Oil and Gas Norway report 2013

1

NorwayThe Restless ExplorerOil & Gas reportFebruary 2013

3

Special Foreword by Norwegian minister of petroleum and energy

Ola Borten Moe Our petroleum activity is moving further north. It has taken

time to develop the Barents Sea into our third petroleum province. Thirty-two years have passed since the area was

opened, and 30 years since the first gas was proven in Snøhvit. Geological mapping and impact assessments are well underway in the southeastern Barents Sea and around the island of Jan

Mayen.

The development of new discoveries will create the greatest possible value for society, and can contribute to regional ripple

effects. The petroleum activity is moving north, and the dialogue and interaction between authorities, industry and

regional businesses is important in order to find good solutions. In this way we will ensure the maximum value creation and

optimal resource management in the best interests of Norway and the wider oil and gas community.

I hereby invite international oil and gas companies to explore the opportunities available on the Norwegian Continental Shelf and I appreciate this initiative by Focus Reports to shed light on

the key developments in 2012.

4

For exclusive ITVs and more insights, log on to

energy.focusreports.net

5

This report was prepared by Focus ReportsReport Publisher: Ines Nandin. Editor: Eric Watkins. Project & Editorial Director: James Waddell. Project Coordinators: Chiraz Bensemmane, Zuzana Kudelova. Editorial Researcher: Cameron Rochette.

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.

CONTENTS

INTERVIEWS

7 NORWAY: THE RESTLESS EXPLORER

8 SYMPATHY FOR THE OVERPAID

8 DERAILING A RUNAWAY INDUSTRY

10 HIGH ON UTSIRA

11 BUYING INTO NORWEGIAN SUCCESS

12 AN EQUITY BRIDGE TO NORWAY

12 SCOTT VS AMUNDSEN IN OIL & GAS

14 LATCHING ON TO THE SUBSEA GROWTH STORY

16 SEEKING OIL & GAS ASYLUM IN A RISKY WORLD

18 THE RISK OF NORWEGIAN OVERENTHUSIASM

19 AN INDUSTRY WITHOUT PEOPLE

19 WHAT’S THE RIG IDEA?

20 A 50-YEAR JOURNEY TO AN UNCERTAIN DESTINATION

22 STRANDED UP NORTH

23 RESPONSIBLE RISK-TAKING

26 INTERVIEW WITH

Ola Borten Moe, Norwegian minister of petroleum and energy28 INTERVIEW WITH

Magne Ognedal, director general – Petroleum Safety Authority30 INTERVIEW WITH

Kjell Pedersen, president and CEO of Petoro32 INTERVIEW WITH

Torstein Sannes, managing director – Lundin34 INTERVIEW WITH

Erik Karlstrøm, CEO – North Energy36 INTERVIEW WITH

Magnar Fagerbakke, Vice President – Markets & Contracts at COSL38 INTERVIEW WITH

Asbjorn Olsen, managing director – Transocean

6

CarLun_OGFJ_1302 1 1/24/13 3:39 PM

NThis sponsored supplement was produced by Focus Reports. Report Publisher: Ines Nandin. Editor: Eric

Watkins. Project & Editorial Director: James Waddell. Project Coordinators: Chiraz Bensemmane, Zuzana Kudelova. Editorial Researcher: Cameron Rochette. For exclusive interviews and more info, plus log onto

www.energy.focusreports.net or write to [email protected]

THE RESTLESS EXPLORER

Having spent a decade tracing the steps of the UK along the same downward-spiralling production path, Norway has now found a second wind. A spate of world-class discoveries over the last couple of years

has breathed new life into Norway’s oil and gas industry. Indeed, as Norway unlocks its third petroleum province in the Barents Sea in the 22nd licensing round, its E&P story is clearly still being written. Currently garnering the envy of debt-laden and stagnating European economies, Norway is riding high on a second oil boom and faces a very different set of challenges. With unprec-edented levels of E&P interest in the Norwegian Continental Shelf (NCS) the key questions are how long and how far can Norway now stretch its capacity without collapsing from the strain.

NNORWAY

Photo was taken from ship on a geological fieldtrip for Licence PL 537 on Aug. 19, 2010, Steinhauserfjellet.

www.ogfj.com • Oil & Gas Financial Journal February 2012 energy.focusreports.net 3

advertisement

7

CarLun_OGFJ_1302 1 1/24/13 3:39 PM

NThis sponsored supplement was produced by Focus Reports. Report Publisher: Ines Nandin. Editor: Eric

Watkins. Project & Editorial Director: James Waddell. Project Coordinators: Chiraz Bensemmane, Zuzana Kudelova. Editorial Researcher: Cameron Rochette. For exclusive interviews and more info, plus log onto

www.energy.focusreports.net or write to [email protected]

THE RESTLESS EXPLORER

Having spent a decade tracing the steps of the UK along the same downward-spiralling production path, Norway has now found a second wind. A spate of world-class discoveries over the last couple of years

has breathed new life into Norway’s oil and gas industry. Indeed, as Norway unlocks its third petroleum province in the Barents Sea in the 22nd licensing round, its E&P story is clearly still being written. Currently garnering the envy of debt-laden and stagnating European economies, Norway is riding high on a second oil boom and faces a very different set of challenges. With unprec-edented levels of E&P interest in the Norwegian Continental Shelf (NCS) the key questions are how long and how far can Norway now stretch its capacity without collapsing from the strain.

NNORWAY

Photo was taken from ship on a geological fieldtrip for Licence PL 537 on Aug. 19, 2010, Steinhauserfjellet.


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8 Norway Oil & Gas report February 2013

4 energy.focusreports.net February 2013 Oil & Gas Financial Journal • www.ogfj.com

Sympathy for the OverpaidIn July, as the European press was reporting that Norway’s oil and

gas industry had shut down and British gas prices had shot up,

I was sitting in an office with Hilde-Marit Rysst, president of the

Norwegian Union of Energy Workers. We were discussing whether

Norwegian offshore workers, whose average salary of $180,000 is

twice that of the global average, who work a “two weeks on, four

weeks off” regime and who currently retire at 62 were justified in

launching a 16-day strike action. Undertaken to protect what some

would see as rather indulgent labor rights, the strike of 708 work-

ers ultimately reduced Norway’s July oil production by 17 percent,

and threatened Norway’s reputation as a stable gas supplier.

For Rysst, however, the issue was not whether highly skilled

Norwegian offshore workers deserved working conditions well

above those of their counterparts in other countries. It was not

even about employers reneging on past agreements. Rysst’s main

problem with the situation was the hypocrisy of an industry that

was able to offer generous pensions to its chief executives now

reining in the rights of the workers who paved the way

for its success.

She pointed out that at one time the top 10 execu-

tives at Statoil earned the same as the CEO of Exx-

onMobil and that the industry was founded on more

egalitarian principles. For her, the nature of Norwegian-

based oil companies like Statoil is changing. “Firms

in Norway are earning colossal amounts and the dif-

ference between them and their European counterparts is even

greater than the difference between Norwegian worker pay and

the average pay in Europe,” said Rysst. For her, the only valid

wage benchmarking is within Norway, and the only inequities are

those that exist between the top and bottom of Norway’s industry.

In September, the Norwegian Petroleum Association managed

to head off another strike of 159 workers on North Sea fields by

acquiescing to a 4.5 percent pay rise. Whilst the rest of Europe

talks of pay freezes and austerity measures, these conversations

can be heard only as faint echoes in Norway.

Derailing a Runaway IndustrySpeaking at the 2012 Pareto Securities Oil & Gas Offshore Con-

ference, with a tone of reserved bafflement, Statoil CEO Helge

Lund parroted discussions taking place in the Storting (Norwegian

parliament): “We believe that our economy is too strong, there

is too much activity. This would seem like a joke to others.” He

continued: “The critics think Norway’s blossoming oil and gas sec-

tor puts negative pressure on the Norwegian economy and hurts

other branches.”

Lund was referring to prominent politicians and economists

who have been flirting with the idea of slowing down the pace

of Norway’s oil and gas development, fearing that it might disad-

vantage the rest of the economy. One of the three members of

Norway’s coalition government, the Socialist Left Party, has pub-

licly announced that high offshore activity is harmful to the rest of

the mainland industry. They see this wealth-generating industry

creating a skills drain from other sectors and fueling a dangerous

real estate bubble. In Norway’s oil capital, Stavanger, buoyant oil-

worker salaries have driven a rise in house prices, making it hard

for lower paid workers to find places to live. As a case in point,

local hospitals are short on nurses, whose salaries struggle to meet

the cost of living in one of the top 10 most expensive cities in the

world.

However, Lund warned that any restraint on the

industry would throw up a huge challenge to invest-

ment and irrevocably harm value creation stemming

from the industry.

In 2012, while other European economies dallied

around anaemic growth figures, Norway was at various

points Europe’s fastest growing economy. Norway is

projected to have a robust 2.8 percent growth in 2013

and, according to the Norwegian Petroleum Directorate, 21 per-

cent of that growth can be attributed to the oil and gas industry,

while 47 percent of Norway’s exports are made up of petroleum

sales and oil services. With such strong value creation one might

ask: why punish the oil and gas industry?

Norway has gone to great lengths to prevent abuse of its oil

wealth and resist the Dutch disease - the apparent relationship

between the increase in exploitation of natural resources and

a decline in the manufacturing sector. At $654 billion Norway’s

“Government Pension Fund” is the largest sovereign wealth fund

in the world, swallowing up 100 percent of Norway’s state oil rev-

enues, with a limitation of four percent being made available for

reinvestment by the state within Norway. The sagacity of this sys-

tem has earned international respect, yet it seems that however

strong the remedy, the runaway success of Norway’s oil industry,

nonetheless, poses a challenge to the rest of Norwegian society.

Helge Lund, CEO, Statoil

www.springenergy.no

We focus on both

mature and frontier

NCS exploration and

continue to explore

the Barents Sea!

CarSpr_OGFJ_1302 1 1/24/13 3:50 PM

9

www.springenergy.no

We focus on both

mature and frontier

NCS exploration and

continue to explore

the Barents Sea!

CarSpr_OGFJ_1302 1 1/24/13 3:50 PM



an element of luck in making this discovery.

However everyone forgets that we spent

$600 million in this area before it became a

big success story.”

