On the other hand, looking at the recent trends in US gas prices, which has dropped dramatically simply because the industry managed to become more effi-cient in extracting gas, this has delivered huge savings to American industry. As a major industrial consumer, 3M has gained a lot from this as our variable costs have gone down and we have been able to use these savings to fund more R&D invest-ment and commercial opportunities.

FR: 3M has an expansive offering to the oil & gas industry from abrasives to personal safety equipment. How much brand equity does 3M carry into the oil & gas business? JEFF LAVERS: There is a strong recognition of the 3M brand within the oil and gas com-munity, but not specifically as a provider for the oil and gas industry. Many people know us through our consumer products and brands and this generates curiosity. I think that this baseline recognition is one of the assets that we can build on when we expand our presence in the oil and gas industry.

Globally 3M is known for innovation and there are many people in the oil and gas industry who are curious about our upcoming innovations. Our challenge now is to penetrate deeper into the oil and gas industry and demonstrate how our prod-ucts can really help.

FR: With such a diverse portfolio, how chal-lenging is it to generate recognition of what 3M represents for the oil & gas industry?

Interview with Jeff Lavers VP & GM Oil & Gas 3M

33

Jeff Lavers, VP & GM - OIL & GAS 3M

JEFF LAVERS: An interesting characteristic of the oil and gas industry is that it takes decades to establish your credibility in cer-tain areas. The oil and gas industry, to its credit, needs to be risk-averse. As such, we have to appreciate this characteristic as suppliers and we need to have patience as a corporation when building our brand equity in this market. Nonetheless, 3M has some very dynamic technologies which are already starting to generate some traction and build our recognition. Our focus is on providing solutions to our customers in the oil & gas space to help protect their people and the environment, to extend the life of critical assets and to drive productivity and recovery.

FR: Norway is characterized as an early-adopter market. How do you view the Nor-wegian market within your global portfo-lio? JEFF LAVERS: Norway is a primary market for 3M globally, for the very fact that it is a key site of innovation in the oil and gas industry. Norwegians value technology and are adept at building new technologies and this is extremely valuable for a technology-driven company like 3M.

Booz Allen has recently recognized 3M as a highly innovative company, not only because of our investments in R&D but because we can translate invention into true innovation. In order to achieve this translation, you need to have companies which are willing to apply your technolo-gies in their operations.

In Norway you have new discoveries in often challenging locations such as the Arctic, where there is a recognized role for technology in overcoming environmental factors and in protecting the environ-ment. However, we also see great oppor-tunities in the mature areas. Norway has been producing oil since the late 1960s

and in order to keep producing you need innovative technological approaches. 3M therefore sees its presence across both ends of the development timeline.

Innovation is the magical blend of invention with practical application and to be truly innovative, you need to have that mix. By continuing to work in the Norwegian market in an industry like oil and gas our ability to innovate on a global level is much higher than it would other-wise be.

FR: Given this picture of your innovation, would you say products define your mar-kets or markets define your products? JEFF LAVERS: One of the main issues that 3M is facing as a company right now is that we have traditionally used the former approach with products defining the mar-ket. However, the market dynamic is play-ing an ever more important role in steering the company and we are now starting to see within 3M a shift towards allowing mar-kets to increasingly inform our innovative processes.

With Norway being so far ahead of other markets in regulation, how do you ensure that the types of innovation based on this market are not viewed as overkill elsewhere?

We pay attention to where the main active fronts in regulation are situated. We have identified some regulatory devel-opments as "one-offs", where they arise out of a particular local dynamic, but they will not be replicated in other parts of the world while in other cases they may be closely followed by other centers.

