Oil and Gas Norway report 2013 Part 3

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NorwayOil & Gas report Part 3August 2013

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CONTENTS6 LETTING OFF STEAM

6 THE BARENTS SEA OPPORTUNITY

6 ATLA’S EXPERIENCE OF SHARING RESPONSIBILITY

9 SHARING IS DARING

10 AND THE WINNERS ARE…

10 BOTTLENECKS AND INVESTMENT CHECKS

12 THINKING OUTSIDE THE CONTAINER

13 CLEANER SEAS

14 FROM GEOGRAPHY TO TECHNOLOGY

15 IT WAS BOND TO HAPPEN

15 THE SECRET OIL CITY

16 RE-ENGINEERING HR

16 ROOM FOR IMPROVEMENT

16 CROSSING THE BORDER

18 THE HYDROCARBON PEACEKEEPER

20 INTERVIEW WITH

Julie Berg, Partner, KPMG22 INTERVIEW WITH

GEIR LUNDESTAD, Director of the Nobel Institute 24 INTERVIEW WITH

Ståle Hansen, Project Branch Manager, Project Dept. Oil & Gas at DB Schenker 26 INTERVIEW WITH

Linn Cecilie Moholt, CEO of Karsten Moholt 28 INTERVIEW WITH

John Egil Stangeland, CEO of Norsea Group 30 INTERVIEW WITH

Alf Ragnar Løvdal, CEO, North Atlantic Drilling32 INTERVIEW WITH

Christopher Spencer, CEO of Rocksource ASA 34 INTERVIEW WITH

Martin Tiffen, managing director of Total E&P Norge

INTERVIEWS

4

UPPING

THE

ENERGY

Apply is moving onward and upward with new brownfield and greenfield projects.

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Living Quarters & Helidecks

Serving new field developments

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quarters, as well as patented helidecks

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shelf with brownfield modification

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as operations support.

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Serving rig operators with system

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work. In addition, we equip container-

based modules for a wide range of uses.

vju

FocApp_OGFJ_1308 1 7/23/13 9:23 AM

Last year, Statoil CEO Helge Lund dismissed calls in the Norwegian parliament to cool down the oil sector as absurd. Yet, cooling down the oil industry seems to be

the exact aim of recent proposals by the Ministry of Finance to change the Norwegian fiscal regime. With elections due in September, it seems the government has finally decided to address the question of Norway’s oil industry growth. The industry asks why its growth should be restricted when it brings so much value to the country. The govern-ment responds by pointing out multi-million dollar project overruns, unresolved issues surrounding Arctic exploration, pressure on economic and human resources and a two-speed economy that leaves the mainland industry trailing behind. But how volatile has the Norwegian market really become and how is the industry circumventing these challenges?

Norway

MOVING ATTWO SPEEDS

▲

▲

63

5

UPPING

THE

ENERGY

Apply is moving onward and upward with new brownfield and greenfield projects.

We are well positioned to win and execute major projects in the oil & gas industry within

our three areas of expertise:

YOUR TOPSIDE PARTNER

apply.no

Living Quarters & Helidecks

Serving new field developments

with steel or aluminium living

quarters, as well as patented helidecks

in aluminium.

Upstream facilities

Serving the Norwegian continental

shelf with brownfield modification

projects, planning and execution

of maintenance programmes as well

as operations support.

Rig & Modules

Serving rig operators with system

upgrades, maintenance and modification

work. In addition, we equip container-

based modules for a wide range of uses.

vju

FocApp_OGFJ_1308 1 7/23/13 9:23 AM

Last year, Statoil CEO Helge Lund dismissed calls in the Norwegian parliament to cool down the oil sector as absurd. Yet, cooling down the oil industry seems to be

the exact aim of recent proposals by the Ministry of Finance to change the Norwegian fiscal regime. With elections due in September, it seems the government has finally decided to address the question of Norway’s oil industry growth. The industry asks why its growth should be restricted when it brings so much value to the country. The govern-ment responds by pointing out multi-million dollar project overruns, unresolved issues surrounding Arctic exploration, pressure on economic and human resources and a two-speed economy that leaves the mainland industry trailing behind. But how volatile has the Norwegian market really become and how is the industry circumventing these challenges?

Norway

MOVING ATTWO SPEEDS

▲

▲

63

6

64 ENERGY.FOCUSREPORTS.COM | WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL AUGUST 2013

LETTING OFF STEAMIn January, all seemed to be going well for the oil

industry when the Ministry of Petroleum and Energy

proposed a huge reduction in gas transportation

tariffs by up to 90%. Naturally, this move infuriated

private investors in Gassled, the natural gas pipe-

line system, who had only acquired these interests

18 months before. Cries of litigation have flowed

from Gassled’s principal investors, who now face 4%

returns when they had originally planned 7% as a

minimum.

But Norway’s Minister of Petroleum and Energy Ola Borten Moe has

maintained that lowering the cost of transporting gas to the market is

essential for making marginal assets profitable, and especially assets

in the Barents Sea. The tariff reductions, scheduled to appear in 2016,

are a clear policy to encourage oil industry growth at the expense of

pipeline investors.

Despite taking a pro-oil stance on the tariff issue in January, however,

the Norwegian government made a decision in May that threatens the

exact same marginal assets that the tariff cuts were designed to enable.

This time, it was the turn of the oil industry to be sacrificed for the ben-

efit of Norway’s mainland industry.

The Ministry of Finance announced a proposal to raise the petroleum

tax by 1% to 51%, reduce tax deductions for the oil industry to 22%

from 30%, while for the rest of the economy the ministry dropped over-

all corporation tax by 1% to 27%. This shifting of the fiscal burden onto

the oil sector marks a clear move to slow down the oil industry and bal-

ance out the Norway’s two-speed economy.

On June 5, Statoil CEO Helge Lund reacted by announcing that the

USD16.5 billion field development Johan Castberg would be put on

hold. Indeed, the industry maintains that the removal of key tax deduc-

tions will render a large number of marginal fields uncommercial. Indus-

try analysts have projected that the removal of deductions will push a

substantial number of other fields - including BG Group’s Bream field

and Shell’s Linnorm field - to the wrong side of the margin.

Much of Norway’s competitive advantage as an oil jurisdiction over

the last decade has been predicated on its fiscal stability. Undermining

that stability is therefore a bold move and a clear indication that the

Norwegian government no longer sees a sustainable balance between

the oil industry and the rest of the Norwegian economy.

THE BARENTS SEA OPPORTUNITYIf Statoil no longer deems Johan Castberg - the largest Barents Sea field

ever discovered - to be commercial, then what chance do other compa-

nies have of making commercial finds in the Barents Sea?

Chris Spencer is CEO of Bergen-based E&P company Rocksource,

which was established in Norway in 2011. Rocksource is a co-owner

with Total and North Energy of the Norwarg gas field in the Barents Sea.

Although a promising reservoir, Norwarg looks like one of the fields that

could be pushed to the wrong side of the margin by the tax change.

Spencer acknowledged that the Barents Sea is an especially challeng-

ing area, given that there is currently very little infrastructure to link a

potential gas discovery to the market and that there is a high chance of

finding stranded gas fields.

Nonetheless, Spencer was optimistic: “There is enough market for

assets in the Barents Sea. The 22nd Licensing round elicited a very

strong response and many of these companies are full life-cycle E&P

players, seeking to take discoveries through to production,” he said.

ATLA’S EXPERIENCE OF SHARING RESPON-SIBILITY Twenty-four ongoing projects on the Norwegian Continental Shelf

(NCS) are projected to overrun their budgets, generating USD8.6 bil-

lion in losses. The BP Valhall development exceeded its projected cost

by 86%. Worse, an overrun on the Ekofisk Zulu platform in the first quar-

ter of 2013 led to profit warnings that caused a 25% drop in the share

price of Aker Solutions on a single trading day.

For John Avaldsnes, global oil and gas leader of Ernst & Young, the

issue lies in an overload of Norway’s service industry capacity. The sup-

ply chain is faltering under the weight of USD35 billion of investment

and unprecedented E&P activity. That weight is pressing on a supply

industry already lacking somewhere between 8,000 and 12,000 engi-

neers and which does not have enough spare physical capacity.

With the industry already hard-hit by excess demand, asking it to

move even faster seems like a tall order. But a high-speed development

is exactly the task that Total E&P Norge has set for the Martin Linge

field. Managing director Martin Tiffen explained his objective of bring-

ing this field on stream by 2016 - qualifying it as a fast-track develop-

ment given the planned timeline from drilling to production.

Tiffen explained that valuable lessons had been drawn from their pre-

vious fast-track project on the Atla Field, and for him the most impor-

tant lesson learned was the need for anticipation.

“The demand-side pressure on the supplier market simply means

Johan Castberg Field

Ola Borten Moe, minister, Ministry of Petroleum and Energy

Norway Oil & Gas report part 3 August 2013

7

Martin Linge is a major field development

– a brand-new living quarters and

production platform with power from

shore and a permanently anchored oil

storage ship. Starting in 2016, and for

a great many years to come, this field

will export gas to the United Kingdom

while the oil is treated on site before

being transported by shuttle tankers.

Martin Linge is just one of the reasons

why we get up early here at Total.

Total is one of the world’s largest

oil and gas companies, with nearly

50 years of experience in Norway

and with many great things in the

making – storetingpågang.no

It’s easy to be an early bird when you have great things in the making

FocTot_OGFJ_1308 1 7/19/13 3:48 PM

8


that oil companies need

to take a little care to

anticipate the availability

of resources and let that

guide supplier relation-

ships, standardization

practices, framework

contracts, etc.,” Tiffen

said.

“One of the main lessons [from Atla] was

that sometimes you need to be a little coura-

geous and order equipment out of sequence,”

Tiffen said, adding that, “You will sometimes

have to commit to fabricating a project spe-

cific part before the complete picture is in

place.”

“In the case of Martin Linge, we made

an early commitment to a drilling rig from

Maersk, because we need to start in the sum-

mer of 2014,” Tiffen said. “If we had waited

until everything was approved, then we would

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FocKPM_OGFJ_1308 1 7/19/13 3:52 PM

INTERVIEW WITH KPMG PARTNER JULIE BERG

Focus: What is KPMG’s perspective on the proposed increases in petroleum taxation?

