Eric van der Meer – CEO, Airborne Oil & Gas – Netherlands
The CEO of Airborne Oil & Gas (AOG) discusses the company’s role in developing thermal composite pipe technology over the past seventeen years, and the benefits Airborne’s products bring in terms of cost reduction and increasing recovery ratios, as well as AOG’s recent contract with Petronas for the world’s first fully qualified thermoplastic composite flowline.
As an introduction for our readers, please highlight what your main priorities or strategic objectives have been since becoming CEO of Airborne Oil & Gas (AOG).
As a CEO, I focus on growing the company to its potential. At this point, we’re not sure exactly how large that potential is, but there is little doubt in the industry that composite pipe technology will become a mainstay within a few years time. Developing and qualifying new technology within the offshore industry is a long and arduous process—sometimes taking upwards of 20 years before becoming mainstream. Having done 17 years so far, we can argue that the company has exceeded industry norms and is poised for promising growth. If there is a composite manufacturer that will make it then it should be us.
Now, a few poor financial, operational, or strategic decisions can always lead to cataclysmic events—a constantly looming threat for a small company’s vitality. So we also focus on managing risk. That being said, however, the competitive landscape within this niche is quite thin at the moment. There’s an extensive amount of research in this field, but not a lot of players are leveraging that research to make pipes. Through years of designing, planning, and testing, AOG has slowly, but effectively built up its credibility—finally leading us to a tipping point. We’re now qualified with Petronas, Shell and some other clients, and we’ve expanded our product portfolio to encompass a wide variety of applications for a myriad of customers. To this end, we’re in very good shape in actually becoming the leading and lasting manufacturer in this industry.
Positioned as Europe’s energy hub, the Netherlands boasts a multitude of geographic and technical capabilities across the sector. What strategic importance does the country hold for AOG?
We would not have existed if not for two things. The first one involves the oasis of knowledge regarding composite technology found in the many universities spread throughout the Netherlands. The second is the presence of one of the oldest and largest Dutch flagship companies in the world—Shell—to facilitate the research and development of AOG’s core products. If our founders had originated from Germany, we might’ve evolved alongside the automotive or aerospace market, but probably not oil and gas, as there’s no Shell equivalent. Intellectual capital and the nation’s longstanding history in oil and gas have collectively created and maintained the lifeline of this company.
TCP pushes the boundaries on cost reduction, increasing recovery ratios, and deepwater production—all relevant topics for operators in the Dutch continental shelf. To what extent has the region served as a growth driver for the company?
We’ve not yet deployed a product to be used in the Dutch continental shelf. We are currently delivering products to be used in the UK and Norwegian side of the North Sea. However, that just happens to be a coincidence. The applications of our products, specifically flowlines, were initially earmarked for deepwater operations, which don’t exist in Holland. But now, helped by the interest of Petronas, there are a lot of potential flowline applications for shallow water—not so much driven by the deepwater benefits of lightweight, fatigue properties and collapse resistance, but driven by the non-corrosive nature of our products, and the simplicity of installation. Over 120,000 km of flowlines are scattered throughout the seabed worldwide, and a considerable portion will need to be replaced at some point. Operators, after 20-30 years of production, are looking for increasingly cost-effective and durable infrastructure solutions considering the diminished earnings potential of their wells. To this end, we project a steady stream of demand moving forward, and will continue leveraging AOG’s innovative and technically superior designs to capitalize on the imminent replacement needs, as well as new installations.
The cyclical nature of the industry has created a rather stringent operating climate, especially among many of the E&P companies. How are constant demand and supply fluctuations in the market, especially in regard to oil price volatility, impacting the business?
We’re partially hit and partially helped. If we were dependent on large new projects, and had employed massive amounts of capital to build large factories and require a certain level of annual turnover with a currently more conservative client base, then we would be forced into a rather uncomfortable position. But those types of large projects are not currently our focus. For the replacement business, the drivers have not changed much since the downturn. Field operators are subject to the same concerns: corrosion, leakage, and regulatory scrutiny. To this end, we haven’t been impacted much.
