Jesper Kragh Andresen, CEO, Axis Offshore, Singapore
Jesper Kragh Andresen, CEO of Axis Offshore elaborates on the business case behind building a new batch of cutting edge flotels in the offshore accommodation market, which is widely perceived as crowded.
What was the business case behind setting up Axis Offshore and is it not a cause of concern that there is a considerable number of flotels under construction?
We have assessed the market and found a window of opportunity to expand our services in the offshore accommodation market. We recognized that it was necessary to have a robust capital foundation in place before launching Axis Offshore, because of the required CAPEX expenses and our ambitious growth plans. As a consequence, we spent more than a year developing our projects to raise the capital needed to roll out the full growth plan.
The industry level supply and demand balance is something we obviously consider carefully; but we are equally focused on the asset level rather than the industry level. Today when we analyze industry trends, there is a conspicuous focus on three pillars: safety, reliability and comfort. This leads to a strong customer preference for the new generation of flotels that are being constructed. For instance, in harsh-weather regions such as the North Sea, there is a strong preference for the new generation of flotels and more than half of the current flotels in the North Sea are older than 30 years. What is of main focus to us is to enhance our competitive positioning as competition increases. And in this respect we believe that Axis Offshore’s high specification flotels will prove very competitive and be the safe, reliable and comfortable choice for customers looking for flotels capable of operating full year in the North Sea or elsewhere.
Considering the volatility of the offshore industry, how difficult was it to find a suitable a financial backer?
In seeking an investment partner, it was crucial to forge an alliance with a partner that had robust financials and a strong operational track record in the oil and gas sector—HitecVision provided both of these fundamentals. In return, Axis Offshore brought to HitecVision a business platform with existing operations, a good track record, vast sector experience, and positive growth. We also had established relationships with the yards and with major clients such as Petrobras, Shell and Statoil. Considering HitecVision had already set their sights on the offshore accommodation segment, mutual interests were aligned and as such, were a natural partner for us in catalyzing our growth program.
Drawing on investments, can you expand on how the company has grown its footprint since 2012?
The company has more than tripled its employee count in under eighteen months, rising from 26 to more than 80 and we should see further growth in 2014.
In addition to our existing vessel, the Dan Swift, our two principle tangible new investments have been the two semi-submersible new flotel buildings under construction at Cosco Shipyard. Also, should we wish to further augment our asset portfolio, we have another two options at the yard in China.
The first flotel, Axis Nova, aims to be delivered in February 2015 and the second, Axis Vega, is expected to be delivered by year-end 2015. Both flotels are capable of operating worldwide with primary markets including the North Sea, Brazil and Australia, with emphasis on high safety standards and comfortable solutions for offshore accommodation for up to 500 crew and guests. Overall, when comparing air gap, thruster power, mooring break load, variable deck load, safety measurement and number of people on board—these assets will have blazed a new industry standard.
We are also on the lookout for other investment opportunities and expanding further our activities. This could be through acquiring attractive assets or through leveraging our organizational competencies by undertaking flotel operation for others.
From a commercial angle, when one has a limited number of flotels at high value, utilization becomes a paramount parameter, and therefore it is important that we perpetually meet the high benchmark standards we set ourselves. Indeed, we will be reluctant to employ a flotel if there is a substantial gap between scheduled delivery from yard and commencement of employment. In the offshore division as it stands today, we haven’t delivered a vessel late and we are keen to maintain this aspect of reliability of service.
With a career rooted in law, what motivated you into making the transition into the marine and offshore industry?
Law is a popular study in Denmark because it keeps one’s career options open. After working for a large Danish law company for a number of years, I worked as General Consular for the Danish shipping company J. Lauritzen A/S. Utilizing my law background I worked on numerous mergers and acquisitions, shipping and offshore industry contract negotiations. Due to the complexity and the variables involved, this element of the role was the most exciting and laid a business foundation.
Ultimately, I had aspirations to pursue a business driven career and decided to enhance my business acumen through an Executive MBA at INSEAD. At INSEAD I already had a keen interest in the offshore oil and gas industry and through pursuing a number of sector-related projects, my interest in this industry was only compounded. Indeed, my final thesis incidentally centred on the business proposal of what is today Axis Offshore.