Berg: We do not think that there will be that significant an effect on company bottom lines. However, these reforms combined with the abrupt changes in gas tariffs for pipeline export, proposed without the usual process of consultation, are creating uncertainty in the market. This will probably have an effect on the willingness of foreign investors to invest in Norway.The other impact would be on marginal fields. It is possible that many of the plans for marginal fields could be dropped over the next 5-10 years and that would have a more significant effect on the supply industry and the smaller players.

Focus: How will this affect the juniors and independents?

Berg: These tax reforms will definitely inhibit more junior oil companies from entering the market. Whether this leads to greater consolidation of the junior companies already here will depend on the willingness of investors.

Focus: What was the rationale behind this change in the tax regime?

Berg: One theory is that the government is trying to make the oil industry more responsible for their investment decisions. The proposal is aimed at increasing cost consciousness and also aimed at cooling down the investment portfolio offshore given the current high invest-ment level.

Martin Tiffen, managing director, Total


9

AUGUST 2013 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM | ENERGY.FOCUSREPORTS.COM 67

different companies. They would find a few individuals from a variety of

contractors and then incorporate them into their own team. By contrast

today, the operators choose to outsource the entire project scope to a

contractor – essentially transferring responsibility for the management

of the project to that contractor. Contracts are now made as package

agreements with service companies.”

This is a new era of lengthy frame agreements encompassing a

much wider scope of work. In this new operational environment the

service industry is assuming a larger share of project responsibility and

Nedrum’s advice was:

“As a contractor, you have to make sure that you are confident in your

portfolio and ask for a fair price in contract negotiation. All this places

greater emphasis on the pre-project planning stage.”

SHARING IS DARINGThe traditional relationship between the operator and the service com-

pany is being rewritten in the Norwegian-born concept of integrated

operations (IO). Focus Reports caught up with Jan Nordvedt of ICT

company Epsis, a long-standing developer of IO solutions, for his opin-

ion on the rate of progress.

Nordtvedt saw that companies had gone a long way in developing

have had a great project on paper but would not have been able to drill

the well in the timeframe required,” he said.

Tiffen was not that concerned that such advanced planning would

import risk into the business, believing that the relationships between

Norwegian industry stakeholders permitted this type of early alignment.

Yet, clearly some players are going to take undue risks in this era of

advanced planning. Indeed, it was the over commitment by Aker Solu-

tions to the Ekofisk Zulu project that led to company losses and what

Øyvind Eriksen, CEO of Aker Solutions described as a “brutal” reaction

from the capital markets as the company’s share value plummeted.

Production consultant Petrolink is one of Total’s contractors for Martin

Linge. Petrolink has a history of working with majors like Statoil and

recently BP on the Ready for Operations activities. But it is now expand-

ing to work with relative newcomers to the NCS such

as Wintershall.

Petrolink CEO Dag Nedrum observed a broader

trend of operators transferring responsibility to the

service industry:

“One can see a change in the nature of contracts

over the last four years. Back in 2009, the operating

companies were content to buy services from many

Dag Nedrum, CEO & president, Petrolink

Inception Development Pre-operations AbandonmentOperations

| || | | | |Petrolink as Kanalsletta 4 NO-4033 Stavanger Norway Tel. +47 51 30 00 00 E-mail: [email protected] |www.petrolink.no

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the first generation of IO, which involves better inter-

nal communication between offshore and onshore

facilities. However, Nordvedt felt that the second

stage of IO, involving extensive cross-company col-

laboration, had really failed to meet the expectations

that the industry had laid down ten years ago.

He explained that much of the problem was lack

of a legal and cultural framework for companies to

share this information. In Nordvedt’s view, companies are reluctant to

outsource business segments, which may jeopardize their intellectual

property and he believed the proponents of IO are, “far behind where

we should be in resolving this issue.”

However Nordvedt acknowledged the challenge of introducing

change in the middle of a major growth spurt for the offshore industry

in Norway. He explained, “It is a catch-22 situation, where organizations

are so preoccupied with their present challenges that they are not able

to implement efficient collaborative methods, which could ultimately

save them time.”

AND THE WINNERS ARE…In June, twenty-four oil companies have been awarded a total of 29

licenses in the Norwegian and Barents Seas as part of Norway’s 22nd

Licensing Round.

Statoil led the pack, taking seven licenses and three operatorships.

Yet Statoil was closely followed by OMV, a comparatively small player

on the Norwegian Continental Shelf (NCS), which took six licenses.

Indeed, OMV has recently been aggressively expanding its presence

on the NCS. Six licenses also went to North Energy, a Norwegian

junior with ambitions to bring value creation from the oil industry to

the North of Norway. And while Statoil may have pulled out of the

much maligned Russian Shtokman project at the end of 2012, this

licensing round saw the arrival of two Russian oil giants onto the NCS,

with Rosneft and Lukoil both acquiring licenses.

See a breakdown of the awards in the 22nd licensing round in the

Norwegian and Barents Seas to the left and pg.67.

BOTTLENECKS AND INVESTMENT CHECKSIt is not for the love of flying that Norwegians are

the world’s number three in flying miles per cap-

ita. For anyone who has ever driven the four-hour

journey on the single-lane road between Stavan-

ger, the oil capital, and Kristiansand, the country’s

drilling technology center, it’s easy to wonder why

a portion of Norway’s immense oil wealth could not

have gone into putting extra tarmac on some of the

country’s picturesque but poorly connected road

network.

Ståle Hansen of German firm DB Schenker – the largest logistics

Ståle Hansen, project branch manager Oil & Gas, DB Schenker

THE BARENTS SEA

Jan Erik Nordvedt, CEO, Epsis

THE NORWEGIAN SEA


11


provider in Norway - described an infrastructure set-up, which had

suffered from years of underinvestment. In his view, this was a result

of political short-termism in infrastructure planning and it posed major

problems for the oil industry.

He noted that, “Norway is very different to other oil countries in the

fact that activity is so spread out across the country. For example, in

Brazil there is one centralized oil hub where air, sea and land logistics

companies can concentrate their investments.” For a country, whose

oil industry is dotted along a 16,000-mile coastline, the key to a strong

logistics network is to fix key logistics hubs.

While Norway has a southern center of oil and gas activity in Stavan-

ger, it is missing an equivalent for the North of the country. Hansen

confirms, “There will no doubt be bottlenecks and slow-downs in the

development of projects because of the logistics situation. The best

thing that the government could do to improve this situation is to

select an oil capital in the North.”

The Norwegian industry can currently choose a range of cities for

their Northern HQ including Bodø, Atla, Harstad, Hammerfest, and

Kirkenes. Hansen fears that the lack of a designated oil hub could

see Norway losing out to Greenland or even Iceland as a hub for the

transition of the international industry toward Arctic E&P.

John Stangeland of Norway’s leading supply base

company, NorSea Group, voiced a similar perspec-

tive. The group runs Polarbase, which functions as

one of the main offshore supply bases for activities

in the Barents Sea. However, Stangeland explained

that activity levels in this region had been a “roll-

ercoaster” since the 1980s and that there were still

major uncertainties regarding the region.

Instead of the government stepping in to make decisions, he

believed it is more the responsibility of the industry to make long-

term commitments.

Stangeland explained: “Since Statoil’s Snøhvit was developed, the

activity level has been more predicable, but still highly variable, and

at the end of this year we expect some key decisions regarding the

Barents Sea to be made and this will provide the basis for our future

investment decisions.”

But Statoil’s Johan Castberg development in the Barents Sea now

seems to be on the sidelines. From Stangeland’s perspective, this

indecision could hold back the economic development of Norway’s

High North. “Most of the value creation is occurring in the South of

the country, and we are still some way from seeing sizeable local value

John Egil Stangeland, CEO, NorSea Group

WHO WE ARENorSea Group is the leading

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to the Norwegian oil and gas industry.

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Total Integrated LogisticsTechnical ServicesYard Services (Inspection, repair and maintenance (IRM) services)Subsea Support ServicesWaste Management and HandlingProject Logistics

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Other Services and Products:

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MARITIME SERVICES


Marine Operation and ManagementPlanningTendering and evaluationChartering (in and out)Offshore representativeVessel inspection and surveyCompany and vessel HES&Q auditsPersonnel and consultancy leaseProcurement and management of 3rd party services

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T H E L E A D I N G P R O V I D E R O F S U P P LY B A S E S & L O G I S T I C S O L U T I O N S T O T H E O F F S H O R E I N D U S T R Y

n o r s e a g r o u p . c o m

ble

st.n

o

FocNor_OGFJ_1308 1 7/19/13 4:00 PM

12


creation,” Stangeland said. For him, predictability is the one thing

necessary to turn the Hammerfest logistics hub into an industrial clus-

ter, capable of benefiting the region.

THINKING OUTSIDE THE CONTAINERThe 1956 invention of shipping containers was

twice as effective at generating globalization as

any regulatory initiative to free up international

trade, according to a recent edition of The Econo-

mist magazine. Huge efficiencies were introduced

by using standardized containers, which avoided

the previous time-consuming jigsaw puzzle of

loading different-sized cargoes onto ships.

John Naesheim, managing director of Swire

Oilfield Services, the market leader in offshore

containers and modular solutions, affirmed the

key role that offshore containers played in the efficiency of the oil

industry. However, he also noted that this emblem of logistical stan-

dardization - the container - has been receiving a distinctly Norwe-

gian adjustment.

Naesheim said that the Norwegian market had put pressure on

John Olaf Næsheim, director & general manager, Swire Oilfield Services Norway

www.osm.no

FocOSM_OGFJ_1308 1 7/19/13 3:57 PMFocSwi_OGFJ_1308 1 7/19/13 3:59 PM


13


more tailor-made containers. “The greatest growth opportunity is in

designing bespoke, special segment containers,” he said and contin-

ued, “the demands of this market have actually made Swire Offshore

Services’ facilities at Tananger the center of excellence for his firm’s

product line.”

Naesheim pointed out that Norway has been the center of a global

drive toward more complex and higher standard cargo solutions and

that Swire Offshore Services had been invited by their international

clients to perform the same work in the US, UK, Brazil and Africa.

CLEANER SEASOn March 14, Norway’s Prime Minister Jens Stoltenberg pledged

USD500 million to support Norway’s short-sea shipping segment,

allowing it to take a greater role in the country’s logistics infrastruc-

ture. But as Norway gears up for a major expansion in maritime trans-

portation, European maritime authorities are preparing to implement

stringent IMO Emissions Control Areas (ECAs) in the North Sea,

beginning in 2015.

