Sonny Sola – CEO & Managing Director, NORDIC, Abu Dhabi
CEO and MD of NORDIC, the Norwegian Drilling and Intervention Company, Mr. Sonny Sola, discusses the inspiration behind the founding of NORDIC here in the UAE, the niche technology – the world’s first hydraulic rotating coil – his company is offering, his perspective on the trajectory of the petroleum industry in the region and his advice on aspiring entrepreneurs hoping to penetrate the Middle East.
As the founder, CEO and MD, can you tell us your inspiration for the founding of Nordic?
The genesis of NORDIC can be traced back to Rogaland Research, which was a public research institution in Stavanger, Norway, now called International Research Institute of Stavanger (IRIS). Public-private partnerships were common in Norway back in those days; oil companies and research institutions embark on joint industry projects together. These are great because the oil companies’ financial backing allows research institutions to properly dedicate their efforts to cutting-edge research, and the bonus is that the intellectual property rights stay with the research institution and can be commercialized.
For the first two years, I worked on a project to develop a sliding friction-reduction technology, particularly intended for coil tubing operations in horizontal wells. This project was funded by Statoil, Shell and ENI. When the technology was ready for commercialization, IRIS formed a company called Extended Reach Technology in order to market the technology to the industry.
NORDIC is the successor to Extended Reach Technology, as we had a major strategy overhaul in the past decade. In the beginning, we wanted to be a technology developer and provider, with the intention of partnering with major international service companies. The problem we encountered and quickly realized is that essentially, it is very difficult to convince major international service companies to test and use your new technology and inventions, no matter how innovative. This revelation leads us to expand and become a fully-fledged service company, so we turned Extended Reach into a true tubing intervention service company. This was also when we changed the name to NORDIC Energy Services. NORDIC is actually an acronym for: Norwegian Drilling and Intervention Company. Today, we provide a range of services and products, from drilling and work over services, hydraulic snubbing services to coil tubing services with cementing and pumping – including well interventions.
What was the rationale behind setting up the company in the UAE, given your Norwegian background and your extensive international work experience?
My passion was always to develop new technologies and I followed my technologies around. I do what is necessary to realize their potential, and that is what brought me from the extreme cold like Alaska to the extreme heat like Dubai.
To provide some context on the technology we were developing in Norway: in the early nineties the new application for coiled tubing emerged which was coiled tubing drilling; the problem with coil tubing is the fatigue that occurs during operation and with drilling the coiled tubing needed to be bigger hence the problem would multiply. If we were to drill effectively with coiled tubing larger sizes of coiled tubing needed be used but they are also more expensive, so to increase economic viability, we need to reduce costs by increasing the effective usage of coiled tubing. By redesigning the conventional design into a completely new approach, we managed to prolonged the life of the coil by approximately 400 percent, reducing cost by 75 percent.
Another related problem was that of sliding friction, which occurred with the introduction of horizontal wells in 1988. As the horizontal wells became longer and longer, the friction affecting the conventional sliding coil placed a ceiling on the maximum possible reach in a horizontal well. Our solution was to rotate the coil very slowly, at around 10 to 15 rpms in order to remove up to 80% of the sliding friction.
After we had successfully developed these new technologies, we encountered the problem of finding wells for testing. Norway is not the best place for this kind of testing because the oil is offshore and the entire infrastructure is very expensive. Oil Companies are reluctant to test any new technology there because of the elevated financial risk. Our solution was to move to North America, because the production cost is much lower here. There are thousands of wells here, and they are onshore, which makes it easier for the testing of new technology. The patent for this technology, which had been held by Transocean, expired in 2014 and as a result, Nordic will develop the first coil tubing rotating unit in Dubai this year.
Nordic operates in the Middle East region as well as in South America. Can you discuss the relative importance of your various operations in the region?
The Middle East is our home market, which is why we have established a base in the UAE, as the regional hub. The majority of the oil reserves in the world lie here and production cost is lowest in the world, so it is a very sensible business decision. Even now, in the low oil price climate, there remains significant oil and gas activity here.
Our main clients are in Saudi Arabia, Turkmenistan and Iran pre-sanctions, though we are looking at re-entering Iran now, with the sanctions lifting. Elsewhere in the region, we also cover Egypt, Qatar and Oman. In the UAE, our biggest client is Emirates National Oil Company (ENOC) and we work extensively with their subsidiary, Dragon Oil, in Turkmenistan.
We have heard a lot about the Norwegian advantage in terms of their advanced, niche technologies and superior expertise. How do you think NORDIC’s – and your – Norwegian background has given NORDIC an advantage in the very competitive landscape of the industry?
Being a company which originated from Norway does give us some advantage in this region. Norwegian technology has a reputation that precedes itself – the only concern is that it may be expensive, but companies are always willing to listen to the idea. After that, it is a matter of controlling the prices to suit the market.