Since Lundin first entered Norway in 2003,

the company has enjoyed repeated explora-

tion success, following a strategy oriented

around Jurassic highs. In fact, the company

has chalked up a discovery every three years since 2004: Alvheim

Volund 2004, Luno (now Edvard Greig) 2007 and Avaldsnes (now

Johan Sverdrup) 2010. However, Sannes makes no mistake that

Johan Sverdrup is clearly a game-changer.

Sannes boasted not only that companies are now queuing up to

partner with Lundin, but also that their loan facilities have been

oversubscribed to the tune of $5 billion. He continued: “When

Johan Sverdrup comes on-stream in 2018 or later we will see our

production increase substantially. Statoil has been quoted as seek-

ing 500,000 barrels per day from Johan Sverdrup after 2.5 years

of production and Lundin can look at having around 25 percent of

High on Utsira But what kicked off Norway’s second oil boom?

Over the course of 2012 Norway’s part-privatized NOC, Statoil,

Swedish E&P independent Lundin and their partners carried out

appraisal drilling on the Johan Sverdrup field (formerly Aldous/

Avaldsnes). Successful drilling programs since its discovery in

2010 confirmed that this giant field, which is expected to contain

upwards of 3.3 billion boe, is not only one of the largest finds on

the Norwegian Continental Shelf (NCS) since the mid-1980s but

also one of the top five discoveries of all time in Norway.

The two blocks (PL501 and PL265) located in Norway’s North

Sea on the Utsira High, which now form the Johan Sverdrup dis-

covery, appeared in the country’s first licensing rounds back in

1965. Four successive license groups have been within meters of

finding these oil reserves, but without success. Asked whether this

discovery was part of a skillfully designed strategy emanating from

Lundin’s now legendary exploration manager, Hans Christen Rønn-

evik, or simply remarkable good luck, Torstein Sannes, managing

director of Lundin Norway, replied: “It certainly feels like there was

CarCon_OGFJ_1302 1 1/24/13 3:01 PM

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Torstein Sanness, man-aging director, Lundin

11


Johan Sverdrup's production.” Moreover, Johan Sverdrup’s water

depth is around 115 meters, it is nearby existing oil and gas export

infrastructure, and there are no high temperature/high pressure

(HTHP) concerns, making these highly valuable barrels.

This remarkable story has spurred on the

industry and other major discoveries have

followed from Skrugard in 2011 to Garanti-

ana in December 2012. Erik Haugane, CEO

of Norwegian independent DetNorske, one

of Lundin’s key license partners on Johan

Sverdrup, attributes this success, not to

the good fortune of having a resource-rich

shelf, but to the liberalization of the industry from 2000. He said

that the major change occurred when the Norwegian Parliament

gave up the rigid dogma of maintaining three oil companies on

the NCS: Saga, Statoil and Hydro. Since then the Norwegian gov-

ernment in 2005 introduced a 78 percent tax rebate, which “took

away the disadvantage of being a newcomer compared to the

established companies who could transfer the tax to their operat-

ing costs immediately or push it forward for later income.” For

Haugane, it is the new arrivals to the shelf like Lundin which have

reignited the industry and they are the ones that hold the key to

reversing Norway’s decade-long oil decline.

Buying into Norwegian SuccessOn the back of strong exploration incen-

tives, the number of companies active on

the NCS has increased to nearly 60 today

from around 18 a decade ago. However,

according to Svein Ilebekk, Cairn's director

of Northern Europe, the number of compa-

nies is unsustainable in the current financial

climate. “Accessing capital is a major issue

today and will be even more critical going forward both in the UK

and Norway. I think in a few years’ time you will see an increased

consolidation in Norway and a different set of companies,” Ilebekk

said.

Two of the companies Ilebekk helped found have been acquried

by firms seeking entry into Norway: Revus by Wintershall and Agora

Oil & Gas by Cairn. December 2012 then saw British E&P indepen-

dent Tullow Oil acquire Norwegian pure-play exploration company

Spring Energy for $372 million.

2000 2002 2004 2006 2008 2010

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New companies Small and medium-sized companiesLarge companies Large Norwegian companies

A child of Norwegian venture capital company HitecVision, Spring

Energy had built an extremely strong track-record in exploration

since its foundation, making six commercial discoveries out of 12

drilling operations since 2008.

Discussing the origin of the company in

2007, Roar Tessem, founder and CEO of

Spring Energy said, “I saw a great deal of

opportunity in prospects that had been

missed within the mature areas of the North

Sea and also growing opportunities in the

Norwegian and Barents Seas. This potential

has certainly not diminished since then, in

fact I rather think it is more focused now and this potential has been

repeatedly confirmed by recent discoveries.”

Tullow naturally brings financial muscle and experience to the

operation and Tessem, now managing director of Tullow Norge AS

affirmed, “We have a solid drill schedule over the 12 firm wells for

the next 18-24 months. He continued, “We would also like to con-

tinue strengthening our ability as an operator because we will drill

our first operated well in the second half of 2013 on the Mantra

prospect just northeast of the Troll field.”

Both Spring Energy and Tullow Oil had been looking to expand

into the North Atlantic and the merger was a good strategic fit.

Well-known for its African E&P projects, Tullow’s foray into Norway

marked a new direction for the firm and the acquisition secured its

fast access to 28 licenses on the NCS with potentially more on the

way if applications in the 22nd licensing round prove successful.

Erik Haugane, CEO, Det Norske

Roar Tessem, CEO, Spring Energy

Svein Ilebekk, director of Northern Europe, Cairn



An Equity Bridge to Norway Addressing the shaky foundations of Europe’s

financial markets, Tom Reynolds, CEO of the

dual-listed Norwegian-British E&P company

Bridge Energy, expressed the opinion that

the European downturn would not induce

shareholders to sell, but could restrict access

to new capital. According to Reynolds, the

advent of the Greek sovereign debt crisis

in 2010 certainly hampered Bridge Energy’s

first IPO attempt. Later a key tactic for Bridge

Energy was to gain a second listing on Lon-

don’s Alternative Investment Market in addi-

tion to Oslo listing, in order to mitigate the

scarcity of equity funding.

Reynolds saw the UK as presenting a sepa-

rate investor community, and one which was

keen to get involved in Norway’s exploration story. He explained that

despite the European recession, “The Norwegian exploration suc-

cess story carries a lot of weight in this investor community. There

have been a number of pan-North Sea players or UK-focused players

making their way into Norway over the last couple of years.”

Reynolds sees Norway’s exploration environment as attractive due

to its open access to seismic data and the availability of transporta-

tion and offloading infrastructure for fast-track tie-in programs. “This

is a very well understood province with great data access and if you

find what you are looking for it should be quicker, easier and more

commercial to develop than in most other places in the world,” said

Reynolds.

Scott vs Amundsen in Oil & GasJust like Robert Falcon Scott and Roald Amundsen, the famous British and

Norwegian explorers who competed to discover the South Pole a century

ago, the UK and Norway are today locked in a similar competition. They

share the same North Sea basin, and there is a race to attract investment

to their continental shelves. Technically the British were the first to arrive

on the scene, with a few years’ headstart. But now it seems that Norway

is pulling ahead, with 2011 marking the first year when more exploration

wells were drilled in Norway than in the UK.

In the original race for the South Pole, Scott made use of ponies, dogs

CarBri_OGFJ_1302 1 1/24/13 2:35 PM

Tom Reynolds, CEO, Bridge Energy

Alfred Kjemperud, managing director, Bridge Energy

13


An Equity Bridge to Norway Addressing the shaky foundations of Europe’s

financial markets, Tom Reynolds, CEO of the

dual-listed Norwegian-British E&P company

Bridge Energy, expressed the opinion that

the European downturn would not induce

shareholders to sell, but could restrict access

to new capital. According to Reynolds, the

advent of the Greek sovereign debt crisis

in 2010 certainly hampered Bridge Energy’s

first IPO attempt. Later a key tactic for Bridge

Energy was to gain a second listing on Lon-

don’s Alternative Investment Market in addi-

tion to Oslo listing, in order to mitigate the

scarcity of equity funding.

Reynolds saw the UK as presenting a sepa-

rate investor community, and one which was

keen to get involved in Norway’s exploration story. He explained that

despite the European recession, “The Norwegian exploration suc-

cess story carries a lot of weight in this investor community. There

have been a number of pan-North Sea players or UK-focused players

making their way into Norway over the last couple of years.”

Reynolds sees Norway’s exploration environment as attractive due

to its open access to seismic data and the availability of transporta-

tion and offloading infrastructure for fast-track tie-in programs. “This

is a very well understood province with great data access and if you

find what you are looking for it should be quicker, easier and more

commercial to develop than in most other places in the world,” said

Reynolds.

Scott vs Amundsen in Oil & GasJust like Robert Falcon Scott and Roald Amundsen, the famous British and

Norwegian explorers who competed to discover the South Pole a century

ago, the UK and Norway are today locked in a similar competition. They

share the same North Sea basin, and there is a race to attract investment

to their continental shelves. Technically the British were the first to arrive

on the scene, with a few years’ headstart. But now it seems that Norway

is pulling ahead, with 2011 marking the first year when more exploration

wells were drilled in Norway than in the UK.

In the original race for the South Pole, Scott made use of ponies, dogs

CarBri_OGFJ_1302 1 1/24/13 2:35 PM

Tom Reynolds, CEO, Bridge Energy

Alfred Kjemperud, managing director, Bridge Energy


and even engine-driven sledges, whereas Amundsen stuck to using dogs

the whole time. Similarly, over the last few years, the British have changed

their fiscal strategy numerous times whereas the Norwegians have

remained relatively steadfast in their approach.

For Gary Smart, CEO of Aberdeen-based completions specialist

Tendeka, “Norway is far less volatile; the rig count has not suffered any

major dips over the last 3-5 years. This makes it strong for investment

and sustained business. With the new finds, the

activity level is only going to increase further. You

therefore do not need to worry too much about

business decline. This stable environment has

allowed some of our businesses to grow their

presence since 2003.”

He believes that the UK market will lag behind Norway’s for some time

to come and even if the UK tax incentives increase, “the market will need a

long time before the investment is where it needs to be to reach the level

it was before the recession - after all, the UK is still in recession.” It is also

important to him that in the UK there is no longer a strong presence of the

international oil companies (IOCs), but instead many independents that,

in his opinion, do not push new technologies as actively.