According to Aksel Skjervheim, marine LNG business develop-

ment manager at Shell subsidiary Gasnor, the new ECAs will have a

major impact on the maritime market and he hopes that it will greatly

expand the use of LNG as a maritime fuel. Indeed, for the express

purpose of tapping this market, Shell acquired Gasnor in July 2012.

Skjervheim explained that LNG is clearly the cleanest option rela-

tive to traditional maritime fuels: “Gas only takes down the Green

House Effect by around 20%, but it takes down local pollution by

100% on particle emissions, 100% on sulphur and 85% on NOX.”

Economically, the toughest competitor to LNG would be a combi-

nation of heavy fuel oil (HFO) and scrubbers, a technology for clean-

ing exhaust gases. Using scrubbers is currently a cheaper option

than converting to LNG from an initial cost perspective. However,

Skjervheim argues that the two technologies come into a similar

price bracket when factoring in the total associated costs of using

chemicals, storing sludge and the 2% energy drain when scrubbers

are active.

Gasnor’s main challenge in driving the LNG market concerns stor-

age and infrastructure. LNG is around 4-5 times more expensive to

store than oil. For him, this means that large economies of scale are

needed to make LNG a competitive fuel:

“In each port you need to have around 200,000 tonnes [of LNG]

being used, and you need to have a smart distribution system from

the sourcing. Volume is the key factor in this equation.”

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FROM GEOGRAPHY TO TECHNOLOGYA map of Norway reveals many of the challenges faced by the

authorities in infrastructure planning, not least, Fjords that cut 20

miles into what the CIA Factbook describes as a “rugged” coastline,

making road and rail infrastructure extremely hard to connect.

For Trygve Seglem, CEO of Knutsen, a major

by-product of this challenging topography was

the creation of a unique environment for the

development of the country’s maritime industry.

“The country has a very long coastline, which is

dependent on sea transportation to connect the

regions. For me, this led to us taking a differ-

ent approach to shipping to other nations,” said

Seglem.

Seglem believes that one characteristic of the Norwegian industry

is its technical orientation. “You will see that our industry has always

placed engineers in charge of companies. This led to a business

culture that sought to develop the technical side of the business,”

he explained.

For its part, Knutsen is currently pioneering pressurized natural

gas (PNG) technology, seeing it as an eventual replacement for LNG

on distances of 2,000 miles or less. Seglem makes the case for this

technology highlighting that PNG has the ability to transport a mix-

ture of gases and that it does not require an expensive onshore

liquefaction facility. The company is also looking to expand its work

in the field of floating gas storage over the coming years.

Secluded on an island south of Bergen on

Norway’s West Coast, is Eide Marine Services,

another maritime player focusing on developing

new technologies. Eide Marine Services has a

heritage in boat building dating back to the 12th

century. The company’s CEO Georg Eide Jr. jokes

that some things have changed in the intervening

900 years.

Given the opposite trajectories of the global maritime and oil and

gas markets at the moment, more maritime companies are moving

into the oil industry and Eide is no exception. The company recently

designed a revolutionary new hybrid light intervention vessel that

bridges the gap between a ship and a column-stabilized platform.

One of these vessels is currently on contract with Petrobras in

Brazil. However, Eide maintains that the idea behind this new busi-

ness was never to conquer global markets. He explained, “We were

looking to create more high-tech jobs on our island facilities. On the

back of these projects we will be able to develop and expand our

technology center.” He continued, “Eide comes from a small com-

munity and instead of depleting that community of its population,

we are trying to build value and attract more people to the region

to work.”

Tom Cantero, managing director of US-based Air

Products, likewise saw the incoming regulations as

a major growth opportunity for LNG. But Cantero

was not convinced that Norway’s bunkering solu-

tions currently make environmental sense:

“Currently there are clean LNG ships with no

bunker solutions and which therefore require large

diesel-driven trucks holding LNG containers to sup-

ply them – this is hardly a green solution.”

Cantero sees a great opportunity in the dual-fuel segment (using a

combination of oil and LNG), where he is counting on nitrogen gener-

ators playing a key role in purging the engine environment of poten-

tially explosive gases in the process of transitioning between fuels.

US-based Air Products works with the LNG industry around the

world and recently secured a landmark deal for work on Australian

Ichthys project. Cantero feels that the company’s presence in Norway

has been essential for gaining insights into the future directions of

the LNG industry.

“Norwegian companies are driving forward the global LNG busi-

ness and it is extremely valuable to have a market presence in Nor-

way, in order to understand their specifications,”he said.

Trygve Seglem, CEO, Knutsen

Georg Eide Jr., CEO, EIDE

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15


IT WAS BOND TO HAPPENSince Basel III regulations were introduced in Nor-

way, the requirement to hold more reserve capital

has restricted access to bank financing for asset-

heavy industries like oil and gas and the maritime

sector. According to Pal Mitlid, head of large cor-

porates at Danish-owned Danske Bank, this restric-

tion has led to a major new trend of utilizing the

bond market to raise funds.

“This may not be to the same extent as you see

in the US, but much more than has been the case in a historically

bank-funded Nordic market,” he explained.

Per Gunnar Ølstad, senior listing manager of the Oslo Børs and

responsible for the oil and gas sector, said: “We are seeing many

new companies entering the bond market, who have never taken this

opportunity before.”

Ølstad added that this was not just a local phenomenon and that

the Norwegian bond market was even attracting companies from

other jurisdictions, including the London AIM, and even private Nor-

wegian companies. Ølstad believes that the rise of Oslo as an inter-

national bond market is helping to redefine the city’s reputation as a

global energy finance capital.

THE SECRET OIL CITYThe choice of Stavanger as Norway’s oil capital was never carved in

stone. It emerged through the work of Arne Rettedal, a highly enthu-

siastic Stavanger politician, who fiercely lobbied the government in

the 1970s to establish the Norwegian Petroleum Directorate and

Statoil’s headquarters in the city. By contrast, Bergen, the former cap-

ital city of Norway 130 miles up on the West Coast, was dominated by

long established family-owned businesses in the maritime and trade

industries, and struggled to muster even a lukewarm reception to the

“cowboys from Texas” looking to set up in Norway.

But Bergen’s former mayor Gunnar Bakke pointed out that a lot

of Norway’s oil and gas is located in the common waters between

Stavanger and Bergen. In fact, with over 60% of Norway’s oil and gas

fields located off the region’s coastline., Bakke described Bergen as

the “operating city”.

Linn Moholt, CEO of Bergen-based mainte-

nance and modification company, Karsten Moholt,

acknowledged this opportunity: “Bergen is a well-

kept secret in the oil industry. Many of the Nor-

wegian modifications and operational services are

conducted here and this makes the city a good

place to be located as a sub-supplier.”

In fact, Statoil is now shifting some of its opera-

tions from Stavanger to Bergen and Wintershall,

one of the country’s largest new operators, is establishing an opera-

tions base in Bergen having taken over Statoil’s Brage field in 2012.

Karsten Moholt is responding with a major investment project to

unite all of its facilities in Bergen into one facility to better meet the

demand.

Karsten Moholt also is partnering with an organization called the

“uptime center of competence”. Moholt explained that the orga-

nization is working on projects in condition-monitoring and supply

chain efficiency with the stated aim “to make the chain 30% more

effective.”

Moholt believes that the combination of huge industry demand

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Per Gunnar Ølstad, listing manager, Oslo Børs

Linn Cecilie Moholt, managing director, Karsten Moholt

16


and cross-company collaboration in Bergen could put the city on the

map as a major oil industry hub, reversing the cold shoulder that Ber-

gen showed to the oil industry back in the 1970s.

RE-ENGINEERING HRNorwegian oil industry estimates suggest a deficit of between 8,000

and 12,000 engineers, a problem that many leading companies see

as the most serious threat to the development of the country’s indus-

try over the coming years.

Norwegian universities produce around 2,000 engineering gradu-

ates a year. But that is not enough when you take out the graduates

who pursue non-oil industry careers and factor in the time they need

for training as well as the retirement of around 50% of the interna-

tional oil industry in the so-called “Great Crew Change”. The inflow

of foreign engineers from the rest of Europe is also blocked by a

combination of supplementary qualifications and conservative hiring

practices.

Kristin Færovik, managing director of Rosenberg

Parsons Fabrication yard in Stavanger, explained

that their former owner, Bergen Group, was sim-

ply unable to provide the extra engineering man-

hours that they needed to engage in the larger

projects on the Norwegian Continental Shelf. She

explained that the principal reason for choosing

to merge with Australian engineering giant Wor-

ley Parsons in March, was to gain access to its

spare engineering capacity and headcount of over

40,000.

At the other end of the spectrum are companies

like Malm Orstad with a headcount of just 100, but

who face the same human resource challenges.

The firm’s managing director Magne Orstad said:

“The main challenge confronting our company

is to find enough qualified engineers. Unfortunately, there are not

enough in the market today and the growing number of service

companies in Norway has generated much more competition for this

talent”

Orstad is looking to take on around five or six engineers a year.

Asked whether companies of Malm Orstad’s size would be able to

survive as access to human resources tightened, Orstad replied that

the size of his company was actually advantageous.

In his view, being able to offer engineers more responsibility and

control over their projects was a way to draw in experienced engi-

neers from larger companies. “I believe they are attracted because

we offer challenging but interesting work to these engineers. Often

for those engineers coming from larger companies, they gain the

satisfaction of having greater control over what they produce,” he

said.

ROOM FOR IMPROVEMENTFinding a hotel room for the ONS is nothing compared to finding a bed

on a platform for an offshore worker. CEO of Bergen-based maintenance

and modification specialist, Beerenberg, Morten Walde believes that the

shortage of offshore beds is a challenge for the industry and one which

drives up operating costs. Restrictions in access to beds mean that offshore

work will take longer to carry out. Walde explained that one of the main

points of their business strategy had therefore been in “shifting the amount

of work performed offshore to onshore facilities. This had lead to a huge

increase in margins.”

The shortage raises an important problem for training the next genera-

tion of offshore workers. In conversation with Jan Olav Nerland, manag-

ing director of Global Offshore Consulting, a human resource company

for offshore work, Norway faces an ironic situation where there are literally

thousands of qualified survey workers in Spain willing to work in Norway,

yet they cannot take up empty positions because they cannot bank the

minimum 200 hours of offshore experience on the NCS, that Norwegian

employers require.

