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Interview

with Archie Kennedy, UK Managing Director, ConocoPhillips

06.08.2008 / Energyboardroom

Recently you took on the joint chairman position at Oil & Gas UK, on the operator side. Which are the main issues for the industry that you have identified and are addressing at the current time?

At the core of it, as an industry both the operators and the supply chain are focusing on safety performance through the ‘Step Change’ initiative, so I would say that this is the first priority. Our collective goal is to make the UKCS the safest oil and gas basin in the world and to keep improving year on year.

The second key priority is to ensure that the UK remains globally competitive, particularly as the basin matures, so that we are able to continue attracting the inward investments necessary to keep new projects coming online.

In third place, one of the main reasons why Oil & Gas UK was created was to speak with one voice on behalf of the whole industry, in order to promote a more cohesive story around the oil and gas sector in the UK. We felt that this was missing in the past. Despite the great success in many regards of the UK North Sea’s offshore industry, we did not do much to communicate this to the rest of society over the years.

Today, Oil & Gas UK gives us a better vehicle by which to explain all the positive aspects about the industry, such as the large amount of jobs that we generate, the technology developed, and the contribution to the UK’s tax incomes and balance of payments.

You represent the operators within Oil & Gas UK, yet there is a wide range of different types of oil companies in the UKCS today, from majors, to semi-majors, to independents and very new small players. To what extent do these operators have common or diverging objectives and priorities?

Speaking from my position as joint chairman of Oil & Gas UK, I believe that overall it is very healthy to have the mix of more established players and new operators in the UKCS. This makes for a more dynamic market, which allows trading of assets to take place and for companies to build new portfolios and focus and fine-tune existing ones.

In general terms, we are all looking for the same kind of situation: a stable tax regime and a competitive business environment. In consequence, it is relatively easy to speak with one voice for the industry most of the time. Nonetheless, we also recognize that there are slight differences in the individual agendas of the companies, all the more as they grow and things change rapidly.

Not so long ago, we saw new companies coming in to take over assets, and now they are going through the full cycle and getting to a point where they are selling assets as well. So, all in all, this range of bigger companies, medium companies and very small companies is a healthy thing for the UKCS.

Turning to ConocoPhillips, from the big picture, what is your view on the keys to the company’s fast growth and success over the last several years?

It has been very exciting to be part of ConocoPhillips’ growth, particularly over the last few years. Throughout that period, I consider that we collectively have tried to focus on doing the basics correctly and operating safely. We put a lot of effort into the assets we have; operating them efficiently and effectively in order to ensure that we meet our promises. And of course, ConocoPhillips also focuses on growing the business. We have been very successful doing that through a strategy that has combined trading, mergers and acquisitions, and indigenous growth.

What place does the UKCS have within ConocoPhillips’ vast and growing international portfolio of business today?

ConocoPhillips is established in many countries around the world, and has its largest and most established businesses in North America. The UK is one of our largest businesses outside of this area, alongside other key countries such as Norway and Australia.

In terms of overall contribution, the general focus is to attempt to hold the UK’s production roughly flat, which is quite a difficult thing to do in a mature basin. In order to achieve this, we basically have to grow the base business every year just to keep our production at the same level. This requires considerable investment plus the need for continued success in drilling. We have to ensure that the UK is an attractive place to do business and that our projects remain competitive.

So, recognizing that of course ConocoPhillips has many other initiatives around the world, the UK remains a significant contributor and I believe that it has the potential to compete in this regard going forward.

As an integrated energy company, what are the areas in which ConocoPhillips is mostly active in the UK?

I am mainly focused on the upstream side of the ConocoPhillips’ business, but the company is also very well established in the downstream arena, through our Humber refinery, and has recently built a power plant and entered the wholesale electricity business in the UK. Both upstream and downstream businesses have been run in parallel for many years together with an integrated approach to commercial activities that link the two business areas.

How would you describe ConocoPhillips’ current upstream portfolio in the UKCS and your strategy to make them maintain production levels over the coming years?

Our oldest assets in the UK started 35 years ago in the Southern North Sea, and we have been investing and building up that business ever since. In recent years, ConocoPhillips has brought on new projects in the area like Munro, Saturn, Mimas and Tethys. These tend to be smaller fields that are fed into the existing infrastructure, and we are currently considering new fields which will allow us to keep that almost “factory” type of approach.

Britannia has been another area of great focus in recent years. That development was a large success in itself, and subsequent levels of development drilling success exceeded our original expectations. Just very recently, we developed two relatively large satellites for Britannia – one gas and one oil field– and are finalizing commissioning phase.

Not far from the Britannia field, also in the Central North Sea, ConocoPhillips has had a lot of success around the J-Block. There are several producing fields in the area and we have been very active in development drilling these in recent years. So again, it is a development which has exceeded our initial expectations and on which we are continuing to build our position.

Looking beyond the North Sea, ConocoPhillips has gained some assets in the Irish Sea following the Burlington Resources acquisition in 2006. We are working on building up the reliability of that operation.

Looking to the future, our focus will be on delivering our production safely and efficiently and, if we are successful with the drill bit, hopefully bringing forward development projects. ConocoPhillips had recent success with the discovery at the Jasmine field, and we are currently looking at how to develop that project.

In summary, ConocoPhillips has a full range of projects in our UK portfolio: from the recent discoveries and fields that have literally just been brought on stream, through to assets that have been in operation for 35 years. So as an operator we are present throughout the value chain and facing the constant challenge to replenish our reserves.

Additionally, ConocoPhillips has some non-operated assets which are also major contributors to our UK production.

There is a growing trend in the UK to talk about the ‘dynamic new operators’ and to overlook the role major oil companies such as ConocoPhillips continue playing in the area. What is your view on this matter?