The interesting thing about the various regulatory and technology fronts in the Norwegian market, is that they are actu-ally replicated in other markets. Norway has a leadership role in the industry and, as a consequence, we pay a lot of attention to this market. Our view is that if you can

34

INTERVIEW WITH:

Håvard Devold, Group Vice President Oil & Gas Upstream at Abb

Håvard Devold, GROUP VICE PRESIDENT OIL & GAS UPSTREAM AT ABB

Focus Reports: Would you begin by outlining Norway's importance within ABB's tech-nological development in the oil and gas indsutry? HÅVARD DEVOLD: Our presence in Norway dates back to the very start of the industry here. Indeed, ABB started growing its posi-tion in Norway from the 1970s and early 1980s. At that time, ABB identified an extremely positive environment for the adoption of new technology and support for the service sector. The Norwegian E&P play-ers and Statoil, in particular, were on a mis-sion to develop an advanced supplier indus-try in Norway. The positive environment was a not just about Norwegian supplier companies being favored in tenders; the sys-tem was set up to allow for 'active mentor-ship' of the supplier industry.

Part of this mentorship involved a proac-tive approach to incorporating new tech-nologies, taking risks and working through the failures. Unlike many parts of the rest of the world, the climate created in Norway was not risk-averse or hostile to the adop-tion of new technologies. Even today, in the rest of the world you will still often find requirements for a five-year proven track record before a company will adopt a given technology.

Companies in other jurisdictions have been highly focused on project execution rather than innovation. This is the basis of their conservatism. The motto in Norway

has been completely different and their pro-active approach to technology is the main reason that we have a strong industry here.

ABB's first major contract opportunity came in the 1980s. Our fist significant pro-ject was to install the control systems for Statoil's Gullfaks platform. Working with Statoil, we had the opportunity to develop our latest control system into a fully distrib-uted control system architecture. It took a further 20 years for these control systems to reach full maturity in other markets.

In Norway, ABB has worked on installa-tion of some of the world's first electrifica-tion systems for the oil and gas industry, when Statoil decided that they wanted large drives on the Troll, rather than use conven-tional gas turbine technology. Later came the first opportunity to prototype a High Voltage DC power-from-shore solution on the same field. BP Norge then decided to implement the same technology on the Val-hall field.

Linking platforms to the grid is by no means the obvious solution in Norway. There are numerous discussions on many different levels of the public and private sec-tor about the comparative value of either exporting electricity for base power con-sumption in Europe or consuming the elec-tricity in Norway for industrial use. None-theless, the operators have remained clear in their intentions. The stability of these operator decisions has allowed us to commit to developing some of the world's leading

Interview with: Håvard Devold, Group Vice President Oil & Gas Upstream at Abb

35

Håvard Devold, GROUP VICE PRESIDENT OIL & GAS UPSTREAM AT ABB

technologies for the oil and gas industry. One of the core concepts driving forward

the search for new technology is Statoil's 'subsea factory'. Statoil's idea is to place unmanned subsea production facilities in remote areas and even beneath Arctic ice; however, these facilities would still need access to power. ABB's task is to work out ways to transmit this power over very long distances from shore. In Norway, we have prototyped power from shore and installed some of the very first electrification sys-tems, which are now becoming the norm for the industry worldwide. Many people work-ing in the industry worldwide call Norway the North Sea laboratory, given the number of technologies developed here.

FR: What do you see as the main contribu-tions Norway will make to the interna-tional market in terms of innovation in the coming years? HÅVARD DEVOLD: I am particularly excited is the area of integrated operations as well as its various other names: digital operations, smart fields, the i-field etc. My hope is that the technology in this area will progress from addressing individual problems in the course of production to becoming the way that the exploration and production of oil and gas is done. This means that instead of looking at this technology only in cases where the well or facility is under perform-ing, integrated operations will be incorpo-rated into the development of the well or entire facility as a standard.

If you want to perform a lean operation in the high North, away from populations, whilst maintaining a good understanding of the nature of the well with active moni-toring and good contingency planning, inte-grated operations are the way forward. The only way that safe operation of wells in the Arctic will be made possible is through inte-grated operations.