Karl Ronny Klungtvedt, CEO of Norwegian accommodation rig com-

pany, Prosafe, recognizes the problem and says that the demand for extra

accommodation has been growing since 2003. He explained that this was

when maintenance, modification and decommissioning really started to

develop and he projects the demand for offshore beds intensifying from

2014 onwards.

CROSSING THE BORDERBetween 2013 and 2016, the number of offshore

rigs operating on the Norwegian Continental Shelf is

expected to rise to 52 from 35 today. But the process

of bringing them into Norway is by no means simple.

“Adapting a rig to the demands of the Norwegian

market is hard work which needs a careful and planned

approach to avoid difficulties later,” said Morten Mel-

lerud, managing director of OSM Offshore, a company

specializing in bringing newbuilds into the Norwegian

market.

Mellerud elaborated: “The one key lesson is that you need to invest early

in adapting to regulations rather than leave it until the last minute; it is hard

to adapt a rig once you are already bringing it to the market. There have

been some high profile and costly examples of rigs failing to meet Norwe-

gian regulations.”

Mellrud was referring to Talisman’s announcement to scrap the Yme

platform, in a USD470 million settlement with Dutch maritime group SBM

Offshore. Talisman had spent more than USD1.35 billion in construction

costs for Yme, which ended up falling short of Norwegian regulation and

will no longer go into production.

The strong regulatory differences between the Norwegian jurisdiction

and other offshore markets mean that Norwegian rig contractors will often

Magne Orstad - managing director, Malm Orstad

Kristin Færøvik, managing director, Worley Parsons

Morten Mellerud, managing director, OSM


17

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of greater convergence in the harsh-environment drilling market. “Indeed

there are aspects of UK regulation, which now are equally as stringent as

that of Norway,” he said.

THE HYDROCARBON PEACEKEEPERHow has Norway been able cast itself as the white dove, when it has spent

the last 40 years making a nest-egg from black gold?

Norway has presented the Nobel Peace Prize since the award was estab-

lished in 1901. But Geir Lundestad, director of the Nobel Peace Institute,

says it was not until Norway hosted the 1993 Oslo

Accords that the country cemented its international

reputation as a peacekeeper nation.

Lundestad said, “The idea that a few Norwegians

could set about and to some extent even succeed in

bringing peace to the Middle East was almost absurd.

Yet when the Oslo Accord was signed, it transformed

the world’s image of Norway. There was not a conflict

in the world in which leaders did not ask Norway to

participate.”

But this affiliation with global peace initiatives appears to run counter to

the country’s involvement in oil and gas. Indeed, Lundestad was quick to

point out the many contradictions between representing peace and work-

ing in an industry, frequently associated with conflict, corruption and envi-

ronmental damage.

Lundestad saw these contradictions ranging from promoting low CO2

emissions as the worlds 3rd largest gas and 7th largest oil exporter to the

ethical questions of how to invest the country’s oil wealth, when the high

yields tend to lie in industries with unethical practices. Indeed the Norwe-

gian Government Pension Fund - the repository for the country’s oil wealth

- has recently been pulling out of investments in polluting Chinese com-

panies, energy giants operating alongside corrupt political regimes and

tobacco companies.

Despite these conflicts of interest, however, Lundestad acknowledged

that, “The income for Norway’s engagement in global peace initiatives

comes from oil and gas.” Indeed, it is hard to

imagine how Norway would be able to sus-

tain its commitments to global peace without

its hydrocarbon wealth.

In addition, Norway appears to go to great

lengths to balance oil interests with peace ini-

tiatives. Last year Norway set an increase in

CO2 taxation on the Norwegian Continental

Shelf to help fund a USD1 billion dollar com-

mitment to protect the Amazonian rainforest.

And finally, much of Norway’s activism and

self-confidence on the international stage can

be attributed to its status as a wealthy country

without the burden of having a colonial past.

choose to operate exclusively in the Norwegian sector or work everywhere

in every sector except Norway.

Established in 2011, North Atlantic Drilling is a relatively new name in

the industry. However, in essence, the firm is the harsh-environment drilling

arm of Seadrill - formerly Smedvig – the first Norwegian drilling company.

Seadrill’s roots go back to 1971, but last year, the former flagship Nor-

wegian drilling company, uprooted its head office and moved to London,

leaving its high-latitude subsidiary North Atlantic Drilling behind in Norway.

North Atlantic Drilling CEO Alf Ragnar Lovdal explained that, “Overall

the separation of the harsh-environment drilling busi-

ness from the rest of Seadrill’s operations has been well

received by the industry as well as by our own employ-

ees.” He believed that the separation between Seadrill

and North Atlantic Drilling had allowed the two com-

panies to tailor their rigs to their operational areas of

focus, keeping the cost-level appropriate.

The company’s main concentration of rigs is in Nor-

way, but it is trying to broaden its focus, as its name

suggests. Lovdal aims to expand North Atlantic Drilling’s operations to

cover the entire offshore region from Greenland, to the UK and eventually

into Russian waters. Lovdal was encouraged by what he sees as the start

Alf Ragnar Løvdal, CEO, North Atlantic Drilling

Geir Lundestad, executive director, The Norwegian Nobel Institute

December 10, 2007: Nobel Peace Prize laureates, Rajendra Pachauri and Al Gore receiving the 2007 Nobel Peace Prize at a ceremony in Oslo for their work to help combat global warming.

19

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FocNat_OGFJ_1308 1 7/19/13 3:49 PM

TIMELINE FROM ONS 2012 - TO ONS 213

Aug-12

ROSNEFT APPLIES FOR LICENSES IN NORWAY

STATOIL PULLS OUT OF SHTOKHMAN

STATOIL TRIPLES ITS ARTIC RESEARCH BUDGET TO USD 41 MILLION

OVER 60,000 ATTEND OFFSHORE NORTHERN SEAS (ONS) EVENT IN STAVANGER

Sep-12

NASA OPENS UP COOPERATION WITH NORWEGIAN DRILLING INDUSTRY IN ADVANCED ROBOTICS FOR REMOTE OPERATIONS

PARLIAMENTARY DEBATE ABOUT NORWAY'S TWO-SPEED ECONOMY

WORLD'S FIRST REMOTE OPERATED SUBSEA TIE-IN OPERATION PERFORMED AT ASGARD FIELD

OLF IS RENAMED THE NORWEGIAN OIL AND GAS ASSOCIATION

Oct-12

PSA ANNOUNCES CONCERNS THAT THE VOLUME OF WORK ON NCS COULD AFFECT SAFETY

SEADRILL MOVES TO LONDON

STATOIL DECIDES NOT TO MAKE SECOND LNG FACILITY AT MELKOYA MAKING A NORTH SOUTH PIPELINE MORE LIKELY

NORWAY DOUBLES CO2 TAXATION TO FUND AMAZON FUND

Nov-12

GOVERNMENT REMOVES OVERSEAS EXPLORATION AND DEVELOPMENT COST DEDUCTIONS

PRIME MINISTER SPEAKS OUT AGAINST DRILLING TO THE ARCTIC.

Dec-12

NORWEGIAN GOVERNMENT PENSION FUND POSTS THE HIGHEST RETURNS IN ITS 17-YEAR HISTORY

NORWAY OVERTAKES RUSSIA AS EUROPE'S LARGEST GAS SUPPLIER

Jan-13

ANNOUNCEMENT OF 90% TARIFF CUTS ON PIPELINE EXPORTS

EU DIRECTIVE ON TEMPORARY AGENCY WORK ENSURES THAT TEMPORARY WORKERS RECEIVE SAME PAY AND REMUNERATION AS PERMANENT EMPLOYEES

ALGERIAN HOSTAGE CRISIS INVOLVING STAFF FROM STATOIL

Feb-13 NORWEGIAN PETROLEUM DIRECTORATE FINDS HUGE RESERVES OFF THE COAST OF JAN MAYEN ISLAND

Mar-13

GOVERNMENT ANNOUNCES LOFOTEN DRILLING BAN UNTIL 2017

YME PLATFORM BECOMES THE FIRST PLATFORM NEVER TO BEGIN PRODUCTION FOR FAILING TO MEET NORSOK STANDARS

Apr-13

GOVERNMENT GIVES GO AHEAD FOR IMPACT STUDY AROUND LOFOTEN ARCHIPELAGO OFF NORWAY'S NORTHERN COAST IN THE BARENTS SEA

GREENPEACE POLAR BEARS ATTACK STATOIL OFFICES IN MOSCOW

May-

13MINISTRY OF FINANCE PROPOSES A SIMULTANEOUS INCREASE IN PETROLEUM TAXATION AND REDUCTION IN CORPORATION TAX

Jun-13 STATOIL ANNOUNCES IT WILL POSTPONE JOHAN CASTBERG DEVELOPMENT

24 COMPANIES AWARDED LICENSES IN 22ND LICENSING ROUND

Jul-13 NORWEGIAN PETROLEUM DIRECTORATE HAS INCREASED ITS ESTIMATES FOR UNDISCOVERED RECOVERABLE OIL AND GAS RESOURCES OFFSHORE NORWAY BY 16% TO 18.74 BILLION BARRELS

Aug-13 NEW NORWAY-FOCUSED OFFSHORE NORTHERN SEAS (ONS) CONFERENCE LAUNCHED

Sep-13 NORWEGIAN GENERAL ELECTION

20

INTERVIEW WITH:

Julie Berg, partner, KPMG

Julie Berg, PARTNER, KPMG

Focus Reports: How has the transaction market been shaping up in Norway over 2012 and the first half of 2013? JULIE BERG: We have observed a number of key trends affecting the transaction mar-ket. One of these is the movement of some key Norwegian companies out of Norway, including some flagship players like Seadrill and Ocean Rig. These companies are citing the cost of operating in Norway as well as the limited access to high level business leaders as two key important factors in their decision to leave the country.

Another trend that we have observed is a series of demergers over the last couple of years. Aker and Kværner split in 2011, Statoil and Statoil Fuel & Retail demerged, as will aluminum manufacturer Hydro who together with Orkla will carve out their extrusion businesses to form the Sapa Group. There are several other examples of the larger Norwegian companies streamlin-ing their operations to become more efficient and flexible. Part of the reason for these demergers is that Norwegian companies have been seeking to increase their compet-itiveness. They have also been hoping that these changes would allow analysts and investors to better benchmark their perfor-mance against other international suppliers.