I cannot speak for other companies, but as far as ConocoPhillips is concerned I consider that it is a very dynamic company in the UK. We have reinvented ourselves several times over the many years of operations in the country. Our portfolio has evolved, we have changed our competencies, developed new technologies and a huge skills base to reflect our current scope of business in the area. ConocoPhillips has also been one of the most active investors in recent years in the UKCS.

Besides handling all the UK’s upstream activities for ConocoPhillips, how else does the Aberdeen office contribute to the company globally?

ConocoPhillips has built up a kind of core bench strength here in Aberdeen to run our business. We have been very successful in programs in which we bring in graduates, train them and then export them all around the world over the years. As we speak, there are dozens of these engineers, geoscientists and managers supporting our operations around the globe.

At the same time, being part of a company the size of ConocoPhillips, we have access to all its financial and technical strength that we can call upon to help us overcome particular challenges or problems that may arise. So it is a two way relationship, in which we the UK operations contribute to the company worldwide, and ConocoPhillips supports our activities.

To what extent does a major oil company like ConocoPhillips face challenges when looking to attract and retain talent in this very competitive context throughout the industry?

There is no doubt that it is very competitive to attract and retain the best talents. This is clearly the case in Aberdeen, and no doubt across the world as well. We have just had to become more creative. For example, ConocoPhillips recently launched a training scheme for planners and schedulers through our own in-house school. In the past, we have been able to go to the market and easily access that skill set which has been available, but this is no longer the case.

In this regard, we have also set up a partnership with Banff & Buchan College. Last week, the program was launched with the first nine trainees, some of whom were new hires and others were people who decided to take a change in direction and go into that training program.

This is an example of the sort of thing that we are doing in order to compete for talent, considering the dynamics in the marketplace. We believe that these people will develop skills that I suspect will be desirable across the industry. Obviously they will be attractive to us in the oil and gas sector, but planning skills are of value in any kind of project. ConocoPhillips continues making these types of investments so that towards the future we remain in a position to attract and retain the best talent.

What would you say is most appealing about ConocoPhillips’ corporate culture for those working in the company?

When I ask this to people in the company – and we often do – they respond that what they value most as individuals is the team they work in. I consider that ConocoPhillips has an ethos of high standards and we attempt to provide people with the opportunity to grasp responsibilities, particularly early on in their careers. That sort of culture seems to generate a great strength within the teamwork, and has been a powerful springboard for us over recent years.

Do you feel that the UK’s oil and gas industry is making progress with regard to better engaging and communicating with society?

I still believe that there is more to be done in this regard, though we are beginning to get the message across in the UK, and certainly here in the Northeast of Scotland where the importance of the oil and gas industry is quite well understood. There is still work to be done in terms of communicating cutting edge technology that we develop and employ here, as well as the fantastically diverse career opportunities that we offer people.

We have to keep pressing that message, and ConocoPhillips has a role to play in that both as a company and alongside our peers at Oil & Gas UK.

What is your impression of how the UK is seen from ConocoPhillips’ headquarters in Houston, in terms of being an attractive place to continue investing even as there is potential in booming provinces all over the world?

It all boils down to the UK being competitive enough to attract those investment funds from the company. It is our job here to keep putting forward compelling stories and projects that can compete technically and economically with all the others. We have to underpin all that with our performance, delivering on the promises. That is an ongoing challenge.

What do you see as the main opportunities over the next 5 years for ConocoPhillips in the UK ?

I think that, as an industry, we need to ensure that we can capture the resources from the UK. This is of great importance to the UK’s economy in terms of jobs, tax revenues, and security of energy supply. As a player with a very sound and established portfolio, ConocoPhillips can contribute particularly through the application of our technologies. We are at the cutting edge of HP-HT drilling, geo-steering tools, etc. By applying these innovative techniques, we are going to go beyond what we now think is possible in terms of finding resources.

We basically have to efficiently deliver our operations and execute the projects that we have and that are being lined up, take that forward, and develop a compelling story so that we can get them sanctioned. Looking a bit beyond what we already have, we need to prepare for the discoveries that we hope to make, in order to keep the project machine firing.

It is important to invest in existing infrastructure and ensuring asset integrity, as we have been doing. The bulk of new developments in the UKCS will be relatively smaller fields that will be reliant on existing infrastructure for offtake, as compared to “green field” projects. Much of that existing infrastructure is quite mature and maintaining asset integrity is a crucial aspect. And of course there is the need to keep investing continuously in programs to develop people.

What is the most motivating thing for you about the oil and gas industry, and how has this evolved over time in your long and successful career?

In the early years of my career, I was in wonder of the technology and the mega projects which we were delivering, particularly in the North Sea. Over time, as we have done more of these, I am still in wonder of the technology but now get more of a ‘buzz’ from the team achievements. What motivates me most now is seeing a team successfully pull off very complex projects, and most of all with nobody being hurt in the process.

What is your final message to the readers of Oil & Gas Financial Journal about ConocoPhillips in the UK?

I’m very conscious that the media portrays the UK as a mature basin, yet there is still fabulous promise in the UK North Sea yet to be captured. We clearly have a challenge to capture that value for the UK, in terms of balance of payments, jobs and security of energy supply; all of these are important factors.

We have to be particularly efficient on how we deploy our new technologies, in fields such as drilling and subsurface imaging. We must also be very focused on investing in the existing infrastructure, and making sure we don’t let the window of opportunities go past us. As an industry we need to continue investing in people and attract them to this great success story, which is still a well-kept secret for many.

There are still many years ahead for the oil and gas industry in the UK, and the career opportunities are amazing. It is a story that is very far from over.

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