Around the world you can see this revo-lution coming. Some oil companies are dreaming of 24/365 control rooms dotted around the world so that part of the day a production facility is managed in India, part of the day in London, and part of the day in Houston. Then again, we still encounter a conservative industry. Nonetheless, you can already talk about integrated operations with Petronas, Saudi Aramco, Kuwait Oil Company, BP, Shell and Rosneft. The fact that Rosneft is now going into the Arctic is forcing them to pick up on this technology.

FR: What is the potential of this technolog-ical approach in the long run? HÅVARD DEVOLD: When looking at total pro-duction, there are two lines dictating a well's longevity: the production profile, which can be increased with better comple-tions, stimulation and fracking technology etc. This will take the recovery factor up by 20-30 percent. However the other curve, which is often ignored, is the cost curve. You usually have a slightly rising cost curve with equipment being replaced, falling reli-ability and so on. It is the crossover point between these curves, where you need to close the field down.

If you are able to make an operation leaner and more cost effective you can pro-long the point at which the cost curve meets the production curve. This can be done by de-manning the field; switching from com-pressors to electrical drives; and using active diagnostics to understand how well equipment is functioning in order to maxi-mize uptimes. Small changes in the cost curve can generate huge volumes of extra oil recovery. Now we are aiming at 70 per-cent recovery, which is the gold standard for the industry. This is why at ABB we call this the digital oilfield / IOR.

36

INTERVIEW WITH:

Sveinung Stohle President and CEO HOEGH LNG


Focus Reports: The global LNG market is growing around six percent and the mar-ket requires an additional 72 vessels. How will Hoegh LNG make the most of this international growth? SVEINUNG STOHLE: Hoegh LNG has a fleet of eight LNG carriers, six of these are stan-dard ships meaning that they only trans-port cargo, and two are FSRUs, which are already in operation, chartered to GDF Suez. The ones currently on order are FSRUs and Hoegh LNG is now focusing exclusively on the floating regassification market. We no longer participate in the standard trans-port market for new vessels.

Hoegh LNG is very good on technology and finding new solutions to bringing gas to the market. This is what the FSRU gives. It gives the customer the means to input energy without the expense and time required to build a land-based terminal. An FSRU can deliver gas to the market in half the time, half the cost and if needed it can be moved to a new location. It is a new market that Hoegh LNG has been part of creating; four years ago this mar-ket did not exist. There are 11-12 termi-nals in operation around the world today and there are around 30 new projects on the list, which we focus on.

Regarding our focus in world markets I our strategy is Asia, Asia, Asia and South America. Hoegh LNG opened an office in Singapore two years ago, from which most of our work in Asia is run, including the project in Indonesia. There are opportuni-

ties in other locations such as the one we won in Lithuania due to become opera-tional in the middle of 2014.

The market, which is growing the fast-est is Asia and its main driver is all the production coming from Australia. This means that for the first time in the history of the LNG business, the gas will be con-sumed in the same region where it is being produced. This means that Australian gas will flow directly to Asia. Much of this gas will go towards traditional markets like Japan, Korea and Taiwan, but there are a number of new markets opening up where they do not have the means to import gas and this is why many of them have embraced LNG terminals because of the reduction in set-up time, cost and instead of building one large terminal you can have several import points like what is going on in Indonesia.

FR: To what extent is the moveability of the FSRU a success factor in these markets? SVEINUNG STOHLE: It is a major element. LNG is a very capital-intensive industry and in some regions there are twin challenges of distance and geography. Indonesia may be a special example but it highlights the use of FSRUs. It is a very large country, with 17,500 islands and it is volcanic so you can-not build pipelines across the country because it is not safe. Therefore instead of building one very large import terminal and then connecting pipelines to that to serve the whole market you can place sev-eral import terminals to deliver the gas

Interview with: Sveinung Stohle President and CEO HOEGH LNG

37


directly to the demand market. A similar market development is now

occurring in South America where there are already 5 terminals in operation. The main driver there is using gas to fuel power production, which is an issue of dis-tance and cost. The coastline of Chile is 3.5 thousand km long with only a few large demand points and it is not eco-nomic to build pipelines between the points. In three to four years there will be four FSRUs operating. Argentina and Bra-zil have the same issue and I believe that this market will develop in the Caribbean.