According to the consultancy Wood Mackenzie, Norway’s winning strat-

egy has rested on four main pillars: the creation of the Awards in Pre-

defined Areas in 2003, the 78 percent tax rebate on exploration, open

seismic data access and fiscal stability. The race between the UK and Nor-

way has historically been close, but in 2013 the NCS is expected to attract

$37 billion to its waters and has already edged its way past the UK to hold

the #1 global position in offshore investment compared to UK’s #4.

CarBri_OGFJ_1302 1 1/24/13 2:35 PM

Near-wellbore focusÖÖfar-reaching results

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CarTen_OGFJ_1302 1 1/24/13 3:48 PM

Gary Smart, CEO,Tendeka

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they tie-back to existing infrastructure and given

this trend in the market, the subsea investments

are projected to double from 2012 to 2016.

However, we have not yet seen this happening

in 2012. As yet, not that much engineering work

has been up for tender and it has mostly been

very small-scale feed studies. However, the pro-

jected investments are huge, taking into account

fabrication and installation and we expect the

market to grow significantly next year [2013]”.

As a consequence of this subsea opportunity, the 70-strong organiza-

tion in Norway, which has a dual presence in Stavanger and Oslo, is now

in a phase of rapid expansion. In meeting the capacity demanded by the

market, Hjelmen believes J P Kenny will have an advantage in being able

to draw on the international human resources of Wood Group, especially

in a country famously tight on skilled labor.

Latching on to the Subsea Growth StoryIn its 2011 paper, “An Industry for the Future”, the Norwegian Ministry of

Petroleum and Energy cited two time-critical initiatives aimed at boosting

production from the NCS: improved oil recovery (IOR) from mature fields,

and fast-track tie-in programs from new fields to existing infrastructure.

Both of these initiatives are dependent on using Norway’s mature infra-

structure, some of which has been in production for more than 40 years.

The aim of the fast-track tie-in programs is to significantly reduce the

time to bring a field on-stream to a matter of months from an average

of 10 years. Statoil has been leading the way with this initiative, creating

its own independent fast-track division encompassing a portfolio of 12

projects ranging in value from $500 million to $2 billion. The fast-track

strategy has also caught the attention of numerous independents looking

for low-risk, high commerciality from smaller fields.

According to Ragnar Hjelmen, operations director in Norway for UK

engineering company J P Kenny: “There will be a lot more wells where

Ragnar Hjelmen, operations director, J P Kenny Norge

AN INTERVIEW WITH ØYSTEIN MICHELSEN, EXECUTIVE VICE-PRESIDENT OF DEVELOPMENT AND PRODUCTION IN NORWAY AT STATOIL

Focus Reports: Looking at how this partially-privatized state oil company conducts its E&P strategy in Norway, would you describe Statoil as an IOC or an NOC?

Michelsen: Statoil functions a lot like

an IOC in Norway. The regulatory

authorities in Norway are separated

from the company and we therefore

fall under exactly the same harsh

scrutiny as any other player on the

NCS. Of course, Statoil plays a cer-

tain "architect" role on the NCS as

we are heavily involved in the most

prolific areas of production. In this

respect, Statoil is responsible for a lot of the infrastructure and

consequently has a significant say in how this is developed. None-

theless, this is a consequence of our size and historical role rather

than of our function.

In around four years, 13 companies will have platforms on the

NCS and there will be around 40-50 operators and 60-70 license

investors. So far, we have been used to cooperating with the inter-

national majors and they are still our main partners in production.

However, to an increasing degree, we are now building relations

with newer and smaller players on the NCS.

Focus Reports: How does domestic production fit within Statoil’s global objective to producte 2.5 million bpd by 2020?

Michelsen: Domestic production was always important to meet

this goal and given the scale of new discoveries, it is even more

so. The NCS will be a growth story for Statoil towards 2020. There

is a slight reduction in production in the short term, but it will

increase towards 2020 and our goal is to produce more than 1.4

million boed by 2020 from the NCS. We will grow our production

in the order of 500,000-600,000 thousand boed until 2020; this is

a tremendous growth story and our production on the NCS will

match our international production over the coming years.

The perception of the NCS as a gloomy, sunset production area

is simply wrong. The Northern finds in particular, such as Skrugard

and Havis and the North Sea giant Johan Sverdrup have opened

people's eyes to the ongoing potential of the NCS.

Focus Reports: I have heard you are targeting 60 percent recovery on the NCS. How important is IOR to your produc-tion growth over the next few years?

Michelsen: IOR is a very important part of our growth story.

Typically it involves drilling more wells in existing fields and low

pressure production. We are engaged in many of these projects

around the NCS which are very exciting. For example there is one

project at Gullfaks involving a subsea compression unit, which is

smaller than the one we have installed at Åsgard. These subsea

compression stations are very demanding, innovative and exciting

projects; they represent an important step in the development of

the subsea factory. Over the last couple of years, we have matured

as much production from IOR projects as from new developments.

Øystein Michelsen, executive vice president development & production Norway, STATOIL

Where we explore

we look under every stone!

OMV (Norge) AS currently holds 17 licenses ñ most of them in the

Barents Sea ñ and operates eight of them. The strong experience

and expertise of OMV Exploration & Production GmbH based in

Vienna, Austria, with operations across 17 countries, resulted recently

��

continue with this success story on the Norwegian Continental Shelf.

CarOMV_OGFJ_1302 1 1/24/13 2:59 PM

15

Where we explore

we look under every stone!

OMV (Norge) AS currently holds 17 licenses ñ most of them in the

Barents Sea ñ and operates eight of them. The strong experience

and expertise of OMV Exploration & Production GmbH based in

Vienna, Austria, with operations across 17 countries, resulted recently

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continue with this success story on the Norwegian Continental Shelf.

CarOMV_OGFJ_1302 1 1/24/13 2:59 PM

16

CarLot_OGFJ_1302 1 1/24/13 5:09 PM


Seeking Oil & Gas Asylum in A Risky WorldOver the past decade Norway has served as a comfortable training

ground for European downstream companies such as RWE, Bayerngas

and GDF to flex their upstream muscles. This trend continued in 2012 and

it witnessed two major deals between Statoil and European downstream

companies wishing to expand their upstream presence: Centrica and Win-

tershall. Wintershall alone forked out $1.35 billion for Statoil’s stake in the

Brage field, 120km Northwest of Bergen in the North Sea.

According to a 2011 Ernst & Young report, “The Oil Downstream:

Vertically Challenged”, the soaring price of oil has shifted value creation

sharply towards the upstream sector, suppressing the downstream mar-

gins in an extremely competitive European market. This change in the

financial environment has encouraged leading downstream companies to

look upstream.

Since our last meeting with Bernhard Krainer,

general manager of OMV, in 2009, the company

has more than doubled its license portfolio on

the NCS to 17. Krainer notes that the “executive

board of OMV introduced a new strategy in Sep-

tember 2011 with OMV focusing more on the

upstream sector for future investments. As our

activities in Norway are upstream focused, we

are here certainly profiting from the new strategy.”

For OMV, Norway provides a safe bet within its international operations:

“In terms of our global portfolio, where some countries carry a certain

amount of political risk, Norway provides a good counterbalance. OMV

operates in several North African and Middle Eastern countries, where the

situations can be less predictable compared to Norway.”

Although cautious of throwing heavy investment up to the Barents Sea

where visibility on projects is still 15 years in the future, OMV feels that

A FEW FACTS ABOUT STATOIL:• Equity production of 1.85 million barrels of oil equivalent per

day in 2011• Market capitalization of about $ 85 billion• 5.426 billion barrels of oil equivalent in proved reserves• Operator of more than 40 producing oil and gas fields• One of the world's largest net sellers of crude oil• The second-largest exporter of natural gas to Europe• The world's largest operator in waters deeper than 100

meters• A world leader in the use of deepwater technology• A world leader in carbon capture and storage• The largest retailer of oil products in Scandinavia, and one of

the leaders in the Baltic states

Bernhard Krainer, general manager, OMV

17


Norway offers sufficient stability to invest for the long term. Krainer noted:

“OMV will be investing strongly in infrastructure in mid-Norway until 2017.

The company sees this as an area where OMV can have considerable pro-

duction in the medium term. The production start-ups from this region are

scheduled for around 2017, which will shorten the waiting time for any

bigger discoveries yet to be made in the Barents Sea.”

Strikingly similar in terms of its motivations and strategies is Italian E&P

company Edison. In May 2012 French electricity giant EDF completed

the acquisition of the Italian junior and Raffaele Buonaguro, general man-

ager of Edison Norge explained: “EDF is showing a strong interest in the

upstream sector and in Edison as a company. With this support we are

looking to transform our presence in Norway in

the coming years.”

Again Buonaguro echoed Krainer’s view, on

behalf of Edison, saying that, “Norway plays a

key role within Edison's global portfolio, in part

thanks to the stability of this market. Norway

creates a relatively low-risk position for the com-

pany, as it moves into higher-risk regions.” And

again Edison sees itself playing a key role in mid-Norway’s infrastructure

as a partner in the Norwegian Sea Gas Infrastructure (NSGI) project. Buo-

naguro believed that this project would “serve as the access point for a

future pipeline coming from the North.” Though Edison’s strategy is cur-

rently oriented more around the North Sea where he sees “tie-back to the

market is much faster and easier to establish than in other areas, like the

Barents Sea.”

In 2007, Polish refining giant Lotos began its

adventure in Norway. Lotos Norge CEO Gerhard

Bauer explains that his company has made a stra-

tegic commitment to the upstream sector. Bauer

said that in the “period 2011-2015, it will com-

mit $1.2 billion to its E&P operations to achieve a

100,000 barrels per day target by 2020 in which

the vast majority will come from Norway.” Where

Lotos differs is in not having high-risk international projects in need of a

risk-free counterbalance. Nor is Lotos currently investing in infrastructure.

Instead, Bauer holds the ambition of rapidly transforming Lotos into a full

spectrum E&P company on the NCS.

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CarEdi_OGFJ_1302 1 1/24/13 2:42 PM

Raffaele Buonaguro, general manager, Edison

Gerhard Bauer, CEO, Lotos



Transocean has proudly

participated in important

milestones as Norway advances

its ofshore oil and gas industry,

starting with providing the first

jackup built for Norway’s harsh

ofshore conditions and the first

semisubmersible rig to work in

the sub-Arctic year-round. Today,

we operate the largest ofshore

drilling fleet in the country. Our

five semisubmersible rigs and two

modern ultra-deepwater rigs are

all ideally suited for the Harsh-

Environment of the Norwegian Sea,

with four of these units outfitted

for operations in the Barents Sea.