In some ways, the current down cycle has actually helped us by pushing the demand for more cost-efficient and durable technology. Ironically, during favourable economic climates, operators focus heavily on successful project execution, and often resist deployment of new, innovative technology. On the other hand, when experiencing a slump in oil prices, the industry realises the need for new technology to drive a step-change in costs, and operators tend to be more willing to take risks with new technology. So, now we’re experiencing a renewed focus from many players in the areas of well intervention, which encompasses offshore chemical stimulation and riserless well intervention, and subsea plug and abandonments—an expensive and technically challenging task. Considering the big push for cheap well-intervention systems, plug and abandonment methodology further substantiates the benefits of our products—flexible, light, and long-lasting pipes for easier and faster deployment. We’ve seen a lot of tailwind from that segment of the business. So, it’s a mixed bag.
In any case, our strategy is unchanged. We need to continue to qualify what has not yet been qualified. We need to continue to find pioneers that use our products for the first time or second time, which we’ve been doing very well in the past 12 months. Recently, we secured a contract with Petronas for the world’s first fully qualified thermoplastic composite flowline. Because flowlines contain hydrocarbons, an oil company would want to dot every i and cross every t before they select one. Now, Petronas has done so, and that for us, is the most important milestone yet in the history of our company. In our industry, everybody is racing to be second, and there is considerable resistance to be the first to adopt a new technology, but that’s the nature of being a high-tech OEM in offshore oil and gas. We’ve cracked most of these barriers now by essentially having a product in the field in every application that we serve.
AOG’s flagship thermal composite pipe (TCP) technology boasts a multitude of advantages across various applications including downlines, dynamic jumpers, flowlines, and well intervention hoses. Which of these segments has demonstrated the most promising growth prospects?
All of these segments will serve as growth drivers for the company moving forward. But the biggest value is ultimately in flowlines, simply because of the size of the market. The SURF market (subsea, umbilicals, risers, flowlines) is about 20 billion USD, perhaps 16 or 17 billion USD due to the downturn, and projected to grow to 30 billion USD several years later. Well intervention is maybe a maximum of 300 million USD of pipe. Clients would typically not order a couple hundred kilometres of well intervention lines, contrary to the large order volumes for flowlines, and we see this relationship continuing for the foreseeable future.
What aspects of subsea well intervention should operators be most concerned with?
Operators worry about production efficiency and costs. What they’ve done onshore has been very successful over decades, but they’re constantly challenged with replicating that task offshore, which has proven quite difficult especially in deeper waters. If you have a platform with the wells accessible through the tree on the platform, you can use most of the techniques that are deployed onshore. With subsea wellheads, even in shallow waters, intervention becomes very expensive and technically challenging. We’ve seen a growing adoption of chemical injection and acid stimulation in deeper waters, for which riserless well intervention systems are a critical enabler. For such methods, the type of vessels can magnify costs and produce an unfavourable hurdle rate—limiting the benefits of well intervention. We offer a very benign and light system, comprising of a flexible composite pipe and reeler that is ideal for temporary deployments. Shell Nigeria has capitalized on the benefits of our technology by utilizing a small, cost-effective multi-purpose vessel, equipped with our system to perform a short-term intervention, deploying and retrieving the composite pipe quickly, allowing multiple operations in multiple wells each year. Shell is important because they are a leader in deepwater and the fact that they’ve chosen us is very pleasing as well. With the track record of Shell Nigeria established, we expect many operators and contractors to follow suit. Well stimulation is not new. You don’t need to convince the industry that well stimulation works. Cost-effective subsea well intervention, however, is much more difficult and costly, which is where the potential lies.