FR: Europe is attempting to diversify its gas supply and LNG is a major factor in this policy. What are the prospects for floating LNG in this market? SVEINUNG STOHLE: Although we are supply-ing an FSRU to Lithuania there are a few challenges in developing floating LNG for this market. The market has been in devel-opment for over 50 years and there is pipe-line infrastructure throughout the region. There have been import terminals in some countries for over 30 years. From a long-term perspective it makes sense to place the import terminals next to the large pipe-line hubs so in contrast to South America and Asia the huge pipeline grid meaning that it makes more sense to build a large land based terminal. There are a few coun-tries where there could be pockets of demand where a floating terminal would make sense and we have analyzed a few options mainly in southern Europe.

Another factor is time, which was the main driver for the Lithuanian project. They also had a developed gas grid, but they wanted something to be built in a short time. The quantity of imports will affect the economics. If the demand is small to medium then on a cost basis this is best served by an FSRU. For a medium

to large demand with no hurry to develop a terminal and conduct and EPC project, a land-based solution makes more sense.

FR: With strong global growth opportuni-ties, how do you aim to finance these assets? SVEINUNG STOHLE: This is a very capital-intensive business and I simply do not have the capital to participate in all the countries that I would like to. Hoegh LNG has chosen an organic growth model and we will always have the capital in place before purchasing something that we do not have the capital for. We have a prudent approach and it is perfectly possible to grow the business in this way. When the delivered cost of one of these units is USD 300 million, we already have a commitment, which exceeds USD one billion. Once we have a contract for the third FSRU we will order a fourth and look to generate more money either from equity or bond markets and so on.

Particularly in Europe, the financial markets are challenging, however last week we raised USD 250 million in bank debt for the Lithuanian project showing that despite banks choosing not to lend to any shipping company at the moment, Hoegh LNG can still receive money. This is because we are not strictly in shipping, but in energy and infrastructure in long-term contracts.

This is a very capital-intensive business and I simply do not have the capital to participate in all the countries that I would like to. Hoegh LNG has chosen an organic growth model and we will always have the capital in place before purchasing something

38

INTERVIEW WITH:

Tor Henning Ramfjord, Managing Director and VP - Operations National Oilwell Varco (NOV) Norway AS

Tor Henning Ramfjord, MANAGING DIRECTOR AND VP - OPERATIONS NATIONAL OILWELL VARCO (NOV) NORWAY AS

Focus Reports: Aker Solutions and National Oilwell Varco (NOV) have both enjoyed phenomenal success in Kristiansand turn-ing it into what has become known in Nor-way as the 'drilling bay'. Would you begin by outlining this region's importance for NOV? TOR HENNING RAMFJORD: Kristiansand is very important for NOV on both a local and a global level. Kristiansand is the headquar-ters of our Norwegian operations and roughly half of NOV's Norwegian employ-ees -- around 2,000 people - are employed at these facilities. NOV has other offices in Florø, Molde, Kristiansund, Trondheim, Bergen, Stavanger, Arendal, Tønsberg and Asker. However, for historical reasons, Kristiansand emerged as the global heart of our drilling equipment technology. This is due to the work of Bjarne Skeie, who founded Hydralift along with two other companies, which NOV subsequently acquired in 2002.

NOV's office in Kristiansand is respon-sible for the majority of the major drilling packages for delivery worldwide. In fact, around 75 percent of NOV's global drilling packages are delivered out of these facili-ties. We are responsible for delivering all of the equipment on these contracts to the customers. We therefore take deliveries of equipment from the US, Canada, China, and Korea.