This stems partly from the emphasis Norway has put on the training and development of its work force in the petroleum industry. The oil industry only began in 1971 in Norway, which is fairly recent. In the past four decades, Norway went from knowing absolutely nothing to being the main supplier of premium technology in the world, particularly in the subsea sector. I remember when I started working on rigs in 1977, the Norwegians were just assistants and it was Americans and Canadians who were in charge. It took less than a decade for Norwegians to grow into those positions and by 1990, there were barely any non-Norwegians left on the offshore rigs, having all been replaced by Norwegians, who had been educated and trained specifically for these positions. For instance, the company I was working for then sponsored my education.
That said, the disadvantage with Norway and Norwegian companies at the moment is that operations are very expensive. For instance, the average annual salary for an offshore worker across all positions is over USD 100,000, and they only work 120 days a year. This model may work when the oil prices are at USD 100/barrel, and the fields are major producers, but in the current price environment, it is not sustainable and Norwegian firms are struggling with this. Hence, our position in the Middle East actually offers us these twin advantages.
NORDIC has now been officially established for almost a decade now. What challenges and opportunities have you identified, both in the UAE and the region as a whole?
As with working in any country, there are a few challenges for Nordic here. As explained, Norway has very rigorous and extensive training standards and infrastructure, which is not developed here to the same degree. The oil industry here in the UAE as well as the region is still of an international nature, as evidenced by the fact that we see a significant proportion of expatriates and foreign laborers in the industry. In terms of sustainable industry growth and longevity, this dependency is an issue. Middle Eastern governments are of course realizing this and a popular solution they have implemented is the local content rule, which requires companies to hire nationals as a particular proportion of their total workforce. For instance, in Saudi Arabia, it is 66 percent, while in Oman and Turkmenistan, it is 80 percent. The UAE does not have an official number yet but they are implementing an Emiratisation program in the same vein.
As a Norwegian, I understand that this is the similar to the Norwegian model of implementing nationals into the industry, but my only reservation is that this has to be well-managed. Local content rules need to be supplemented with education and a complete training infrastructure to ensure that demand of skilled labor is matched by supply. This is why it is very reassuring to see the UAE government investing in initiatives like the Petroleum Institute and Masdar Institute.
This challenge is particularly pressing because there is a marked regional trend in terms of the type of rigs used. Conventionally, the Middle East has preferred labor-intensive rigs as the cost of labor here was much lower than in Europe and North America, so this was feasible. However, we are now shifting towards more sophisticated, higher-technology automated drilling rigs that require skilled labor, and these rigs are less forgiving of inadequate training.
To provide an example, drilling activity in the region has been high over the past few years and there are thousands of wells. To service these wells, companies currently use around 200 coil-tubing units in the region and the prediction is that it will increase to 300 by 2020. These would involve a minimum of 3000 to 4000 workers, and many of them currently lack formal training or education. This is a concern for Oil Companies because each well costs around USD 10 million, so they want to be absolutely confident in the abilities of their subcontractors.
How are you positioning NORDIC to meet the challenges you have identified in the industry here?
Every challenge is an opportunity. We specialize in precisely the sort of technology that are increasing in popularity in this region. Our hydraulic drilling and workover rigs are smaller, very quick and very easy to move – there is no need for any special moving equipment. They are also very easy to automate and very reliable. We have positioned ourselves in this niche precisely because we foresaw this trend. The recent drop in oil prices has simply accelerated that process.
In addition, we would like to export the Norwegian style standards and systems of education, training and certification to the UAE and to the region, in order to facilitate the regulation and formalization of the industry here. We are in the process of setting up a training facility called the Norwegian Well Intervention Academy, and this will provide quality training in all aspects of well intervention. This also means that these personnel will be internationally qualified and they can work anywhere, in fact they will be qualified to work in Norway if they desire. This is a way for us to capitalize on the potential here as well as to contribute our technology to the industry, hence playing a part in its development.
Given your extensive experience working for service providers, what is your perspective on the current oil price crisis and future trajectory of the industry?
There will be a paradigm shift in the region in terms of attitudes towards oil production. Specifically, efficiency (particularly cost-efficiency) is going to become the most important factor, and both governments and oil companies are emphasizing this.
To provide some context, in Norway, we have a different perspective to oil production as we think that the oil we fail to produce today will be produced at the end of the life of the reservoir and not tomorrow- which could be ten years away, when oil prices and demand could be very different from today. For us, it is important to maximize current production. The perspective in this region just to be; what we do not produce today, we will produce tomorrow. As we have seen in the past few months, the volatility of the oil industry means that this can be a very dangerous attitude and now, with oil at approximately USD 30 / barrel, inefficiency is unsustainable. This is something the industry in the region are beginning to understand.
What advice do you have for other entrepreneurs who are thinking of entering the UAE?
It is crucial that entrepreneurs, especially foreigners, understand the culture and business environment here. It is very different compared to Europe and North America and there are a lot of nuances and subtleties to be grasped. Often, foreign companies enter hoping to turn a quick profit leave disappointed after a year or two because they did not achieve the results they expected. The Middle East is a region that requires commitment and a thorough understanding, but it is also a place where investment does pay off.