Whether it�s multi-lateral records

on the Troll field or the most

extensive drilling experience

of any drilling contractor in the

Barents Sea, Transocean brings a

powerful combination of people,

experience and assets to get the

job done right.

That’s the type of performance

you expect from the company that

has been drilling oil and gas wells

for customers for 43 years of the

coasts of Norway. Transocean:

succeeding in Norway.

www.deepwater.com

CarTra_OGFJ_1302 1 1/24/13 3:45 PM

“We do not only focus on exploration but on becoming a full E&P

player on the NCS. I think all this is very well received in Norway

and in line with the Norwegian strategic focus on long-term devel-

opment,” said Bauer. Whatever their strategy, Norway continues to

provide a safe haven and long-term growth opportunity for European

downstream players in tough times.

The Risk of Norwegian Overenthusiasm Kjell Pedersen, president and CEO of Petoro,

the Norwegian state company responsible

for managing the country’s direct oil and

gas license investments – a portfolio of $191

billion – expressed a note of caution to the

country’s intense E&P activity. The danger, as

he understood it, is that such frenzied excite-

ment, ironically, could stretch the supply chain

too thin, limiting access to skilled labor and

drilling rigs thereby driving up drilling costs to an unsustainable level

and distracting the market from necessary investments in mature

assets. He feared that instead of taking Norway to new heights, the

weight of enthusiasm could collapse the floor of the industry.

Pedersen said: “It is clear that Norway is too costly compared to

other countries and some analysts say the difference between Nor-

way and the UK in drilling cost could be 45%.” In fact, drilling costs

on the NCS doubled over the first decade of the 21st century and

Petoro, which was designed as a purely financially-focused organiza-

tion, whose key performance indicators revolve around profitability,

has found itself becoming increasingly involved in the technical side

of the business to find innovative ways to reduce costs.

Petoro has been working closely with Norwegian NOC Statoil on

new drilling concepts such as license groups buying and owning drill-

ing rigs and extending drilling contracts to 6-8 years. Petoro also has

been working with Statoil on new categories of rigs for light inter-

vention operations (category A and D). Pedersen summed up: “We

are doing a lot to try to reduce the overall cost, but some of the

fundamental issues as to why Norway has come this high up on the

cost curve are difficult to change. We are a rich nation of five million

people, we have given ourselves the luxury of being expensive.”

Asbjorn Olsen, managing director of Transocean, was also a little

more sanguine in his assessment of the capacity problem. He agreed

that although the market is currently undersupplied with rigs, he

disagreed that this was creating unsustainably high day rates. Olsen

Kjell Pedersen, president & chief executive officer, Petoro

19


wireless technology and driven by cost and safety, Knutsen sees the

benefits for IOCs as much as for independents, believing that the

majors would be able to generate efficiency savings, while the young

independents could reduce their human labor requirements in a tight

skills market.

However, for Paul Horne, managing direc-

tor of KCA Deutag Norge, the leading fixed

platform drilling contractor in the North Sea,

the advances in distance control over rigs

does not mean that the oil and gas busi-

ness is becoming less people-centric. A for-

mer roughneck of 15 years himself, Horne

stressed, “technology may provide us with

the best automatic system in the world; yet,

at the end of the day, the real challenges are to have people with

the right skills who also have leadership and the ability to manage

and effectively work with people.” He even touted the company’s

location in Bergen for offering the closest point to many offshore

operations and believed that the integrated operations were a valu-

able training tool and a complement rather than a replacement for

offshore staff.

What’s the Rig Idea?Statoil is experimenting with several drill-

ing concepts designed to reduce operating

expenses on the NCS. One of these is the

fit-for-purpose rig concept, which Magnar

Fagerbakke, current vice president for Market

& Contracts at COSL Drilling Europe, helped

to establish when he worked at Statoil more

than a decade ago. “The first time Statoil

started looking at this was in 1997. In places

like the Halten area there is a mass of subsea installations, flowlines

and line pipes - a subsea spaghetti,” he said. Conventional rigs with

dangerous anchors are no good and Statoil has around 500 subsea

wells – this represents around 12 percent of the global total. Fager-

bakke saw the movement towards light intervention rigs and Cat-

egory J, Jack-up rigs as highly logical to reduce moving ill-equiped

and expensive conventional rigs around sensitive areas.

Statoil has claimed that the NCS is short of midwater rigs or cat-

egory D. Almost all wells on the NCS are shallower than 500 meters

and it is only in the very West of the Barents Sea that the depth

said, “the day rates for standard floating rigs are in the low five hun-

dred thousands, which is not significantly above global averages. I

believe the ‘high day rates’ in Norway is a theme that has been over-

played by the oil industry quite a bit. The lifting cost for oil in Norway

is not that much higher than in the rest of the world; it is really in the

midfield.” On the question of capacity, he continued that by 2016,

the number of mobile rigs on the NCS would increase to around 50

from 33 today, in his view, restoring the supply balance.

Olsen saw the capacity problem slightly dif-

ferently: “this expansion in the number of rigs

in itself represents a major challenge for the

industry, given that we will need to qualify new

people to operate them.” Through its acquisi-

tion of Aker Drilling last year and a 40-year

history in Norway, Transocean has been able

to establish a strong local labor force capable

of taking on operations. Yet, Olsen says that it is difficult for the com-

pany to expand further due to skills shortages.

Regarding whether they could bring in competence from the UK,

Olsen replied: “Norway is a very different market from a competence

standpoint and you need a different set of technical skills and also

documentation of those skills with proof of competency. This creates

some barriers for workers from the UK, for example, to work in Nor-

way.” For Olsen the shortage of people is the single most important

challenge facing the Norwegian industry.

An Industry Without PeopleFrom an HSE and cost perspective, the ideal for most oil and gas

companies would be to have no employees at all on offshore rigs;

this is exactly the direction that the Norwegian industry is headed.

Whether you call them smart fields, intelligent fields or integrated

operations, Norway is pioneering the movement to bring more of a

platform’s operations onshore.

Asgeir Knutsen, president of Emerson Pro-

cess Management AS, one of the companies

paving the way for the integrated operations

concept, said: “Most or all of the major oil

companies have envisioned this as part of

their production concept. I see a turning point

now where technology is mature enough to

let companies achieve the integrated opera-

tions model.” Enabled by recent advances in

Asgeir Knutsen, general manager, Emerson Process Management

Paul Horne, managing director, KCA DEUTAG Norge

Asbjorn S. Olsen, manag-ing director, Transocean

Magnar Fagerbakke, vice president marketing & contracts, COSL



around 30 years ago and now after 50 years

the establishment of the Arctic basin. Norway

is by no means alone in its Northern ambi-

tions, with China recently vying for observer

status on the Arctic Council. Interest in this

region is heating up.

However, the transition is a politically sen-

sitive topic: Moe’s own political party in the

government coalition, the Center Party, opposes this direction. Moe’s

overtures to the oil industry to press on to the Arctic were publicly

denounced by Prime Minister Stoltenberg who affirmed that this

was not government policy. Moreover, all impact studies on Lofo-

ten, much-coveted by the industry, but also one of the most impor-

tant spawning grounds for Atlantic fish, have been put on hold until

after the September 2013 election. There are big changes facing

Norway on how far to push exploration and it will be interesting to

see what comes out of the tight race predicted between the incum-

bent Labour-led government and the Conservative opposition in this

year’s election.

For Dolphin Geophysical, a company with a seven percent share

of the global seismic market, Norway still represents 30 percent of

their revenues and the Barents Sea is a huge opportunity. Dolphin

Geophysical CEO Atle Jacobsen said: “We have a lot of activity in

the Barents Sea in 2012 and this will remain buoyant in 2013, driven

by the 22nd licensing round and the awards which will come. We

are now looking at the 23rd licensing round

because in this industry you need to remain

one step ahead. The former grey zone with

Russia and the Jan Mayen ridge are two huge

potential areas, and we have already worked

on behalf of the Norwegian Petroleum Direc-

torate in this region. It will be interesting to

see if these new areas are included in the 23rd

round.”

As Jacobsen saw it, whether, “the government chooses to open

up acreage is a highly political discussion. However, with successful

development of the Barents Sea region, the pressure would be taken

off developing areas such as Loftoten [closer to the Norwegian Arctic

shoreline] which will be a much tougher political decision.” Jacobsen

therefore believed that the degree of industry pressure to open up

this key fishing region depended on oil companies identifying strong

resource potential from Norway’s 22nd licensing round.

descends to 1,500 meters. COSL’s operations began in Norway in

2007 on the back of contracts from Hydro and targeted this midwa-

ter segment. Fagerbakke claimed: “Our units cost approximately half

the price of the deepwater units which have entered the Norwegian

market in recent years. COSL rigs are therefore already well suited

for the NCS.” He believed that this trend could have a positive effect

on cost reduction.

However, regarding Statoil’s idea for license groups to potentially

own the rigs themselves on fields like Troll, Oseberg and Gullfaks,

Fagerbakke remained slightly skeptical. He believed that transferring

a high value asset from an organization taxed at 28 percent onto the

balance sheets of a company taxed at 78 percent would make the

idea financially difficult to implement.

A 50-Year Journey to an Uncertain Destination“Over the last 50 years, Norway has opened approximately half of

the total production area available and we are now in the process

of establishing a new third petroleum province in the Barents Sea.

By working on this strategy, we see the potential to arrest and even

reverse Norway's production decline,” said Norway’s Minister of

Petroleum and Energy Ola Borten Moe. The major finds on Skru-

gard and Havis in the Barents Sea in 2011 gave credence to the idea

that the Arctic offers the silver bullet for Norway’s oil decline and

Norway’s 22nd licensing round, which offered up 72 licenses in the

Barents Sea, has gathered unprecedented interest from oil and gas

companies seeking a share of the pie.

Moe saw a gradual upward progression in the industry from Ekofisk

in the North Sea back in 1969, to the opening up of mid-Norway

Impressive 12 streamer spread off the back deck of Polar Duchess, she is the sister-ship to our flagship vessel Polar Duke.