FR: Kristiansand is several hours' drive from Norway's oil capital Stavanger and its real capital Oslo. Why have the head-quarters remained here? TOR HENNING RAMFJORD: Our employees rep-resent our biggest asset and these were his-torically based in Kristiansand. Even though Stavanger is the oil capital of Nor-way, our Stavanger office only has d 650 employees whereas we have two thousand here in Kristiansand. We are aware of the difficulty of finding large numbers of highly skilled engineers in Norway's oil capital. Kristiansand actually presents better opportunities to find the talent needed.

FR: How do you see the role of NOV in working with other companies, includ-ing Aker Solutions, in Kristiansand's NODE cluster?TOR HENNING RAMFJORD: The NODE cluster, which groups NOV together with other service companies in the area, has gone from 1,800 people around six years ago to more than 10,000 employees today. NOV has acted as one of the chief loco-motives within this cluster and in 2010, NOV was the fifth largest export com-pany in Norway; today, we are still among the 10 biggest export companies in Nor-way.

Competition is fierce and this is how it should be. However, that does not

Interview with: Tor Henning Ramfjord Managing Director and VP of Operations National Oilwell Varco (NOV) Norway AS

39

Tor Henning Ramfjord, MANAGING DIRECTOR AND VP - OPERATIONS NATIONAL OILWELL VARCO (NOV) NORWAY AS

exclude cooperation and I believe there are grounds to cooperate with them in some areas of the market. It is in our commercial interests to maintain some secrets but we have successfully worked as partners on technological develop-ment projects and we are currently join-ing forces to develop the town's infra-structure. In particular, we felt the need to set up a regular cargo f light out of Kristiansand.

FR: How important was the cluster in the technological advancement of NOV? TOR HENNING RAMFJORD: Where the cluster has been particularly successful is in driving other business into this area and this is always positive for us, as there are interesting technologies being developed. In terms of our role within the cluster, we are involved in many different proj-ects in partnership with small and medium-sized companies.

T he c lu ster h a s est abl i shed a mechatronics course (a combination of basic mechanical problem-solving engi-neering and design studies) with the local university and we have also created a course focusing on business and supply chain management. These are initiatives that we undertake as a complete cluster.

FR: How important has the international shift in construction to the major Korean yards been in your work? TOR HENNING RAMFJORD: The whole business model of constructing for the oil and gas industry has changed from drilling con-tractors being at the center of the value chain, managing vendors and shipyards, to them only establishing the specifica-tions and negotiating frame contracts. The rest of the responsibility has been transferred to the shipyards for a turn-key delivery of a rig or drillship. NOV now delivers to all the shipyards in the

world, which is in stark contrast to 10 years ago where we only delivered equip-ment to drilling contractors.

NOV is highly focused on interface management to manage all the different parts of the fabrication process and the shipyards are excellent at managing the different vendors, procuring the equip-ment and delivering a rig. We have an extremely successful track record working with these yards. Between 2007 and 2011, 38 deepwater rigs have been delivered on time from Korea using NOV's complete packages. 10 years ago the situation was very different

On our side, our added valued is the know-how with our extensive experience in the oil and gas industry, delivering a wide variety of drilling packages. We define ourselves as system integrators and not just providers of standalone machin-ery. When we deliver machinery to the rigs we make sure our machines become part of the whole system. China for exam-ple, has been good at delivering single pieces of equipment but not complete sys-tems. We feel that this systems focus will provide us with an edge even in price-dominated markets.

FR: What would you say is your ambition for NOV in the coming years? TOR HENNING RAMFJORD: Standardization has been a focus within the organization and we have advanced a long way in this direc-tion. However, we are not interested in just having a production line of standardized solutions. We also need to maintain our ability to innovate. Our success will depend on a combination of standardized products and tailor-made equipment. In the past, Norway may have favoured tailor-made equipment too much.