Regarding M&A, we see most of the activ-ity happening in the small and medium-sized business sector. There is a lot of interest from private equity investors as well as large corporate players. Although in the past, these acquiring companies may have bought companies in their entirety, now they are looking to ringfence certain assets. One rea-son for this change is that they now probably see an elevated risk of investment in Nor-

way. The market is not quite as lucrative and comfortable as it was before; competition from Asia and the East is increasing and con-tract margins are increasingly being squeezed at home or contracts are awarded outside of Norway. There is much more uncertainty regarding the underlying value of the targeted assets.

So the auction style bidding for compa-nies is being replaced by the targeting of individual performing assets. As a conse-quence, the process of M&A is becoming more demanding and the percentage of deals falling through is on the rise.

FR: What do you think the impact of the tax change will be on the level of volatility in the market? JULIE BERG: We do not think that there will be that significant an effect on company bottom lines. However, these reforms com-bined with the abrupt changes in gas tariffs for pipeline export, proposed without the usual process of consultation, is creating uncertainty in the market. This will prob-ably have an effect on the willingness of foreign investors to invest in Norway.

Statoil has declared their plans to delay investment on Johan Castberg, and this will affect the backlog for the service industry, but we are not aware of any other major plans to shelve major investments. However, the fact that such a major project could be put on hold does create the impression of uncertainty in the market. If the tax regime is set to become more volatile going forward there may be a much greater call for tax plan-ning within the oil industry.

This could also lead to a reduction in M&A activity. The other impact would be on mar-ginal fields. It is possible that many of the

Interview with: Julie Berg, partner, KPMG

21

Julie Berg, PARTNER, KPMG

plans for marginal fields could be dropped over the next 5-10 years and that would have a more significant effect on the supply indus-try and the smaller players.

FR: What impact could this change in the profitability from marginal assets have on the many small independent oil companies in Norway? JULIE BERG: These tax reforms will definitely inhibit more junior oil companies from entering the market. Whether this leads to greater consolidation of the junior compa-nies already here will depend on the will-ingness of investors. However, we do expect some degree of consolidation, given that financing activities today is difficult. It is already a high-risk sector to invest in and this tax uncertainty could further limit access to capital.

FR: Given the amount of volatility created in the market, what do you think was behind the decision of the Ministry of Finance to change the tax regime? JULIE BERG: One theory is that the govern-ment is trying to make the oil industry more responsible for their investment deci-sions. The proposal is aimed at increasing cost consciousness and also aimed at cool-ing down the investment portfolio offshore given the current high investment level

However, there is a huge upside in the industry as a result of the discoveries over the last couple of years. So to some extent, the government can afford to implement this change. On balance, investment will probably continue to increase in Norway. However it will be the smaller oil companies that will suffer.

FR: How do you think the Norwegian mar-ket will change over the next five years? JULIE BERG: One element that we are looking into at the moment is the expansion of the

US shale gas industry. The impact of the US being able to export gas is a fairly immature discussion in Norway. There are many ques-tions relating to the timelines and volumes that the US would need to export gas over-seas and make a difference to Norway’s export markets. Large volumes of US gas would further increase the threshold for Norway’s marginal fields and it is interest-ing to see if Norwegian companies could adapt. Statoil is already present in this mar-ket, but the question would be whether a group of deep-water Arctic specialists could build competence to work in an onshore industry.

Of course the main Norwegian challenge for the next 5 to 10 years is the development of human potential in this industry. Person-ally, I see the same people moving around from company to company. The question is who will move into their position after-wards? If the Norwegian industry wants Norwegians to be the ones running Norwe-gian business then there needs to be a lot more focus on developing talent at an early stage.

The market is not quite as lucrative and comfortable as it was before; competition from Asia and the East is increasing and contract margins are increasingly being squeezed at home or contracts are awarded outside of Norway. There is much more uncertainty regarding the underlying value of the targeted assets.

22

INTERVIEW WITH:

GEIR LUNDESTAD, Director of the Nobel Institute

GEIR LUNDESTAD, DIRECTOR OF THE NOBEL INSTITUTE

Focus Reports: Why did Norway assume the role of a global representative of peace? GEIR LUNDESTAD: Norway’s attempts to become a peace intermediary in so many different global conflicts is a comparatively new phenomenon. It really started in the 1990s as a result of a group of activists in Norway’s political circles who believed that Norway could be a major player in interna-tional affairs, something that most of their contemporaries would have seen as a myth. But Norway had the money to finance these initiatives and there was a strong relation-ship between the Norwegian government and various NGOs operating around the world, which facilitated this expansion of Norway’s involvement in peace initiatives.

The real breakthrough, however, came in 1993 with the Oslo Accords. The idea that a few Norwegians could set about and to some extent even succeed in bringing peace to the Middle East was almost absurd. And yet, when the Oslo Accord was signed, it trans-formed the world’s image of Norway. Since this event, the idea of Norway engaging in peace developed not only in Norway but also in the minds of foreign leaders.

Global demand for some sort of Norwe-gian participation propelled Norwegian dip-lomats into Sri Lanka, Guatemala, Columbia, and the Philippines. There was not a conflict in the world in which leaders did not ask Norway to participate. The Norwegians said yes almost every time, but with the excep-tion of Guatemala, the results were limited.

How did the arrival of the oil industry affect Norway’s work on peace initiatives?

The income for Norway’s engagement in

global peace initiatives indeed comes from oil and gas. However, in Norway we have a somewhat ambiguous relationship with the oil and gas industry. Norwegians are con-cerned that much of global oil and gas is found in very troubled parts of the world.

There seems to be a correlation between oil resources and human crises. However, Norway’s involvement in the oil and gas industry in many of these troubled areas has never been properly discussed. Whilst there appears to be a direct contradiction between Norwegian foreign policy and Norwegian energy policy, the topic remains largely muted. If you just look at Norway’s work in combatting climate change, you see a direct contradiction given Norway’s status as a major oil and gas exporter.

FR: What do you make of the arguments by Norwegian authorities that supplying energy to the world is one of the drivers of prosperity and poverty reduction? GEIR LUNDESTAD: It is true that oil and gas is making people in the third world a lot richer and it is great that such vast quanti-ties of oil and gas have now been discovered also in many parts of Africa. World poverty is dramatically declining in absolute num-bers and as a percentage of the world’s pop-ulation. The number of poor people in the world has been reduced by 1 billion over the last 20 years and if we then remove another 1 billion over the next 30 years then we are close to eradicating poverty completely. This eradication of poverty is in part the result of industrialization pow-ered by the energy industry.

Interview with: GEIR LUNDESTAD, Director of the Nobel Institute

23

GEIR LUNDESTAD, DIRECTOR OF THE NOBEL INSTITUTE

However the way that this tremendous oil and gas wealth is being used in many of these countries is thoroughly appalling. The oil industry must feel a greater sense of respon-sibility for how their oil is used in these coun-tries. In Nigeria, one has to ask who is really benefitting from the oil industry?

FR: How do you see national economic interests balanced against Norway’s nor-mative role with regard to the Govern-ment Pension Fund? GEIR LUNDESTAD: This is another of Norway’s great trade offs. The money has to be wisely invested, but Norway needs to act respon-sibly. This fund has actually changed Nor-wegian foreign policy significantly. A huge amount of time and interest is dedicated to who should be on the investment black list and who should not. Nonetheless, this leads to highly paradoxical situations in which, for example, the oil money cannot be invested in certain arms companies, from which Norway then buys weapons for its own armed forces!

Norway will simply have to manage these contradictions. I believe that we can go on reconciling these contradictory policies. Democracy, human rights, the environment and other values are very important to Nor-way, but we can very easily persuade our-selves that we should continue to receive bil-lions of US dollars from oil. The purists may moan, but we will continue to manage these trade-offs.

FR: If Alfred Nobel could look at the oil industry today, what would he be think-ing? GEIR LUNDESTAD: Alfred Nobel was running industries that were big polluters, and his family founded the Russian oil industry in Baku. The family has been called “the Rus-sian Rockefellers.” I would argue that pro-tecting the planet from the effects of cli-

mate change is still directly in line with the ideals he laid down in his will. The struggle against global warming is indeed an exam-ple of “fraternity between nations.” Nobel was an inventor himself with hundreds of patents to his name. Industrial develop-ment was a key motivation for him.

However, he was a complex person, who promoted peace and yet before his death he purchased a major Swedish arms company. He also thought that dynamite could do more for peace than any peace conference. He would probably have understood the many trade offs that Norway faces today.

FR: How do you see the role of the Nobel Peace Institute in this picture? GEIR LUNDESTAD: We must always remain courageous in our decisions. In 1935 the committee gave the prize to Carl von Ossi-etzky, who was the symbol of resistance against Hitler, creating huge controversy in Europe. The committee also awarded a prize to Andrei Sakharov and to Lech Walesa, enraging the Kremlin and we gave the prizes to the Dalai Lama in 1989 and Lia Xiaobo in 2010, infuriating the Chi-nese. It is not the purpose of the committee to cause such diplomatic tensions, but we must never be afraid of controversy. The Norwegian Nobel Committee should indeed speak up when others keep quiet.

The income for Norway’s engagement in global peace initiatives indeed comes from oil and gas. However, in Norway we have a somewhat ambiguous relationship with the oil and gas industry. Norwegians are concerned that much of global oil and gas is found in very troubled parts of the world.

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INTERVIEW WITH:

Ståle Hansen, Project Branch Manager, Project Dept. Oil & Gas at DB Schenker

Ståle Hansen, PROJECT BRANCH MANAGER, PROJECT DEPT. OIL & GAS AT DB SCHENKER

Focus Reports: The industry talks a log about the logistics challenges facing the Norwegian the oil & gas industry, how sig-nificant are they? STÅLE HANSEN: The specific logistics chal-lenges faced by the Norwegian oil and gas industry represent an increased cost for both clients and logistics providers. Much of the issue is a result of poor infrastruc-ture. The harbors are not up to standard; the roads have suffered from decades of underinvestment, especially considering the volume of goods that they transport.

In the North of Norway the logistics situ-ation is far worse. The Norwegian govern-ment has historically focused much of its attention on facilitating upstream oil and gas production, but has made comparatively small investments in the country’s infra-structure.