Ola Borten Moe, minister, Ministry of Petroleum and Energy

Atle Jacobsen , chief executive officer, Dolphin Geophysical

CarCOS_OGFJ_1302 1 1/24/13 4:17 PM

21

CarCOS_OGFJ_1302 1 1/24/13 4:17 PM


Stranded up NorthMarket access is the freezing-cold elephant in the room in any dis-

cussion of the industry’s movement to the Arctic. 2012 was a year

when the ambitious Shtokman project in Russia crumbled as its tar-

get market, the US, discovered that it already had bountiful quanti-

ties of natural gas locked up in shale deposits.

In Norway, the lucrative European markets for natural gas are

more than a thousand miles from any potential gas discovery in

the Barents Sea. Norway’s first gas field in the Barents Sea 187 km

Northwest of Hammerfest, Snovit, started production in 2006 and

sends its gas to a liquefaction facilitiy at Melkøya on Norway’s Arctic

coastline. However, in 2012 the decision was taken by Statoil not to

develop a second LNG train at this facility, which in the eyes of Erik

Karlstrøm, CEO of North Energy, is indicative of the industry moving

in favor of a pipeline solution.

Karlstrøm said, “the activity level and industrial development in

this part of Norway is completely dependent upon being able to

commercially sell gas to the market. To us, the real competitive-

ness of the Barents Sea is based on financing pipelines running to

Europe.” In his view, huge quantities of unconventional gas from

For more informa� on on SHarp, Dolphinís Broadband

product, visit www.dolphingeo.com/SHarp

HW�EN A K�QU�L� A

CarDol_OGFJ_1302 1 1/24/13 1:52 PM

Sakhalin Energy

23


Asia-Pacific would already swamp key markets like China. So, Norway

should exploit its competitive position close to the European market.

North Energy already sits on the Norwag gas discovery in the Bar-

ents Sea but needs market access. Fortunately, Karlstrøm believes that

the quantity of stranded gas has already reached the crucial tipping

point where a pipeline solution becomes the preferred option.

Norwegian pure-play exploration company, Concedo, is another

firm with its eyes fixed on the commerciality of the Barents Sea. With

two non-operated licenses to be drilled on blocks to the west of the Skrugard find in 2013

and 2014 Geir Lunde, managing director of Concedo, is under no illusion that the Barents

Sea is a difficult sell. Lunde said: “In Norway, the threshold for a tie-in

development is around 20-30 million barrels, a standalone would need

above 100 million barrels and in the Barents Sea this goes up to 200

million barrels.” He said if the average discovery takes around 10 years

to develop in the rest of Norway, one could assume much longer for

the Barents Sea. Concedo therefore chooses to balance its risk across

Norway’s three oil provinces, but the hope is always to strike big in the

Barents Sea.

Responsible Risk-takingThe potent public scrutiny that has borne down upon the oil and gas industry since the 2010

Macondo disaster was given renewed strength in 2012 following Christophe de Margerie’s

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Geir Lund, managing director, Concedo

Erik Karlstrøm, CEO, North Energy

RETURN OF THE FIXED PLATFORM

The concrete drilling platform, a gravity-based structure, was

a uniquely Norwegian brainchild. Sturdier, but much more

expensive than steel platforms, only around 50 “condeep”

platforms have ever been built, compared to 5,000 from steel. Look-

ing at the last decade, only five concrete platforms have been built:

two GBS platforms on Sakhalin 2 were build for Shell and one on

Sakhalin 1 for ExxonMobil in Russia, one LNG receiving terminal was

built in the Adriatic Sea near Venice, and one more is being designed

for the Hebron field in Canada.

Norwegian engineering consultancy firm, Multiconsult was involved

in all of these projects. Its CEO, Christian Norgaard Madsen, now

believes that these concrete structures are about to go through a

revival as the industry heads into the Arctic. Madsen saw that the development of operations in

the Barents Sea, where the water depth is rarely below 100 meters, suited the condeep struc-

ture. He explained that structures “can withstand drifting ice flows, they last longer, you can drill

whilst protected inside one of the concrete shafts, you can also add thousands of tonnes of load

on the topside,” pointing out that Statoil was seeking to install more compressors. For Madsen,

these structures had already proved their worth in Sakhalin and would be well suited to other

regions, such as Norway’s Barents Sea and Russia’s Kara Sea.

In order to support this direction, Multiconsult last year acquired Barlindhaug Consult, dou-

bling the company’s headcount in the North of Norway and is heavily involved in Arctic research,

within the Sustainable Arctic Marine and Coastal Technology (SAMCoT).

Christian Norgaard Madsen, chief executive officer, Multiconsult



note of caution about the risks of Arctic production

being excessive. And as concerns mount about the

ramifications of an oil spill in Arctic waters, interna-

tional eyes are turning to Norway as the country

with the safest continental shelf – in spite of its

challenging environment.

Much of Norway’s climate of safety can be attrib-

uted to the work of Magne Ognedal, one of the

longest serving elders in the Norwegian oil and

gas industry and president of Norway’s Petroleum

Safety Authority (PSA). Duty-bound to create the

safest E&P environment, Ognedal said that he

was profoundly influenced by the 1980 disaster

on the Alexander Kielland semi-submersible rig

operating on the Ekofisk field, that capsized and

killed 123 people, just one week after he began working for the PSA.

Ognedal claimed that the PSA’s approach to safety had changed

little over the last 30 years, even in the face of huge pressure post-

Macondo and he attributed the success of Norway’s safety regime to

the decisions made in 1985 to reorganize the regulatory regime. He

said: “As a result of that reform in 1985, we changed the approach

from prescriptive to functionality-based regulations” in contrast to pre-

scriptive regimes in other countries like Russia. International authorities

from the US and Canada are collaborating with the PSA, and other

countries are seeking to emulate it.

Stig Christiansen, CEO of Add Energy, a Norwegian company spe-

cializing in well integrity and crisis management, notably involved in

resolving international blow-outs from Montara 2009 and Macondo

2010 through to Elgin in 2012, affirmed that Norway “is the safest

shelf in the world and many emerging countries look to the Norwegian

model.” He noted that recently New Zealand was having the same

debates as Norway had held many years ago and that for Add Energy’s

fast growing business in Australia and New Zealand knowledge of Nor-

way’s regulatory environment was invaluable.

Christiansen praised Norway’s authorities for resting ultimate

responsibility on the shoulders of operating companies. He said it is

paramount as companies extend operations to the Arctic and that,

given the unacceptability of a spill in this region, the industry would

have to “prove that we are willing to invest and able to understand

and manage the risks.’

Magne Ognedal, director general, Norwegian Petroleum Safety Authority

Stig H. Christiansen, CEO, Add Energy

Part 2 of our special report on Norway, dedicated to the service sector, will soon follow in an upcoming issue of Oil & Gas Financial Journal.

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25

For exclusive ITVs and more insights, log on to



26Interview with Ola Borten Moe, Norwegian minister of petroleum and energy

INTERVIEW WITH:

Ola Borten Moe, Norwegian minister of petroleum and energy

Ola Borten Moe, NORWEGIAN MINISTER OF PETROLEUM AND ENERGY

Focus Reports: There are pressures in the Norwegian parliament to slow down the pace of oil and gas industry development to allow the rest of the economy to catch up. Is the oil and gas industry in need of a slow-down?OLA BORTEN MOE: I experience broad support in our parliament when it comes to oil and gas policy. That said, the success experi-enced by the industry as well as the wealth that we are generating confers on the Nor-wegian government a strong responsibility towards Norwegian society. In the years to come, the cost inflation will increasingly require Norwegians to find new innovative ways to compete internationally. Norwe-gians will therefore have to work smarter in the future than we do today and this is a continuous task for Norwegian society.

We have established a fiscal rule limiting the spending of proceeds generated by the petroleum industry to just four percent of the Government Pension Fund. The reason for this limit is that the moment we start spending this wealth simply to go on holi-day is the moment we turn a great oppor-tunity into a limiting factor on our devel-opment as an economy. Furthermore, the oil and gas industry is without doubt the most innovative business in Norway and is capable of competing admirably on a global level. In my view we need to keep this pres-sure on to allow this innovation to con-tinue.

FR: Regarding the development of the Nor-wegian Continental Shelf, what is the dan-ger of “over enthusiasm” leading to skills shortages and further cost inflation?OLA BORTEN MOE: It is true that we need to stay focused on access to skilled workers; we need to look at costs relating to the rig market and overall drilling capacity. We also need to maintain our focus on improv-ing fields’ recovery rate even though it is just as interesting to move towards frontier discoveries.

Norway is currently in a unique position within Europe. Our economic challenges are very different to those of the rest of Europe, yet we are part of the same labour market. Many Norwegian companies are therefore recruiting outside of Norway, which is good for Norway and the workers

Norway is currently in a unique position within Europe. Our economic challenges are very different to those of the rest of Europe, yet we are part of the same labour market.

27

Ola Borten Moe, NORWEGIAN MINISTER OF PETROLEUM AND ENERGY

who come here. Norway is growing and our population is increasing with a good demo-graphic balance and therefore the number of people that the oil and gas industry will be able to draw upon is increasing every year.

On the issue of cost there is no easy answer; there are basic market forces at play. However I do believe that this is one of the factors driving the industry into an even more innovative mode. The level of cost is so high that you need to work smarter to unlock resources. There is a tre-mendous drive to create efficient technolo-gies and improve working procedures throughout the value chain. Cost inflation will be an increasingly important issue for Norway over the coming years and the most obvious way to deal with this challenge is to develop technologies, which can bring operating costs down by generating greater efficiencies. Norway is growing as one of the largest offshore markets globally and this is a great testing facility for technolo-gies for the rest of the world.

FR: The 22nd Licensing round marks the most significant step towards Arctic oil and gas production. How do you make the judgment call on what is acceptable risk in extending E&P into this sensitive area?OLA BORTEN MOE: We have for 30 years been operating far beyond the Arctic Circle but no further than they are operating in other countries like the USA, Russia and Canada. However, what these countries lack and what Norway can take advantage of is the mild climate in the North thanks to the Gulf Stream. The parts of the Barents Sea that we have opened up are ice free, which makes a difference from an operating and cost perspective. If we move further north then we will operate in a harsher climate with different challenges and we are not ready for that yet.

In Norwegian history, Ekofisk was Nor-way’s first major discovery located at in the very southern part of the country. 30 years ago we opened up the middle parts of Nor-way and we have taken over 50 years to reach the Barents Sea. We have applied a stepwise approach when exploring these areas. This is a history of an industry tak-ing on new challenges as they demonstrate their improved technological capabilities and learn to handle the challenges associ-ated with the production environment. Norwegian oil and gas history has not been written yet; we are still in the midst of this progression towards the North.