40

INTERVIEW WITH:

Lars Mangal, Chief Commercial Officer - Europe Welltec® and Terje Skeie, Senior Vice President – Europe Welltec®

Lars Mangal, CHIEF COMMERCIAL OFFICER

Focus Reports: Can you sum up the impor-tance of your partnership with Statoil in pioneering Well Tractor technology?LARS MANGAL (LM): Welltec and Statoil have worked diligently to bring this technology to the market. Statoil has always been an embracer of innovation and an early adopter of technological developments. The results Statoil have experienced from this adoption have led to more and more developments with them. Over the years, we have intro-duced a whole range of intervention tech-nologies and methodologies that have changed the way Statoil operates its inter-vention programs across the board on all of its oil and gas assets.

Today we are enabling them to replace coil tubing intervention methods and jointed pipe intervention methods. We are even going one step beyond to replace semi-sub-mersible interventions for subsea wells. These are truly game-changing technologies and we work vey closely with Statoil to understand their requirements and generate ways to create value for them. What’s remarkable is that Statoil, since the adoption of the e- line tractor and many other e-line based methodologies of intervention that they have pioneered alongside Welltec, have been able to completely eliminate snubbing operations from their intervention activities and have dramatically reduced the number of interventions they conduct with coil tub-ing from 40-50 per year to now less than 10. TERJE SKEIE (TS): When Welltec introduced

the well tractor the first client was actually Conoco Phillips. Operators across the board in Norway have seen the need to develop new technologies and have made their ambi-tions very clear. They want to replace heavy intervention methods and they are moving further to subsea wells. These trajectories are well known to the service industry, as are the opportunities they bring for Welltec. Innovative product development is a very clear objective in their business model, much more so than some of the countries outside of Norway. However, Norway is exerting an influence on the global oil and gas commu-nity and non-Norwegian oil companies.

FR: What is so specific about Norway that attracts a technology-driven company like Welltec? LM: There are of course other areas where you have large offshore developments such as the Gulf of Mexico, Brazil and West Africa. All have different challenges, con-siderations and fiscal regimes. Ultimately it comes back to the macro drivers for the mar-ket: fiscal regimes, production sharing con-tracts, regulations, direction from the gov-ernment and so on. that support the development of the industry, which in turn sets the stage for how things progress.

From the very early days in Norway there was a strong focus on maximizing recovery, which became the overriding driver of why production maintenance and well work activities have been so strong here compared

Interview with: Lars Mangal, Chief Commercial Officer and Terje Skeie, Senior Vice President – Europe Welltec®

Terje Skeie, SENIOR VICE PRESIDENT – EUROPE WELLTEC®

41

Lars Mangal, CHIEF COMMERCIAL OFFICER

to other markets. This has forged a partner-ship between Welltec and Statoil from the very early days to bring technologies that were going to complete the portfolio, enable the step change and support continuous strides to improve the recovery factors from the offshore Norwegian Continental Shelf (NCS).

What Statoil has realized is that they are creating as much value by focusing on well work, production maintenance and improv-ing recovery factors on existing assets as they are by bringing new developments online. In fact, they have done parallel com-parisons on the value creation of drilling new wells and enhancing and maintaining production on existing assets. The findings revealed, on balance, the return on invest-ment is on a par; hence they have pursued the two tracks very successfully -- perhaps more successfully -- than any other operator. Indeed, this is one of the flagship successes of the industry.

FR: Is there still a strong focus on enhanced oil recovery in this new oil and gas boom and drive towards new developments? TS: There are a lot of new fields being devel-oped which is bringing about a change in Norway because of a dramatic increase in the number of operators in the market. New players may have different expectations on recovery to those we have established here in the Norwegian market. We seek to chal-lenge those mind-sets to continue to strive for much higher rates of recovery than the global average.