The major challenge for any logistics pro-vider is working out where to invest along the Norwegian coastline. Presently there is a high concentration of activity in the South of Nor-way to support North Sea fields near the Con-ocoPhillips’ Ekofisk platform. Further up the coastline, near Bergen, there is another center of oil activity where Statoil’s Statfjord is sup-ported by facilities at Mongstad.

Now there is a new oil boom in the far North of Norway and the question is: where will the country choose to locate its northern oil hub. Statoil recently announced that it plans to place its subsea facility in Sandnes-joen, high up on the Norwegian coast, Well

Response is investing in Bodø and the Rus-sian Shtokman project will probably need facilities in Kirkenes. It is therefore unclear where logistics providers should establish their Northern logistics hub.

Norway’s logistics challenges are not apparent to all companies. Local oil compa-nies and suppliers are largely aware of the challenges of delivering goods in Norway. International companies, on the other hand, simply see different locations as different delivery addresses and therefore expect the same price for delivering to Oslo as to Kirkenes. Norway is very different to other oil countries in the fact that activity is so spread out across the country. For example, in Brazil there is one centralized oil hub where air, sea and land logistics companies can concentrate their investments. Though Stavanger serves as a good hub in the South, Norway is missing this type of hub for its activities in the North, which makes logistics in the region much more expensive.

FR: Why do you think there is not more direction from the Ministry of Petroleum and Energy to assign a Northern oil capi-tal? STÅLE HANSEN: In my view, the four-year terms of government do not favor long-term strategic thinking. There are few pol-iticians thinking about the strategic impor-tance of choosing a logistics hub for the North of Norway. Much of the infrastruc-ture necessary to establish a Northern oil

Interview with: Ståle Hansen, Project Branch Manager, Project Dept. Oil & Gas at DB Schenker

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Ståle Hansen, PROJECT BRANCH MANAGER, PROJECT DEPT. OIL & GAS AT DB SCHENKER

and gas hub would take far longer than their political terms to construct.

At the moment, the northern authorities are all lobbying the government simultane-ously to make their city the northern oil cap-ital. A few years ago it appeared as if Ham-merfest would be nominated and Statoil invested in oil and gas facilities in the city. However, real estate prices skyrocketed and the infrastructure of the town was not suf-ficient to cope with an increasing population. Hammerfest began to suffer from the same capacity challenges as Stavanger and fewer companies saw the city as an attractive investment destination.

Since then, oil activity has shifted around between different northern cities. Unless the government decides to support oil infra-structure in a one city, the industry will be spread across multiple small hubs, making the logistics situation extremely challeng-ing. In the end, the oil companies will be the ones paying more unless a northern oil cap-ital is chosen.

Internationally there are discussions about creating logistics hubs in Greenland and Iceland. Norway is therefore in danger of losing its position as a logistics hub for Arctic oil and gas activity and the govern-ment needs to move beyond its short-term goals and set a long-term strategic direction for the North of Norway.

FR: Given that the oil industry will ulti-mately be paying more for logistics if a Northern capital is not chosen, why are they not lobbying the government more strongly to set a direction? STÅLE HANSEN: Oil companies are resource-ful entities and tend to find logistics solu-tions that work for them as a company rather than for the industry as a whole. The transition towards subsea infrastructure is allowing these companies to continue to function with less complicated logistics

solutions. The days of huge concrete oil platforms being constructed and launched off the Norwegian coastline are over; sub-sea equipment is far easier to transport. Whilst the industry will be paying more for logistics in the long run it is not stop them from functioning.

But do you think the inefficiencies of the Norwegian logistics infrastructure are enough to disrupt Norway’s national oil development targets?

Yes. There will no doubt be bottlenecks and slow-downs in the development of proj-ects because of the logistics situation. The best thing that the government could do to improve this situation is to select an oil cap-ital in the North.

FR: Why did DB Schenker choose to estab-lish an oil and gas specific division in Nor-way last year? STÅLE HANSEN: Looking at the global eco-nomic situation, the market for standard commodities is dropping, whilst the oil and gas market remains strong. DB Schenker works a lot with the global textile industry and consumer goods and this leaves it open to quite major market fluctuations. For example, Chinese exports dropped by 25 percent over the course of just one year. By contrast, Norway’s oil and gas market is growing rapidly and this makes it a strong long-term investment for the company.

The Norwegian oil and gas logistics mar-ket is the second largest for DB Schenker, after our Australian operations and work on the Gorgon project. We see this as a strategic market for the company we are on the bid-ding lists for all major logistics contracts. We have already won some significant contracts in Norway and I expect that we will become a leading player within the next 12-18 months. Our investors are starting to realize that there will be a snowball effect from these investments.

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INTERVIEW WITH:

Linn Cecilie Moholt, CEO of Karsten Moholt

Linn Cecilie Moholt, CEO OF KARSTEN MOHOLT

Focus Reports: Around 60% of oil and gas producing fields are located nearby to Ber-gen. What advantages has Karsten Moholt had in being positioned close to oil and gas operations rather than in Norway’s oil capital Stavanger? LINN CECILIE MOHOLT: Karsten Moholt was founded in 1945 in Bergen a long time before an oil market started to emerge in Norway. Indeed we were serving the mari-time industry a long time before Stavanger grew into Norway’s oil capital, and given our existing client base in Bergen we felt little need to relocate the company.

Bergen is in some ways a secret in the oil industry. Many of the Norwegian modifica-tions and operational services are conducted here and this makes the city a good place to be located as a sub-supplier to the oil service industry. Here we have good access to the drilling rig market at Coast Center Base and in Orland. Statoil is now moving its opera-tions, maintenance and modification facili-ties from Stavanger to Bergen. This move by Norway’s dominant operator enhances our geographic advantage for work in mainte-nance and upgrades.

Before we would look at any plans to set up in Stavanger, our first ambition is actu-ally to move further north. We have already leased premises in Hammerfest and now need to establish our inventory up in that region. Hammerfest is one of the northern-most logistics hubs for the oil industry in Norway and we see it as a strategically important position, given the direction of

the industry. Hammerfest today is in roughly the same position as Stavanger and Bergen were in the 1980s. There will be an oil boom in this region and the city is rapidly expand-ing its current capabilities to accommodate this activity.

Stavanger is the oil capital and the munic-ipality of Stavanger has done an extremely good job of supporting the growth of the oil industry. I have no doubt that Stavanger will at some point become a strategic location for Karsten Moholt, in addition to our presence in Bergen and Hammerfest. But for the moment Bergen and Hammerfest grant us plenty of opportunities to grow our business.

FR: Given your focus on the oil and gas industry, what do you consider to be Karsten Moholt’s main differentiators? LINN CECILIE MOHOLT: Our main advantage is our level of competence; we have a large number of highly skilled staff and we aim to recruit the best engineers. The manage-ment has worked hard over the years to keep our employees in the company, indeed many of our employees have worked here for 20, 30 and sometimes 40 years. This level of experience in the company grants us a unique position in the market when approaching new business opportunities.

Karsten Moholt also has a world leading condition-monitoring department. In fact our department is the only DNV certified condition-monitoring facility for floating units in the world today. I have no doubt that there will be new players moving into this

Interview with: Linn Cecilie Moholt, CEO of Karsten Moholt

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Linn Cecilie Moholt, CEO OF KARSTEN MOHOLT

segment in the near future, but we have a first mover advantage in this business.

Some people have questioned why we are putting so much effort into building the con-dition-monitoring business when its main function is to reduce the overall amount of maintenance work, which naturally cuts away at our revenues. However, we see this service as something that the market wants and we cannot fight the market. We have taken the strategic decision to get ahead in this segment and today this department is the fastest growing unit in the company overall. It works with NOV and Aker Mari-time Hydraulics for condition monitoring on their top-drives.

Our end goal is to minimize the amount of money our clients spend on maintenance and we have evidence to show that we have achieved this. In one project we were able to reduce the maintenance scope in a specific project for a customer by 60%.

FR: What has been the key to keeping peo-ple in the company so long in the company? LINN CECILIE MOHOLT: The business culture of Karsten Moholt is distinctly Norwegian and it is a family-run business; my grand-father founded the company in 1945 and my father was the managing director from 1991 until 2009, when I took over. Our business culture is based around inclusive management and a high level of respect for our employees. Any member of the com-pany can approach me with new ideas and they often get to see these ideas imple-mented. I believe that this suits our national mind-set and desire for indepen-dence.

Furthermore the company offers many opportunities for employees to advance in their professional development. If an employee wants to try out some new work or wishes to develop their professional skills through training. It is therefore possible to stay in the company and still develop your

career in many interesting ways. The extremely low turnover is also a ben-

efit of being based in Bergen. We are to some extent shielded from the fierce human resources competition in Stavanger. We have also just created a new engineering depart-ment, which is growing fast even though this is by far the toughest department with regard to recruiting new employees. In Ber-gen, we are competing with the main opera-tor Statoil in attracting talented new employ-ees.

FR: How do you see the future of Bergen as an oil city? LINN CECILIE MOHOLT: Bergen is a well-kept secret in the oil industry and there are a number of world-class oil service compa-nies, which can contribute to putting Ber-gen on the international map. If we are able to join forces then we will be able to build an extremely competitive industry here.

Karsten Moholt has joined an organiza-tion called the “uptime center of compe-tence” with the goal of putting Bergen on the map as an oil service hub. There are a number of strong projects carried out by the group, including condition-monitoring and effec-tive supply chain management – the goal is to make the chain 30% more effective.

Bergen is a well-kept secret in the oil industry and there are a number of world-class oil service companies, which can contribute to putting Bergen on the international map. If we are able to join forces then we will be able to build an extremely competitive industry here.

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INTERVIEW WITH:

John Egil Stangeland, CEO of Norsea Group

John Egil Stangeland, CEO OF NORSEA GROUP

Focus Reports: Back in 2009, you met with our colleagues and Norway had a very dif-ferent E&P profile to today. How do you see the difference in the situation today?JOHN EGIL STANGELAND: Recently there have been several major discoveries of new oil fields, along with increased oil recovery from fields like Ekofisk, which will likely go on producing for another 30 years on top of a 40-year history. This activity allows us to take a long-term perspective on develop-ment thanks to the buoyant market.

In 2012, NCS, investments have been around USD 37 billion. Yet, considering Rystad’s predictions, the amount could reach between 55 and USD 65 billion USD. To take part in this growth, we must expand and meet the requirements.