My own target for the extension of the oil patch is to explore the resources avail-able as efficiently and responsibly as pos-sible. For this to occur we need healthy competition on the NCS. Large interna-tional companies have the insight and technologies to contribute to this develop-ment and I encourage them to put in high-quality applications for the licenses in the Barents Sea. We also need companies spe-cializing on the other parts of the value chain to contribute with new approaches. There are many operators and even more companies qualifying for the shelf, which is very exciting. n

In the years to come, the cost inflation will increasingly require Norwegians to find new innovative ways to compete internationally. Norwegians will therefore have to work smarter in the future than we do today and this is a continuous task for Norwegian society.

28 Interview with Magne Ognedal, director general – Petroleum Safety Authority

INTERVIEW WITH:

Magne Ognedal, director general – Petroleum Safety Authority

Magne Ognedal, DIRECTOR GENERAL – PETROLEUM SAFETY AUTHORITY

Focus Reports: Over your watch the injury rate for offshore drilling operations has fallen from 16.8 to 9.2 injuries per million work hours. What have been the most important steps that you have taken to making Norway a safe petroleum produc-tion environment?MAGNE OGNEDAL: The decisions we made in 1985 to reorganize the regulatory side of the business were perhaps the most impor-tant for everything that has followed since. The old petroleum directorate had a very central role in not only resource manage-ment, but also safety. As a result of that reform in 1985 we changed the approach from prescriptive to functionality-based regulations. We formally introduced the concept of risk management in a special royal decree.

Of course the responsibility distribution that is evident in the regulation has also been a success story, but the challenge there was to make the organizations that should have responsibilities take them on properly, meaning oil companies, contrac-tors and unions - they have not only rights but duties as well. To get this into practice took some time and effort.

We developed our modern way of think-ing in the years leading up to the decisions made in 1985. At this time we were of great interest to many. Furthermore, regarding Lord Cullen’s investigation into the Piper

Alpha catastrophe this greatly increased the interest of our activities.

Regarding employers and employees and government, Norway has had a long tradi-tion in which unions have a very clear role and they are listened to and they have rights in law. The role that unions and workers have is very formalized.

FR: What was the impact of Macondo on shaping the Norwegian production envi-ronment over the past couple of years?MAGNE OGNEDAL: When Macondo happened, there was a great deal of uncertainty among politicians, who asked whether we should stop deep-water drilling. My professional advice was that we should not do anything until we understood what went wrong, and while this discussion lasted from spring to summer, fortunately in the end we took no action. If I’m going to stop something I need a good reason to do it.

As information started to come out, we started to digest the information to see if there was something in the way we worked that needed changing, should we adjust pri-orities, should we do something to the reg-ulations, all these questions were coming up. The result of all the work we have done so far is that we don’t need to do anything to our systematic approach, we don’t have to overhaul the regulations, although there may be a couple of additions that we want

29

Magne Ognedal, DIRECTOR GENERAL – PETROLEUM SAFETY AUTHORITY

to include but we haven’t completely decided yet. Now we are waiting for the Chemical Safety Board’s report and we will digest that one too.

FR: How do you see the risk environment changing as the Norwegian E&P industry moves to the Barents Sea after the 22nd licensing round?MAGNE OGNEDAL: There are new risk contrib-utors in the far north arising from the added factor of being surrounded suddenly by ice. But the regulations can stay the same. When you do the risk evaluations you have to take into consideration the new contributors. The risk perception changes but the regulation doesn’t have to change - these regulations already cater for this.

Ice is not predictable and in the North you have extreme weather conditions, darkness, environment issues, a need for better working clothes etc. From an emer-gency response point of view, we have to consider the issues of for example moving sick people into hospitals or blowouts. The last issue is the competence and the capac-ity of the company that is going to operate in challenging conditions. Not all compa-nies can do it.

Small companies must be pre-qualified and there exists a pre-qualification system in which we participate. When it comes to an actual operation, you need to demon-strate that you have the competence and capacity to carry it out safely because it is the operator that is ultimately responsible, not the contractor(s).

FR: Do you see in these northern territories a potential for further collaboration with other countries interested in Arctic explo-ration from Canada to Russia?MAGNE OGNEDAL: The Arctic Council looks at certain issues, but that is a big group of peo-ple. We recently signed a bilateral agree-

ment with the US oil and gas safety author-ity where we mention collaboration in the high north Arctic as an issue. We have col-leagues in Canada in the two offshore prov-inces, and also the National Energy Board that has responsibility for the high north, so we will take some initiatives to work more closely together on arctic issues. In Russia there has been a collaboration proj-ect run by the DNV. Norway and Russia have been evaluating standards that the industry is using and determining their usefulness in the Arctic. I think in coun-tries like the US, Canada and Norway, everyone essentially agrees that if some-thing goes wrong in one country it will affect everyone else and therefore we must work together to avoid catastrophes any-where, especially the Arctic. It’s an invest-ment that everyone is willing to take so I see that as today’s attitude, which didn’t exist ten years ago.

FR: As a final question, what would you say was your personal ambition for maintain-ing safety on the Norwegian continental shelf?MAGNE OGNEDAL: I became director of safety in the old NPD just before Easter 1980. Two weeks later, we had the Alexander Kielland catastrophe. 123people were killed, and that was a tough start as a safety director. That has been with me all this time and I feel it has been my personal duty to help any way I can to avoid some-thing like that happening again. Even though I did not know any of the victims, this incident had a tremendous impact on me as an individual. So I am constantly working to ensure that this sort of event never happens again. n

30 Interview with Kjell Pedersen, president and CEO of Petoro:

INTERVIEW WITH:

Kjell Pedersen, president and CEO of Petoro

Kjell Pedersen, PRESIDENT AND CEO OF PETORO

Focus Reports: Petoro’s primary remit is to maximize the value for the State’s Direct Financial Interest (SDFI) in Norway’s oil and gas assets. To what extent is the orga-nization’s role still evolving eleven years after Petoro was founded?KJELL PEDERSEN: Our primary objective remains in securing the value remaining in the big mature fields and where government shares are very high - ranging from 30 per-cent to 58 percent. Getting the maximum out of those is key, particularly when many other companies’ focus may be on other opportunities than mature areas. Mature field strategy remains our main concern, although Petoro’s participation in some new discoveries put an extra stress on prioritiza-tion within this strategy.

Petoro has had the same responsibilities since day one in trying to maximize the value of our portfolio. The way we are set up as a company drives us towards working closely with other companies. This involves taking an active part in the licenses and join-ing the financial and operational aspects of a project in order to ensure that those aims are being met.

Whilst Petoro’s fundamental role has not changed, a changing business environment has led us to strengthen our technical side. Because we have always known that in the mature licenses offshore Norway, which essentially are joint ventures of large inter-national companies, we will only be a cred-ible and convincing partner if we put for-ward solid arguments from a technical perspective and in a business-like manner.

Petoro has always been recognized as a busi-ness that works within the industry and is basically doing the same job as every other company in trying to maximize and protect the value of their resources.

That is our role - maximizing the value for the owner, which happens to be the gov-ernment. We had a net cash flow of $15 bil-lion in the first half of 2012, and we have been in excess of $18 billion annually for the past few years, sometimes as much as $26 billion in some years and I hope we can con-tinue to contribute funds on that level.

FR: You are in charge of $191 billion worth of assets in Norway - how do you ensure that there is a motivation to push this value higher?KJELL PEDERSEN: When the company was formed, its creators made it very clear that Petoro was going to be a commercially-ori-ented organization, and that it should hire business people. When establishing the

That is our role – maximizing the value for the owner, which happens to be the government. We had a net cash flow of $15 billion in the first half of 2012, and we have been in excess of $18 billion annually for the past few years

31

Kjell Pedersen, PRESIDENT AND CEO OF PETORO

organization back in 2001-2002, people were hired from 34 different companies, all of them with significant business experience, mostly from large companies operating in the Norwegian oil and gas industry, but also from the finance sector and other business. Personally I came from ExxonMobil, whilst we have other executives from BP, Shell, Statoil, Hydro, and others, and the same goes for most of the people working here.

FR: What is the main contribution Petoro delivers to a license and how do you help your private sector business partners?KJELL PEDERSEN: Firstly, we have a portfolio that is very large - we are managing shares of 33 producing fields on the NCS. This means we can bring knowledge and experi-ence from our other fields, sharing best prac-tices. The size of our company (near 70 peo-ple) makes it very transparent; information is communicated clearly and efficiently, and we can bring this experience into a very busy partnership that may not have that same ability.

Secondly, although an operator may have thirty people working on the subsurface side of a field, there might only be two or three that work long-term development of the field. The other 27 or 28 will often times be working on a day-to-day basis trying to find out where and how to drill the next well or how to optimize daily production. If Petoro put two or three people to work on the field reservoir on long-term development, we can contribute greatly to the development of that project.

Thirdly, Petoro has not experienced any capital constraints in terms of investing in profitable projects in Norway. The govern-ment has accumulated huge capital reserves and proved willing to invest as long as proj-ects are financially robust. This was so, even during the financial crisis in 2008-09, when other companies introduced a capital disci-

pline that created some uncertainty even about projects, which were considered prof-itable. Also, with the introduction of many more smaller companies offshore Norway, financial solidity has become more of a topic than before. In some cases small companies struggle to get banks to provide the neces-sary funds.

FR: How do you see Petoro’s role in trying to reduce the cost level on the NCS?KJELL PEDERSEN: The cost issue is probably the most difficult problem in Norway right now. One of the main cost drivers is the rig rates and the overall cost of drilling. We have had reports showing that reducing the dif-ferences in government requirements between the Norwegian and British sectors, could make it easier to move rigs across the border, thereby leveling out some of the cost differences. Some analysts say the difference between Norway and the UK in drilling cost could be 45%.

We are doing a lot to try to reduce the overall cost but some of the fundamental issues as to why Norway has come this high up on the cost curve are difficult to change. We are a rich nation of five million people, we have given ourselves the luxury of being expensive, and we need to ensure that the effectiveness and efficiency of what we are doing is better than most others in order to remain competitive. n

The cost issue is probably the most difficult problem in Norway right now. One of the main cost drivers is the rig rates and the overall cost of drilling. Some analysts say the difference between Norway and the UK in drilling cost could be 45%.