Following the recent successful completion of an extensive qualification program, Airborne Oil & Gas has qualified its Thermoplastic Composite Pipe as a technically accepted linepipe material with Shell. What types companies are you looking to target moving forward? Are you focused more on IOCs or NOCs?
Our strategy is to get first movers. We are not yet targeting companies that have strategies of being followers. These companies deliberately employ this strategy to control costs and mitigate risk. First movers are often companies that pursue mega projects and tackle head-on the most difficult areas. Such companies posses a segment of their DNA that leads them to differentiate themselves in the marketplace—innovating in every which way possible. So, we’re targeting those because they are more likely to take limited risk over new technology. Shell, Statoil, Chevron, Petronas are all majors that have a track record of innovation, and pride themselves on it. We are in advanced discussions with several more operators and service companies.
What about the manufacturing process truly makes this product unique?
What makes it unique is that we can do it, and produce fully bonded composite pipes of very long length. The concept of a such a pipe is not new. It’s probably 30 or 40 years old. But to actually have the technology and make it in a way that meets all qualification demands is truly a respectable feat. We’re the only ones in the world that do it this way. We are some years ahead of any competitor, in terms of our track record, capabilities, and the knowledge we have acquired through testing. Having just the technology is not enough. Substantial test data is imperative in predicting the behaviour of your product and meeting those predictions when in use. Our clients don’t believe in luck. They’re engineering driven and need to be shown the predicted behaviour of our products, proven by test results. Through 17 years of extensive research, development, and testing, we’ve been able to produce exceedingly robust models, which we will leverage to more effectively predict the applied properties of our products and further improve their design and performance.
AOG operates in an extremely dynamic environment that is constantly evolving. What R&D initiatives are in the company’s pipeline today to make sure this technology remains relevant 5-10 years from now? Any areas you’re looking into specifically?
Despite the downturn, we’re maintaining the pace on investments in technology, qualifications, and R&D. We’re focusing on four products: flowlines, downlines, dynamic jumpers, and the hoses for workover systems for heavy intervention systems, and in those products we’re doing everything we need to do to preserve our competitive position in the market, now and in the future. We believe there’s a very large market in these products and we also believe that if we have a track record in a number of areas, if given the right qualification, then prospective clients will be more inclined to trust us and our products in other areas. Our knowledge based qualification approach allows us to base qualifications of new products to a large extent on the knowledge of earlier qualifications. This helps us to remain cost effective, and shorten the qualification time of future products. We have pioneered this approach, and expect it to be embedded in an industry-supported DNV and API design code this year. So we believe that this is a solid basis that will set the base for growth.
What are your personal philosophies on defining success for a company like AOG?
We define success when our clients are pleased with the products, and our people are pleased with working at Airborne. We’re a small company with 120 people and over 20 nationalities. We believe this diversity is important, as our industry is truly global. We need to be aligned with the customer base without compromising on the skillsets. We need the best and the brightest in composite engineering and oil and gas applications. We’ve been successful in attracting them so far, and it’s my mission to make sure they stay here. Success is formulated by having the right people that love the work they do for not only, AOG, but also the customers.
Five years down the road, in terms of reputation, capabilities, and performance, what do you want the company to be known for?
In five years, we’ll have a very significant recurring business—serving all clients in all continents. We will have earned back the considerable investments our shareholders have made to bring AOG where it is today, and capitalized on all the land around, built with production lines. That is the prospect. It’s realistic in a sense that once a flowline is qualified in for example, the South Chinese Sea, there’s no reason not to use it in the North Sea or the Gulf of Mexico. The market is enormous, and there is room for us to grow without taking business from someone else. The benefits of our products are self-evident. We’ve already grown past the initial market penetration barriers and early adoption woes. We’ve sold products to a large variety of customers, and are now delivering them for field use. This year will be a tipping point with the Petronas order—we’ve basically ticked all the boxes of first applications for blue chip clients and set the precedence for all our customers that wanted the technology to be proven. Now is the opportunity to hop on board.