Norway remains the country where we invest most, both in real estate and infra-structure. Our core business strategy lies in ownership of supply bases, whether this is the quayside, a plot of land or the build-ings for various service and oil companies to conduct their businesses. In this respect we invest a lot in the North of Norway. Recently, we have expanded tremendously in this region close to the Barents Sea. We will also keep investing in mid Norway as well as Stavanger.

In the South of Norway, the important thing is to keep investing in the refurbish-ment of old infrastructure. Most of the sup-ply bases here were constructed in the early 1970s, and today our capacity challenge requires us to remodel these old buildings

and infrastructure.

FR: Why do you choose to buy and own the real estate rather than leasing? JOHN EGIL STANGELAND: I believe the main reason stands in the benefits we gain from ownership. In addition to offer a multitude of operational and logistics services to our customer, we are also highly professional and capable in providing our customers with efficient infrastructure and buildings to meet their short or long term needs for support of their offshore operations.

Many off our competitors are pure logis-tics or service providers and have owners which are not willing to invest long term in equity intensive infrastructure and real estate projects. NorSea Group have always taken a long term perspective on our investments and real estate investment is only really efficient when owners are will-ing to invest for a period of 10 to 25 years. Through these investments we have gener-ated long-term value creation for our com-pany.

FR: With the current level of activity, do you see any bottlenecks developing? JOHN EGIL STANGELAND: As long as there is long-term commitment from customers and a long term perspective on the oil and gas industry, I do not see bottlenecks devel-oping. Given firm outlooks on the market we are able to plan in advance. Looking at our growth priorities, it is clear that we need to grow in the North of Norway. Our

Interview with: John Egil Stangeland, CEO of Norsea Group

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John Egil Stangeland, CEO OF NORSEA GROUP

main clients are moving in this direction and Statoil now has two fields in the Bar-ents Sea that they are looking to develop.

However, there are still uncertainties regarding the Barents Sea. NorSea Group has been owners of Polarbase since the early 80’s and it has truly been a roller-coaster of activities throughout these years. Since Statoil’s Snohvit field was developed the activity level has been more predicable, but is still highly variable and at the end of this year we expect some key decisions regarding the Barents Sea.

Currently in Hammerfest we have a logistics hub rather than an industrial clus-ter. In Norway, most of the value creation is occurring in the South of the country and we are still some way from seeing sizeable local value creation in the North. However, we have already seen this type of scaling up at Vest Base in Kristiansund, on the west coast, which has quickly developed into a 600-acre industrial park facility with more than a thousand people working there.

When the necessary decisions for fur-ther field development has been made in the Barents Sea, NorSea Group is prepared to support out customers and in due course build and create a fully integrated indus-trial offshore cluster in Hammerfest, simi-lar to what we see in Stavanger.

To return to your question about bottle-necks, Singapore has the same population as Norway, but is situated on a land area which is only a fraction of what is available in Norway. They have been able to build a world class and highly efficient logistics, port and ship yard industry. Through more efficient buildings, docks and logistics sys-tems we can increase capacity substan-tially. Here the only challenge is the cost of real estate; therefore the main goal is to utilize our existing land as much as possi-ble.

I believe that Norway is leading the

world in terms of the efficiency of our sup-ply bases, when you consider the volume that we move through our quays and ports to support large-scale offshore oil and gas infrastructure. Moreover we have a cluster mentality in Norway and we can further generate efficiencies by combining different businesses within these supply bases. Con-trast Norway with Aberdeen and you see that, unlike Aberdeen where the port is located in the city center, in Norway we are moving our supply bases out of the cities to make room for all the service companies we need to generate clusters.

FR: Would you have one piece of advice to any operator coming into this market? JOHN EGIL STANGELAND: In Norway, major oil companies as well as very small companies have the luxury of a being welcomed to uti-lize already well established, flexible and cost efficient supply base and logistics. There are high expectations in terms of quality, strict regulatory requirements, and heavy-duty contingency planning. Given the experience of logistics providers in meeting these requirements, whether a company chooses to set up its activities in the Barents Sea or any other area, they will not struggle and can be set up within a few weeks. Depending on where they establish themselves they can even have access to a multi user logistic base where they can pool their resources with other companies, thus reduce their cost, increase their flexibility and benefit from a operation that will be carried out to the highest HES&Q stan-dards available. In other words, I am not aware of any other place in the world that is as efficient and safe as Norway for oper-ators to operate.

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INTERVIEW WITH:

Alf Ragnar Løvdal, CEO, North Atlantic Drilling

Alf Ragnar Løvdal, CEO, NORTH ATLANTIC DRILLING

Focus Reports: Would you start by introduc-ing North Atlantic Drilling to our readers and explain how it emerged from the Seadrill Group in 2011? ALF RAGNAR LØVDAL: North Atlantic Drilling was established in 2011 as the harsh envi-ronment-drilling operator within the Seadrill group. Our remit has been to cover all harsh-environment drilling operations east of Greenland, including Ireland, the UK, Norway and the North of Russia. Since our foundation, we have been bringing new rigs into our fleet every year, this will con-tinue in 2013 and 2014 and we even have a rig, which is currently being built on spec-ulation, ready for 2015.

North Atlantic Drilling is a relatively new name in the industry, though the com-pany itself has roots going back over 40 years, as a part of Seadrill and before that Smedvig, which was the first Norwegian drilling company to build a rig back in 1971. North Atlantic Drilling is therefore one of the pioneers of Norwegian drilling.

Overall the separation of the harsh-environment drilling business from the rest of Seadrill’s operations has been well received by the industry as well as by our own employees. North Atlantic Drilling is operationally independent from Seadrill, but we are able to share financial instru-ments and knowledge between the two companies. Both companies are also based on the same management system, which has been developed over the last 30 years.

Regarding our personnel, Seadrill and

North Atlantic Drilling have been running specialist education programs for drilling personnel for many years. Out of the 1,400 employees now working at North Atlantic Drilling, approximately 400 have passed through our in-house apprenticeship schemes. This training is fairly unique in the industry.

FR: In view of the strong harsh environ-ment drilling market, what are your growth expectations for 2013? ALF RAGNAR LØVDAL: We see strong growth opportunities over the coming years and that is why we are making such large-scale investments in the rig fleet. There will be a need to replace a significant number of harsh environment rigs, which are cur-rently between 25 and 40 years old, over the next 3-4 years.

North Atlantic Drilling is consolidating and building its dominant position in this market with our new investments. We are also taking part in tenders for newbuilds.

I also see potential for the company to expand its operating area. Today the major-ity of our rigs are in the Norwegian sector, but we have ambitions to cover the entire North Atlantic, east of Greenland. We already have an operation in the UK - West of Shetland for Total UK and we are focus-ing on having more rigs in the UK in the near future.

Generating growth will depend not only on an increased geographic coverage and more rigs in the market, but on putting the

Interview with: Alf Ragnar Løvdal, CEO, North Atlantic Drilling

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Alf Ragnar Løvdal, CEO, NORTH ATLANTIC DRILLING

entire portfolio of rigs into the market. North Atlantic Drilling is the only company with a complete spectrum of harsh-envi-ronment drilling rigs ranging from jack-ups, to semi-submersibles and drillships.

The next rig, coming in in the winter, has already secured a long-term contract with ConocoPhilips on a five-year charter. This has generated a secure revenue stream for the company. Demand is strong and we currently only have one rig, which has not secured a contract.

FR: Given that your ambition is to become a pan-North Atlantic player, how hard is it to move your rigs across all the various jurisdictions, given the discrepancies in regulation? ALF RAGNAR LØVDAL: We have been success-fully moving rigs across these jurisdictions for the past 40 years and we are fully aware of the different rules and regulations. We can also observe some convergence in the regulation of the harsh-environment drill-ing market; indeed there are aspects of UK regulation, which now are equally as strin-gent as that of Norway. It is a great advan-tage that we know how the regulations function in practice as opposed to just on paper and our long history in the industry has allowed us to track these changes.

The rigs that we have on order are being built to comply with the most recent regu-lations in both the UK and Norwegian mar-kets. This means that they will be able to swiftly switch between jurisdictions. Ulti-mately, if you know where your rigs are going to operate and you design a rig for those areas, the cost-differential between that rig and others operating exclusively in one jurisdiction, is not significant. The rig-cost factor is really nothing when compared to the personnel cost. Therefore our opera-tional focus on the North Atlantic keeps the cost-level appropriate for this area.

FR: How do you see the progress made towards operating beyond the NCS and the UKCS? Growth in the UK is definitely a key target for us in the coming years. Having only one rig in this market is not very efficient for us. We will start to enjoy greater efficiency with two or three rigs in this market. We have always had some activity across these markets, but now we are after more perma-nent positions. When we return to these markets, we are seeking to add some length to our drilling contracts.

FR: Given these past achievements, what does the 22nd Licensing round mean for your business? ALF RAGNAR LØVDAL: North Atlantic Drilling is on its way into the Barents Sea and will be operating there for the next four years with the West Hercules for Statoil. We want to take advantage of this contract to con-tinue to build our experience of operating in the area. A year-round operation in the Barents Sea requires other skills than those required elsewhere in the South North Sea. But North Atlantic Drilling was already responsible for the northernmost harsh-environment drilling ever conducted, on the Norwag field for Total.

Our entire operation involves careful risk management. We have to be humble about operating in this environment. The main difference is the low temperatures faced in this environment and we have taken the opportunity to winterize our rigs and provide better heating to make the environment more pleasant for our work-ers. We are applying the same drilling tech-niques and protocols, but we also need to plan better, because the infrastructure is placed further away from the shore and you need better supplies and more effective back-up mechanisms.

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INTERVIEW WITH:

Christopher Spencer, CEO of Rocksource ASA

Christopher Spencer, CEO OF ROCKSOURCE ASA

Focus Reports: Rocksource’s drilling pro-gram encompasses the North Sea, Norwe-gian Sea and the Barents Sea. How do you see the difference of monetizing assets across these three different regions? CHRISTOPHER SPENCER: The key factor is often access to infrastructure. If you have good access to infrastructure then a much smaller discovery becomes commercial and you will soon find interested parties. The financial markets have been up and down over the past few years, but the industrial market has remained strong. There may be a few more or a few less players, but as long as you have two or three then you are gen-erating competition for your asset.