32Interview with Torstein Sannes, managing director of Lundin

INTERVIEW WITH:

Torstein Sannes, managing director – Lundin

Torstein Sannes, MANAGING DIRECTOR – LUNDIN

Focus Reports: The Johan Sverdrup discov-ery - formerly Aldous/Avaldsnes - was made in a 40-year old production province, close to existing infrastructure. Was this just a piece of remarkable good luck or was there something you had spotted in your E&P strategy?TORSTEIN SANNES: I think it was a combina-tion of both. Firstly when Lundin entered Norway in 2003 we put together a very focused strategy for organic growth. We sought to define new exploration models and we placed our belief in the prospects, which came out of these models. Our strat-egy was oriented around inverted Jurassic Highs and the Utsira High was one of these.

Lundin’s E&P strategy has been extremely successful and has produced a major discovery every three years since 2004 with the Alvheim Volund discoveries. In 2004 Lundin applied for a license which resulted in the Luno (since renamed: Edvard Greig) discovery in 2007, for which Lundin is the operator. Then of course we have 2010’s discovery of the Avaldsnes. Lundin was exploring around the Utsira High, putting the acreages together. I believe Lundin was one of the first compa-nies to realize that there might be some oil and gas migration into the eastern part of the old high. It was this realization, which resulted in us making the Avaldsnes dis-covery as the operator of PL501. Statoil, who was the operator on PL265 then drilled their Aldous discovery a year later resulting in what has become the Johan Sverdrup

discovery.Both Statoil and Lundin have since then

been engaged in appraisal drilling which so far has been very successful. Every time we drill a successful well it confirms the mag-nitude of this discovery. We are both now moving our rigs to drill more appraisal wells and it is fair to say that in the next two years, Lundin will start to drill the other side of the old high on the south west side, where Lundin is the operator with sizeable working interest. We believe that all you need in this region for another dis-covery is reservoir quality rocks above the ground area OWC. Indeed, there may be more discoveries to come - these are excit-ing times. Statoil now estimate that first oil from Johan Sverdrup will be in 2018.

As for the element of luck, the prospect has been laying there for the past 45 years and I sometimes wonder: What if nobody

I believe Lundin was one of the first companies to realize that there might be some oil and gas migration into the eastern part of the old high. It was this realization, which resulted in us making the Avaldsnes discovery

33

Torstein Sannes, MANAGING DIRECTOR – LUNDIN

had gone after it and had the guts to drill it? It certainly feels like there was an ele-ment of luck in making this discovery. However everyone forgets that we spent USD 600 million in this area before it became a big success story.

FR: What does a discovery like this repre-sent for Lundin’s further growth in Nor-way?TORSTEIN SANNES: The discovery has opened several doors for the company. In the past, the license papers stated that since Lundin was very small we needed to find partners for drilling. Other companies were a little reluctant to partner with us in the begin-ning but since the Avaldsnes discovery we have not been short of companies queuing up to join us.

In terms of finances, traditionally Lun-din has borrowed money from the parent company to pay for our capex. Lundin pur-sues an organic growth model and our Nor-wegian income from last year was roughly USD 1 billion so we have been largely fund-ing ourselves. Nonetheless, when it comes to paying 50 percent of the Edvard Grieg platform, with the whole development likely to approach NOK 24 billion (USD 4.18 billion), we need the support of the parent company. For this expenditure the

parent has borrowed USD 2.5 billion, which is actually 1 billion, more than we need. The loan was oversubscribed to the tune of nearly USD 5 billion so Lundin’s E&P suc-cess in Norway means that there is no prob-lem in finding financing for our continued development.

From a production standpoint, our oil production has been increasing steadily and by 2015 we are looking to have doubled present production. However, when Johan Sverdrup comes on-stream in 2018 or later we will see our production increase sub-stantially again. Statoil have been quoted as seeking 500,000 /day from Johan Sver-drup after 2.5 years of production. Lundin can look at having around 25 percent of Johan Sverdrup’s production and we are the second largest owner of the field.

It is also not just a good discovery in terms of quantity but the value per barrel produced. Johan Sverdrup will produce very valuable barrels because the water depth is just 107-115m, there is an oil pipe-line at Grace field and a gas pipeline either to the UK or to Sleipner so the infrastruc-ture is already there. Johan Sverdrup does not have any excessive pressure, tempera-ture, CO2, H2S, deep-water issues. This is the type of discovery that practically comes ready packaged. n

We believe that all you need in this region for another discovery is reservoir quality rocks above the ground area OWC. Indeed, there may be more discoveries to come - these are exciting times. Statoil now estimate that first oil from Johan Sverdrup will be in 2018.Torstein Sannes with Zuzana Kudelova of Focus Reports

34Interview with Erik Karlstrøm, CEO of North Energy

INTERVIEW WITH:

Erik Karlstrøm, CEO – North Energy

Erik Karlstrøm, CEO – NORTH ENERGY

Focus Reports: What is your perspective on whether there will be a liquefied natural gas (LNG) option or a pipeline extending to the North, to make stranded gas finds commercial? ERIK KARLSTRØM: Today on the Snøhvit license, Statoil decided to postpone the LNG train, which will be unpopular among some, but the activity level and industrial development in this part of Norway is com-pletely dependent upon being able to com-mercially sell gas to the market. To us, the real competitiveness of the Barents Sea is based on financing pipelines running to Europe. We are now getting close to the tip-ping point where the pipeline becomes the preferred solution.

Huge volumes of shale gas will be com-mercially viable in the back yard of China and in East Africa. All these countries aim to sell LNG to China and Japan. Compet-ing with other gas suppliers and using the Northern Passage over Russia to supply China, is unlikely to be commercially com-petitive, so gas will go to Europe, where the demand is still high.

FR: What will this decision mean for North Energy?ERIK KARLSTRØM: The way we see it is that we got a position in the Barents Sea before many of the big companies of the world came to compete. North Energy sees today’s decision to postpone the LNG decision as a very important milestone for the devel-

opment that we predicted. We also made an agreement to work

with Lukoil in this next licensing round, and there are a lot of gas prospects that will be awarded in the upcoming licensing rounds. With the expected discoveries over the next three years, there will be enough gas for a pipeline. As expected, our share price indicates that the gas we are sitting on now has no value whatsoever, but this will change once the gas pipeline has been decided. Currently, no location worldwide can compete with the Barents Sea. Every-body wants to get into the Barents, and we are sitting on data, experience and a strong position; we have quite a good bargaining chip.

FR: What is your final perspective on the benefit of this industry direction for the local population in the North or Norway? ERIK KARLSTRØM: Five years ago an oil com-pany would go to Technip or a big Korean company to build an FPSO. Nowadays you

Everybody wants to get into the Barents, and we are sitting on data, experience and a strong position; we have quite a good bargaining chip.

35

Erik Karlstrøm, CEO – NORTH ENERGY

can use a lot of off-the-shelf technology and modifications start the same day, not after ten years. This means that people from the North will find these jobs because an employee from Stavanger will not want to repeatedly travel up to the North for inter-mittent work.

The potential jobs created represent large numbers for the area. However huge infrastructure projects to support the industry will require those in the North to pursue a different education. The Hammer-fest area has already gained a lot from activity extending into this region. Speak-ing from a northern perspective, I would like to say to politicians that as a country Norway should make its own decisions in the North. Northern Norway is a part of the country and we should help achieve Norway’s Arctic goals. Living in the far North is a valuable experience, and the business side takes care of itself. Thank-fully some politicians now have this per-spective.

FR: Russia is fairly new to Arctic explora-tion. Why was it that you formed partner-ships with Russian companies?ERIK KARLSTRØM: The offshore geology that we have in areas of the Barents Sea like Norvag can be found onshore in places like Murmansk, and Russia can handle onshore technology better than they can offshore. There is cooperation and a mutual exchange of information between the two universi-ties, where we employ postdoc students, doctors in geology that work together in small dedicated teams. Russia’s onshore experience can therefore contribute a lot to our understanding of the offshore environ-ment in this region.

Teaming up with a company like Lukoil has its pros and cons; you have to ensure a balance, and that you do not expose your-self financially. You also have to ensure their dependency on you in order to main-

tain that balance. North Energy knows a lot about exploring in this area, which I think the Russians appreciate and respect.

Do you see the possibility of crossing the border?FR: ERIK KARLSTRØM: Yes, as I think the Rus-sians are looking to us for technology and once relationships have established them-selves, and they can see that we work suc-cessfully, we may look for opportunities on the Russian side. With acreage access in the Arctic comes a clean-energy responsibility, and I think Russia understands this. I also think all the Arctic countries have a differ-ent agenda when it comes to the climate and environment. Such collaboration will certainly get us a pipeline and put Norway at the forefront of controlling the market.

Europe will need gas and Norwegians should manage it since they have proven that they can and Norway is in one the most convenient locations to manage gas. Norway has successfully managed diplo-macy with Russia for a long time. It is in everybody’s interest to have a responsible stakeholder to operate in the North. Nor-way being a small country, it is not per-ceived as a threat in this region; similarly I think it is easier for the big guys to agree to have a small company like North Energy involved in their work. n

The real competitiveness of the Barents Sea is based on financing pipelines running to Europe. We are now getting close to the tipping point where the pipeline becomes the preferred solution.

36Interview with Magnar Fagerbakke, vice president for Market & Contracts at COSL

INTERVIEW WITH:

Magnar Fagerbakke, vice president for Market & Contracts at COSL

Magnar Fagerbakke, VICE PRESIDENT FOR MARKET & CONTRACTS AT COSL

Focus Reports: Drilling EuropeGlobally, COSL is seeking to increasing the interna-tional portion of the business to 40 percent by 2015. How does Norway fit within this internationalization drive?MAGNAR FAGERBAKKE: Norway represents the first step for the company’s international expansion. Soon COSL Drilling Europe will have five units in operation in the North Sea area in both Norway and the UK: two accommodation units and three drilling units. There is a fourth drilling unit on its way and when this drilling unit has been awarded a contract, a new strategy will be launched by COSL.

What we need for our strategic direction is units which can drill in water depth up to 1500m, to be capable of drilling wells in these geographical areas. This covers the Barents Sea area as well as Greenland. Most of the Barents Sea is only down to 500m of water and to the very West of the Barents Sea the depth goes down to approx. 1200 - 1500m, so our winterized drilling unit num-ber four is a perfect match for these environ-ments. 14 new rigs are projected to join this market in the period 2013 to end 2015.