Can you elaborate on the structure and organization of Axis Offshore?
Axis Offshore is a joint venture between Danish J. Lauritzen A/S and Norwegian HitecVision, combining J. Lauritzen’s 125+ years of maritime history and expertise with HitecVision’s experience and network in the offshore and finance markets.
Axis Offshore operates on a global platform covering the major offshore markets. Our Headquarter is in Singapore, which spearheads our commercial, financial and business development operations. In China, we currently have approximately 25 employees working with Cosco as a site supervision team and assisting the yard. The technical backbone of the company is in Copenhagen and our day-to-day operations and contract management are in Brazil. Looking ahead, we have the intention to expand as well as open a new office in the North Sea region.
By building your new class of flotels at a Chinese yard, rather than in Singapore, are you forsaking quality for cost reduction?
No. Firstly, even Singaporean yards often produce the steel structure in China. Secondly, in our case, more than 50 percent of the total cost of our flotels is attributable to cutting edge equipment coming from Norway, Germany, Finland and Denmark, which would be the same package regardless of shipyard location. Finally, we know from previous experience with this particular Cosco yard that the quality of the workmanship is good and they can deliver a good quality product. Cosco are also familiar with our quality standards and expectations from previous projects, so I am comfortable that the quality will be as good as we expect. The advantage of building in Singapore is time, and in markets where there is a time to market advantage, this may be a facet to consider.
Ultimately, over the years we have forged a durable relationship with Cosco who have built our DP2 shuttle tankers and we have also over time enhanced our capabilities in managing such projects at Chinese yards. J. Lauritzen, from where many employees originate, has built more than 25 vessels from various yards in China over recent years, so we have a good pool of experience from previous projects.
How would you describe the offshore environment of South East Asia and is it a region you are positioning yourself to penetrate?
The accommodation segment is a very regional one and between various regions there are some similarities but also acute differences. The flotels we are constructing are built primarily for harsh, challenging environments. The vast proportion of the upstream market in South East Asia is probably too benign for our flotels and as such they are not quite aligned for this ”offshore ecosystem”. Though there are certainly interesting regional market opportunities, if we were to enter this region, we would probably use and look for a more straightforward, simple flotel.
Axis Offshore has a footprint across the global offshore triangle. What was the strategic purpose behind locating the company’s HQ in Singapore?
First and foremost, through J. Lauritzen, we have been present here in Singapore since 2005 and are thus familiar with the attractive framework Singapore provides to companies like ours. We were drawn to the hub status, which Singapore has crafted over many decades, drawing in an international network of companies across the oil and gas value chain, which facilitates business cooperation and development. In addition, Singapore has a mature financial infrastructure and has arguably positioned itself as the region’s premier financial nucleus to supplement business growth. Moreover, Singapore is geographically positioned near our investment projects in China, which is a strong benefit for us. Finally, Singapore is a breeding ground for producing top class human talent and forms a core part of our recruitment process. Such traits make Singapore a logical and attractive base to establish a headquarters.
As a relatively fledgling organization, how do you attract the top talent in Singapore?
From my current and previous experience at J. Lauritzen, I developed a relatively good insight into the recruitment process in Singapore. We have never had any problems attracting the best in class. We do not offer a superior remuneration package but what is recognized in the market is that we provide an exceptional career and skills platform to grow on. This is partly because of the company’s Scandinavian roots, by which we have inherited the culture of a flat hierarchy. At a young age, employees are given both holistic responsibility and independence. This gives them the reins to cultivate their personal skills, putting them on a sustainable and upward career trajectory. As a relatively small company (still), Axis also offers a unique opportunity for the employees to be empowered to the best of their abilities and really affect the development of our business in a very direct way.
As CEO spearheading commercial operations, how do you intend to maintain the growth of the company over the next three years?
I am optimistic and enthusiastic about the company’s future because we have an excellent combination of competencies and a very strong value proposition in the market. Firstly, we have a strong in-house project management team, with extensive new building project and yard knowledge. Secondly, our operational track record is excellent, which includes the offshore staff that is hired by us, and has attained very high customer satisfaction levels. Finally, we have the backing of two strong shareholders. As a consequence, we have constructed a solid foundation to build upon and are determined to continue our growth journey.