It is an industry assumption that subsea wells have a much lower recovery rate than platforms. However, Welltec is positioning itself as a light well intervention specialist, capable of increasing subsea well recovery substantially. The more innovative we can be with our portfolio of projects the greater the possibilities for higher rates of recovery from subsea wells. Our approach and our

success, therefore have a direct impact on how the industry functions overall LM: The pioneering efforts of Welltec to champion open water e-line intervention in subsea wells -- referred to as “riserless light well interventions” (RLWI) -- is a methodol-ogy that is changing the game for very high value oil and gas assets in the subsea domain. It has the potential to be applied around the world and it is resonating with many major operators who are now looking at it as an extremely viable method to enhance recov-ery from subsea assets. TS: The first light well intervention job where we applied this approach with our technol-ogy was in 2001 in Norway. The North Sea has certainly been the center for this type of work but gradually we have seen a appli-cations growing in the Gulf of Mexico and Asia but we are now talking 12-13 years since it we first started it in the North Sea. As it stands today, the Norwegian market is booming in subsea intervention, but has some way to go in other global markets.

FR: How do you expect your technology to influence the global industry operations over the next 5-10 years? LM: If you look at the coil tubing market around the world, then the scope for growth and development is just enormous. We are very excited to have had the opportunity to work so closely with Statoil and their partners. Using that relationship as a plat-form to export technologies in other parts of the world has been fortunate for Welltec. We in fact see that adoption outside the NCS to still be at a very early stage. But of course the adoption rate is increasing very rapidly -- albeit from a low base -- which opens up many opportunities for Welltec to grow at a tremendous pace. We are a high growth company and will continue to look at accelerating growth on the back of this market opportunity and our solutions.

42

INTERVIEW WITH:



Focus Reports: Within A.P. Moller - Maersk’s investment strategy, we see a higher emphasis being placed on drilling. What are the expectations being placed on this aspect of Maersk’s portfolio? CLAUS HEMMINGSEN: A.P. Moller - Maersk is not pulling out of shipping as was errone-ously reported recently, but there will be a rebalancing of the portfolio with focus on four strategic core businesses within con-tainer shipping, terminals, oil and gas, and drilling. Looking five years ahead Maersk Drilling will be a significant player in harsh environment and ultra deepwater drilling generating a profit in excess of USD 1 bil-lion. This is our driving motivation over the next years. In 2011 and 2012 we committed USD 4.5 billion in investments in three ultra harsh environment jack-ups for Nor-way and four ultra deepwater drillships. We have 16 rigs today, so these investments will take us through to 23 and we probably need three or four more as a minimum to reach our USD 1 billion target.

FR: Currently Maersk has a three percent share of the global drilling market. What are the main opportunities to expand on this market share in Norway? CLAUS HEMMINGSEN: Maersk Drilling has been active in Norway since 1989 and today, Maersk Drilling owns six of the 10 jack-ups operating in this market. Over 2014 and 2015 we will add three more jack-ups to this market manifesting our strong position in this market; Norway is a key market for us.

In addition to the ultra harsh environ-ment jack-ups for Norway, we are expand-

ing in the ultra deepwater floater segment. These rigs are designed for exploration and development drilling at up to 12,00f0ft water depth. The ultra-deep-water market is where we see the next big expansion, and offers in our view one of the most compel-ling growth stories in the offshore space.

FR: Given the high cost level associated with Norway, particularly when it comes to the salaries for offshore workers, what is the strategy for building up profit mar-gins in line with your USD one billion tar-get? CLAUS HEMMINGSEN: As a company, we are content with the margins that we currently have in Norway but we are obviously con-cerned with the trend we see in cost infla-tion. Ultimately higher costs will need to be passed through to the oil companies which will simply need to adjust to the higher day rates, If you build rigs for the Norwegian market, living up to all of their standards and regulations then day rates around USD 450,000 are necessary in order to generate acceptable return for the con-tractor.

FR: How do you see the balance of your two segments: harsh environment and deep-water? CLAUS HEMMINGSEN: Drilling activities and skills do not vary that significantly between deep and shallow water, however there are some additional skills required for both ultra harsh environment and ultra deep-water segments. The connection we see between these two segments is the very high requirements that the Norwegian sec-

Interview with: Claus Hemmingsen – CEO – Maersk Drilling

43


tor imposes on operations. Naturally, there are differences in the work between dynam-ically positioned deep-water rigs and jack-ups but the way that we approach the work, the management systems and the overall competence levels of our employees are largely the same. Thus far we have not expe-rienced any challenges that we were not able to handle.