FR: What is your perspective on the attrac-tiveness of Norway as a rig market?MAGNAR FAGERBAKKE: I started to work with the rig market back in 1997 when there was an upturn in the market. However, in Q31998 board members of some of the

major drilling contractors started to sell their shares, which was a indicator to move out of the rig market and there was a sig-nificant decrease in demand from 1999 onwards as a result of the drop in oil prices. In summer 2001 Statoil had 12 drilling units on contract in Norway and many of these rigs were left to go off contract reduc-ing the demand side significanly. Therefore by Q3 2003 there were only seven semisub-mersibles working in Norway, five for Statoil and two for NorskHydro.

Contrasting the situation in 2003 with today (December 2012), we now see nine jackups working in Norway, one drillship and 24 semi-submersibles making 34 drill-ing units in total. Two more rigs will start in early 2013, the Leiv Eiriksson from Ocean Rig and the West Hercules from North Atlantic Drilling. COSLPromoter will start on her 8-year contract with Statoil on the Troll field at the end of 2012. There are in addition a number of new builds due to

Currently there is a fantastic increase in the activity level, something never before been seen in Norway. The market is very good for drilling contractors.

37

Magnar Fagerbakke, VICE PRESIDENT FOR MARKET & CONTRACTS AT COSL

come to Norway including the COSLPros-pector, four Songa rigs, the Island Innovator (2013), Rowan Drilling with 2 jack-ups and Maersk supplying three more. It is clear that Norway has become a very attractive mar-ket for the drilling contractors.The oil price is key in determining the attractiveness of the market and the rig rate. More than 95 percent of the rig rate is linked to the oil price so the correlation is very strong.

The oil price is especially dominant in Norway because the rig rate is made known when a contract is decided upon. The oil companies here are all using more or less the same breakeven price. Currently there is a fantastic increase in the activity level, something never before been seen in Nor-way. The market is very good for drilling contractors and you can demand a slightly higher rate because of the 2:4 system, requiring three shifts compared to 2:2 in the UK. Essentially, if you need 110 people to man a rig in the UK, you need 165 in Nor-way and this represents a significant differ-ence in costs.

FR: Statoil is driving forward a “fit-for-pur-pose” rig concept to bring down costs. How will this affect the market and your opera-tions?MAGNAR FAGERBAKKE: COSL in Norway was

essentially founded on two contracts with Hydro back in April 2007. These are eight-year contracts with options in addition. The rigs we brought to the Norwegian market were perfect for the operational environ-ment drilling down to 500m. There is only one field in Norway in production deeper than 460m which is the Ormen Lange gas field. Our units cost approximately half the price of the deepwater units which have entered the Norwegian market in recent years. COSL rigs are therefore already well suited for the NCS and Statoil has stated that COSL units are very close to what they are looking for.

The overall shift towards purpose built rigs makes good sense. Statoil has a large number of subsea wells which need to be maintained and you need purpose built units to be efficient. The first time Statoil started looking at this was in 1997. In places like the Halten area there is a mass of sub-sea installations, flowlines and line pipes - a subsea spaghetti. This means that you can-not use your anchors without having a risk for damaging such installations if some-thing should happen to the anchor chain and anything falling from the rigs could cause a massive oil spill. This is among other reasons why Statoil has been working on the Catergory D rigs, as well as on a Cate-gory J (Jackup) rig and light well interven-tion units. Statoil has been proactive in meeting the need for lower-cost specialized units fit for purpose on the NCS. n

What we need for our strategic direction is units which can drill in water depth up to 1500m, to be capable of drilling wells in these geographical areas. This covers the Barents Sea area as well as Greenland.

Magnar Fagerbakke with Chiraz Bensemmane of Focus Reports

38Interview with Asbjorn Olsen, managing director – Transocean

INTERVIEW WITH:

Asbjorn Olsen, managing director – Transocean

Asbjorn Olsen, MANAGING DIRECTOR – TRANSOCEAN

Focus Reports: Having recently returned to the Norwegian market, what is your per-spective on the current high level of E&P activity in Norway from a drilling contrac-tor standpoint?ASBJORN OLSEN: According to a study for the Norwegian Shipowners’ Association, we are at the start of a major growth period on the Norwegian Continental Shelf and the num-ber of rigs that will be required is on the increase; today there are 33 rigs operating in the Norwegian market and this figure looks set to grow to approximately 50 by 2016, according to the study. This expan-sion in the number of rigs in itself repre-sents a major challenge for the industry, given that we will need to qualify new peo-ple to operate them.

At the moment, the market is undersup-plied with rigs and it is an industry chal-lenge. Industry analysts suggest that there will be parity between supply and demand by 2016. As a consequence of this activity, Norway is an expanding market, which we expect to remain strong over the short-term.

FR: The current undersupply of rigs is driv-ing up day rates. What is the danger that this will become prohibitive for smaller E&P players in Norway?ASBJORN OLSEN: There are several factors to consider. For example, the day rates for standard floating rigs are in the low USD 500 thousands, which is not significantly above global averages. I believe the “high day rates” in Norway is a theme that been over played by the oil industry quite a bit.

The lifting cost for oil in Norway is not that much higher than in the rest of the world; it is really in the midfield. As for the under-supply of rigs, it is a function of operators’ plans Looking at the current activity, industry analysts are telling us that we are drilling many more wells in Norway now compared to a few years ago. However there are slightly too few development wells and this is potentially where the Norwegian energy industry has a bottleneck - the available well slots. Our tax regime cur-rently favors the drilling of exploration wells.

FR: Why do you think there is a perception among E&P players that there is a looming capacity crisis in Norway? ASBJORN OLSEN: You need to put capacity in the right context. From 2012 to 2016, the industry projects an increase of around 17 rigs on the NCS. That in itself brings many human resources challenges to the table. Norway needs to have sufficient numbers

I believe the “high day rates” in Norway is a theme that been over played by the oil industry quite a bit. The lifting cost for oil in Norway is not that much higher than in the rest of the world; it is really in the midfield.

39

Asbjorn Olsen, MANAGING DIRECTOR – TRANSOCEAN

of trained, talented and certified people to operate these rigs and the current shortage of these people is probably the single most important challenge facing the Norwegian industry. Therefore, as oil companies are contracting for higher numbers of rigs to enter the NCS, both energy companies and rig contractors will need to have a strategy for training new employees and creating leadership roles for them.

FR: How then is Norway viewed within the global portfolio?ASBJORN OLSEN: Norway has historically been an important market for Transocean. Transocean has drilled for more than 40 years on the NCS, and drilled a third of all the offshore wells in Norway. However, it is hard to compare Norway with Trans-ocean’s other markets because some desti-nations do not have the same resources.

One of our greatest successes in Norway is in building up the local footprint by hir-ing the vast majority of our workforce within Norway. This has allowed us to be a highly independent region within Trans-ocean’s operations. This means that there is no great desire within Transocean to bring in workforce from outside Norway to meet the local demand in the market.

Norway is a very different market from a competence standpoint and you need a different set of technical skills and also documentation of those skills with proof of competency. This creates some barriers for workers from the UK, for example, to work in Norway. Of course, we can do a gap analysis to convert a UK driller to Norwe-gian standards but the process still pro-vides a barrier. Today, we have seven rigs operating in the Norwegian market and our goal is to educate the local population to take on the challenges of our business. One of the main steps in growing the local foot-print was the acquisition of Aker Drilling last year.

FR: How do you see the significance of this acquisition in growing your Norwegian presence? ASBJORN OLSEN: In terms of numbers, we have gained a larger revenue base and have become a larger part of the Transocean family. We have gained more people as well as newer and more technological ly advanced equipment. This has given Trans-ocean a technological edge. The rigs that we have acquired fit within our vision very well, allowing us to serve in a leading posi-tion in demanding environments like the Barents Sea.

We have spent around a year with the integration of the two companies and we are mostly through with the major integra-tion steps. There is still a little work to be done on the enterprise resource planning side and maintenance management sys-tems side. Norwegian legislation drives this process and the adjustment of management practices is not something that can occur overnight.

We have gained, through this acquisi-tion a small-company mentality, which is being integrated within a much larger orga-nization. Small companies are used to short decision lines, fast actions and a dynamic environment. We have tried to assimilate and maintain what was smart and efficient from Aker Drilling for the benefit of Trans-ocean’s operations. That has been the most interesting aspect of the process for me. n

However there are slightly too few development wells and this is potentially where the Norwegian energy industry has a bottleneck - the available well slots. Our tax regime currently favors the drilling of exploration wells.

40

PAST REPORTS

http://issuu.com/focusreports/docs/south_afirica_oil_gas_report_august_2012

http://issuu.com/focusreports/docs/south_afirica_oil_gas_report_august_2012

http://issuu.com/focusreports/docs/china_oil_gas_report_july_2012

http://issuu.com/focusreports/docs/russia_oil_gas_report_march_2012

http://issuu.com/focusreports/docs/mexico_ogfj_2012

http://issuu.com/focusreports/docs/india_new_

http://issuu.com/focusreports/docs/oil_gas_peru_2011

http://issuu.com/focusreports/docs/oil_gas_australia_2011

http://issuu.com/focusreports/docs/oil_gas_singapore_2010

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Company index

Add Energy ...................................... 24

Bridge Energy .................................. 12

Cairn ..................................................11

Concedo ......................................10, 23

COSL ...............................19, 20, 21, 36

DetNorsk ..........................................11

Dolphin Geo ............................... 20,22

Edison ...............................................17

Emerson ...........................................19

JP Kenny .....................................10, 14

KCA deutag ......................................19

Lotos ................................15, 16, 17, 18

Lundin .....................................6, 10, 32

Ministry of Petroleum ...............20, 26

Multiconsult .................................... 23

North Energy ........................22, 23, 34

Norwegian Petroleum Safety

Authority ...................................24, 28

Norwegian Union of Energy

workers .............................................. 8

OMV ............................................15, 16

Petoro .........................................18, 30

Spring Energy ..............................9, 11

Statoil ...........................................8, 14

Tendeka ............................................ 13

Transcocean ..........................18, 19, 38

Norway Oil & Gas report February 2013

Oil and Gas Norway report 2013

Documents

Transcript of Oil and Gas Norway report 2013