Because of the lack of infrastructure, in the Barents Sea, you need to be looking for larger assets in order for them to be com-mercial. This is not nearly as important for oil as for gas discoveries. Therefore the main risk for exploration in this region is the chance of discovering gas and companies seeking an oil discovery in the Barents Sea need to understand that there is a reasonable chance of finding gas instead.

And this is what happened with Nor-varg…

That is true, though there is still a chance of finding oil in this reservoir. I would add that all of the license partners were expect-ing gas from this prospect prior to drilling and the issue was simply how much. You need to have a very large gas asset to make it commercial and we believe that Norvarg has this potential.

The subsurface reservoir data looks prom-ising, and this should hopefully be con-firmed with our appraisal drilling this year. All of the partners in this license have placed high expectations on this asset, but this is exploration and there is always an element of risk.

Rocksource has already been successful in selling 2/3rds of our interest in Norvarg for a cash payment. This sale has given us carry for our current drilling program and therefore we have already made good use of this asset from perspective of monetization.

Unlike the North Sea, the Barents Sea is a frontier region and one, which, in my view, suffers greatly from the way that cartogra-phers draw maps. If you flatten the globe so that it represents its true size on a map then you will see how big the Barents Sea really is. There is a great deal of exploration to be done and a lot of potential, which I believe is becoming increasingly apparent to the industry.

FR: Rocksource’s exploration technology is based on innovations from Bergen Univer-sity. How does electro-magnetic (EM) technology add value to your exploration approach? CHRISTOPHER SPENCER: EM is an important part of our exploration technology ‘tool-kit’. However, over the last couple of years we have also increased our focus on advanced seismic techniques, which com-panies like Lundin and Spring Energy have been actively pioneering. We believe the

Interview with: Christopher Spencer, CEO of Rocksource ASA

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Christopher Spencer, CEO OF ROCKSOURCE ASA

real value comes from integrating these dif-ferent techniques.

The main difference between these two technologies is that seismic surveys use sound waves to collect data on the subsur-face structure and EM measures the resistiv-ity. Saline water in a prospect will have low resistivity and high conductivity; oil and gas will be the opposite. If you can understand this profile in the resistivity of the structure then you can better understand the subsur-face. Integrating both seismic and EM tech-nologies allows us to gain a more compre-hensive geological understanding.

FR: Rocksource is active internationally in two main regions: the Gulf of Mexico and the Norwegian Continental Shelf. How would you compare your activity in these regions? CHRISTOPHER SPENCER: Following the reset in our strategy in 2012, our primary focus is now the NCS. The NCS offers cost effi-cient exploration in a politically stable and prospective region. Further, now that we have the focus of both advanced seismic and EM, Norway is also a good place for us to apply our technology.

Rocksource has exited several positions to focus on the NCS, but if I see potential value in assets then I do not like to give them away and we do see significant value in our remaining leases in the Gulf of Mexico. We are trying to hold them in the portfolio as high upside options and the key will be to manage our spending on those assets very carefully; we are actively seeking operating companies to come in as partners on those assets.

In particular we have two assets next to the Mexican border, which lay either side of Shell’s Great White development. These assets are very exciting with significant potential resources of several hundred mil-lion barrels. Pemex has made some major

discoveries just over the border from our assets, the Supremus and the Maximus fields. In addition, one of the US indepen-dents Stone Energy has just filed for an exploration lease in that area. Activity is returning to that area, which is exciting for us, as a small company, because we do not need much activity before we can extract value in the area.

FR: How do you see the balance between the Gulf of Mexico and the North Sea shifting for the industry as a whole? CHRISTOPHER SPENCER: The focus has already begun to shift back to the Gulf of Mexico. There have been some fairly large discover-ies in the deep-water Gulf of Mexico. How-ever the asset trading has not fully returned, because the operators have been drilling the deep-water production wells, which they could not drill during the post-Macondo drilling moratorium. Now the principal operators are drilling their back-log of prospects and the deepwater rig count is already up to pre-Macondo levels.

In addition, to Macondo the other aspect, which was suppressing the industry, was the rush into shale gas. However the interest in shale gas has dissipated almost as fast as it started, due to the obvious impact of produc-tion growth on the gas prices. There is busi-ness in onshore liquids but a lot of explora-tion managers are remembering why they were in the deep-water in the first place.

Because of the lack of infrastructure, in the Barents Sea, you need to be looking for larger assets in order for them to be commercial. This is not nearly as important for oil as for gas discoveries.

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INTERVIEW WITH:

Martin Tiffen, managing director of Total E&P Norge

Martin Tiffen, MANAGING DIRECTOR OF TOTAL E&P NORGE

Focus Reports: Since the Frigg field was decomissioned, Total E&P NORGE had a low operator profile on the Norwegian Continental Shelf. How has Total’s E&P profile developed over the last couple of years?MARTIN TIFFEN: Since production from the Frigg field ceased in 2004, our production operations in Norway were limited to two subsea fields called Skrine and Byggve. In 2010 we drilled two wells, one an appraisal well on the Martin Linge license and the other an exploration well on the Skirne license, on a target know as Atla. Both these wells were successful, and as a con-sequence we were able to send in a PDO (plan for development and operation) for both fields.

For Atla the development plan was rela-tively straightforward, a subsea tieback to existing facilities, However as it was of relatively modest size, the project econom-ics depended on being able to get it on-steam quickly and on budget. We were able to bring Atla on-stream just two years after discovery, and so. Atla can be labelled a gen-uine fast-track development.

In the case of Martin Linge, the develop-ment concept is a conventional jacket plus topsides, to come onstream end 2016. So in a way I like to think that we ‘fast tracked’ from the last well to the PDO, even if the field itself had been discovered several decades previously.

FR: All countries would like to bring fields

on-stream fast. Is there anything special in the Norwegian context which enables fast-track developments? MARTIN TIFFEN: In addition to the pure tech-nical choices, relationships matter . In addi-tion to the operator, partners and the gov-ernment authorities have to agree on the development. Fortunately in Norway, these relationships are long established and it is not too complicated to reach alignment among the various stakeholders.

It is also imperative to have a service industry capable of supporting a develop-ment within the time-frames. There is a highly developed service industry familiar with the relatively standardized building blocks for a development project. The ser-vice industry in Norway is therefore another key enabler of fast-track programs.

The third factor is the issue of dealing with gas production, where you may need to agree on sales and other commercial arrangements. Norway has access to a very well developed European gas market where you can monetize gas in a simple way. The industry in Norway is also set up to allow sharing of existing infrastructure,.

FR: Given the extent of activity on the NCS today and the strain this places on the ser-vice sector to generate throughput, what is the danger of this slowing down fast-track developments? MARTIN TIFFEN: The growth of investment in Norway is contributing to the health of the service industry and this is necessary for

Interview with: Martin Tiffen, managing director of Total E&P Norge

35

Martin Tiffen, MANAGING DIRECTOR OF TOTAL E&P NORGE

the successful development of projects. In the past there have been concerns about service companies not having enough work and no longer being able to provide a ser-vice. Thankfully we are a long way from that situation today.

The demand-side pressure on the sup-plier market simply means that oil compa-nies need to take a little care to anticipate the availability of resources and let that guide supplier relationships, standardiza-tion practices, framework contracts etc. It is still perfectly possible to get things done and avoid bottlenecks in this era of height-ened activity.

FR: What are the lessons learned from the Atla development? MARTIN TIFFEN: One of the main lessons was that sometimes you need to be a little cou-rageous and order equipment out of sequence. You will sometimes have to com-mit to fabricating a project specific part before the complete picture is in place. For standard products like Christmas trees you can probably use the part on another proj-ect further down the line so there is less risk in making an early commitment. How-ever, if you commit to something like an umbilical, 7.3 km in length, you are making a project specific commitment. As long as you are clear that you have a commercial project, this can be achieved without undue risk.

FR: What were the elements that you brought from your experience from Atla to Martin Linge? MARTIN TIFFEN: In the case of Martin Linge, we made an early commitment to a drilling rig from Maersk, because we need to start in the summer of 2014. If we had waited until everything was approved, then we would have had a great project on paper but would not have been able to drill the well in the timeframe required.

In the end the important factor is that everyone understands how the system works and in Norway that appears to be the case.

FR: Martin Linge will be powered from shore. Is this about respecting environmen-tal commitments or does it make economic sense? MARTIN TIFFEN: In Norway, as part of the application and development process, you are required to study the alternative of power from shore. When we did we found that recent advances in technology made this option a possibility.

The cable is 160 km in length, running from Kolsnes to the Martin Linge field and carries 50 megawatts of power. Only a few years ago, transferring high voltage electric-ity from onshore to offshore platforms would have required converting from AC to DC and then back to AC on the platform. The AC/DC converter weighed over a thousand tonnes.

Today with modern power management systems, we can transfer power in AC and thus simply connect up the platform to the grid. The current record for AC power trans-mission is 110km and the Martin Linge power-from-shore project will hold the new world record for AC power transmission to a platform.

When you assess the economics of this investment, there is an increased capital cost to run the cable from shore as opposed to having power generation offshore. However, this investment should reward us with higher uptimes offshore with less offshore maintenance, the company will not have to pay CO2 taxes or other emissions taxes, the work environment will also be better for our employees on the platform and the gas that would have been burnt can instead be mon-etized as sales gas. When you take all of these factors into account it appears to be a sound economic decision.

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Company index

Apply .................................................. 4

Minister of Petroleum ...................... 6

Total ................................................... 7

KPM .................................................... 8

Total ................................................... 8

Petrolink ............................................ 9

Epsis ..................................................10

DB Schenker .....................................10

NorSea Group ..................................11

OSM ................................................. 12

Swire Oilfield Services ................... 12

Eide ............................................. 13,14

Malm Orstad ................................... 13

Air Products ...............................14, 18

Knutsen ........................................... 14

Oslo Børs ......................................... 15

Karsten Moholt ............................... 15

Pearson ............................................ 16

Malm Orstad ................................... 16

OSM ................................................. 16

North Atlantic.............................. 17,18

The Norwegian Nobel Institute ......18

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PAST REPORTS

http://issuu.com/focusreports/docs/norway_o_g_pt2__2_

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

http://issuu.com/focusreports/docs/indonesia_oil___gas_report_october_2012

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

http://issuu.com/focusreports/docs/norway_o_g__2_

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

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

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

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


Documents

Oil and Gas Norway report 2013 Part 3