FR: Øystein Michelson, EVP of Develop-ment & Production at Statoil said that the company was pushing for a different own-ership model of drilling rigs on the NCS and targeting more “fit-for-purpose” rigs to reduce the cost of drilling. To what extent is this affecting your commercial strategy in Norway?CLAUS HEMMINGSEN: Statoil is one of our clos-est partners, and we hold the company in the highest regard. However, at Maersk Drilling we have our own operational pro-cedures and ways of doing business. We have a preference of being the majority owners of the rigs we operate and being fully responsible for them. Therefore, if Statoil were to adopt an ownership model for rigs, where contractors merely provided the personnel then that would not offhand fit with Maersk Drilling’s business model.

Regarding the “fit-for-purpose” concept, I’m very confident that what we are build-ing for the Norwegian market is in line with the needs of this environment. In particu-lar, our rigs have been built in accordance with the requirements for the Ekofisk field. This direction makes sense, given our focus on Norway.

FR: How do you perceive risk, in relation to moving into Arctic conditions? CLAUS HEMMINGSEN: At the moment we do not see ourselves operating in the Arctic region for the time being. There is a sig-nificant difference between the North Sea,

Norwegian Sea and the Arctic region. We would need to amass greater experience to move into this region.

Operational and personnel safety mea-sures are extremely important parameters for our movement into this region. If we cannot find satisfactory solutions for these risk factors then we simply will not go into this region. However I am sure that the industry as a whole will progress to this stage. One third of the world’s oil and gas resources are hidden in the Arctic region, so I am confident that the contractors and operators will find the necessary and safe solutions and that they are all aware that they are dealing with a very different envi-ronment.

FR: What does your exposure to the Nor-wegian regulatory environment give to your operations globally? CLAUS HEMMINGSEN: After twenty years of conforming to Norwegian standards, we have more or less adapted to these stan-dards on a global level. We are talking about two different sets of regulations: one set for rig design and another set for well integ-rity and safety. It is not necessary for us to design all our rigs to Norwegian standards, e.g. for ultra deepwater rigs for benign areas, but when it comes to safety and well control we implement the procedures that we use in Norway across our global opera-tions. Thus, Maersk Drilling is a company well accustomed to working in highly regu-lated environments.

The ultra-deep-water market is where we see the next big expansion, and offers in our view one of the most compelling growth stories in the offshore space.


PAST REPORTS

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Company index

3M ...............................................18, 19

ABB .................................................. 14

ABS .................................................. 20

Aker Solutions ...............................4, 5

Apply .................................................. 5

Brazilian-Norwegian Chamber of Commerce ....................................... 16

Cameron .......................................... 13

Cubility .......................................15, 16

Dahl Oilfield Services ....................... 5

Demo 2000 .................................20, 21

Det Norske ...................................... 16

DNV ....................................... 17, 19, 20

Ernst & Young .................................... 8

Gassnova ......................................... 22

Geocap ............................................... 7

IKM ..................................................5, 6

International Research Institute of Stavanger ........................................ 21

IOS Intermoor ................................... 4

Höegh LNG .......................................10

Interwell ..................................... 10, 11

INTSOK .............................................. 4

Kvaerner ............................................ 5

Ministry of Petroleum and Energy .. 4

NOV .............................................12, 13

Oceaneering ...................................... 6

Octio .................................................. 6

Safetec ............................................. 20

Scandpower .................................... 20

Seabird exploration .......................... 9

Sevan Drilling .............................16, 17

Sevan Marine .................................... 9

Spectrum ........................................... 8

TGS Nopec ........................................ 7

Viking Seatec .............................14, 15

Welltec ........................................13, 14

Norway Oil & Gas report part 2 May 2013Norway Oil & Gas report part 2 May 2013

Oil and Gas Norway report 2013 part 2

Documents

Transcript of Oil and Gas Norway report 2013 part 2