with Asbjørn S. Olsen, Managing Director, Transocean (NORWAY)
Having recently returned to the Norwegian market, what is your perspective on the current high level of E&P activity in Norway from a drilling contractor standpoint?
According to a study for the Norwegian Shipowners’ Association, we are at the start of a major growth period on the Norwegian Continental Shelf and the number of rigs that will be required is on the increase; today there are 33 rigs operating in the Norwegian market and this figure looks set to grow to approximately 50 by 2016, according to the study. This expansion in the number of rigs in itself represents a major challenge for the industry, given that we will need to qualify new people to operate them.
At the moment, the market is undersupplied with rigs and it’s an industry challenge. Industry analysts suggest that there will be parity between supply and demand by 2016.
As a consequence of this activity, Norway is an expanding market which we expect to remain strong over the short-term.
The current undersupply of rigs is driving up day rates. What is the danger that this will become prohibitive for smaller E&P players in Norway?
There are several factors to consider. For example, the day rates for standard floating rigs are in the low USD 500 thousands which is not significantly above global averages. I believe the “high day rates” in Norway is a theme that been over played by the oil industry quite a bit. The lifting cost for oil in Norway is not that much higher than in the rest of the world; it is really in the midfield.
As for the undersupply of rigs, it is a function of operators’ plans Looking at the current activity, industry analysts are telling us that we are drilling many more wells in Norway now compared to a few years ago. However there are slightly too few development wells and this is potentially where the Norwegian energy industry has a bottleneck – the available well slots. Our tax regime currently favours the drilling of exploration wells.
Why do you think there is a perception among E&P players that there is a looming capacity crisis in Norway?
You need to put capacity in the right context. From 2012 to 2016, the industry projects an increase of around 17 rigs on the NCS. That in itself brings many human resources challenges to the table. Norway needs to have sufficient numbers of trained, talented and certified people to operate these rigs and the current shortage of these people is probably the single most important challenge facing the Norwegian industry. Therefore, as oil companies are contracting for higher numbers of rigs to enter the NCS, both energy companies and rig contractors will need to have a strategy for training new employees and creating leadership roles for them.
How then is Norway viewed within the global portfolio?
Norway has historically been an important market for Transocean. Transocean has drilled for more than 40 years on the NCS, and drilled a third of all the offshore wells in Norway. However, it is hard to compare Norway with Transocean’s other markets because some destinations do not have the same resources.
One of our greatest successes in Norway is in building up the local footprint by hiring the vast majority of our workforce within Norway. This has allowed us to be a highly independent region within Transocean’s operations. This means that there is no great desire within Transocean to bring in workforce from outside Norway to meet the local demand in the market.
Norway is a very different market from a competence standpoint and you need a different set of technical skills and also documentation of those skills with proof of competency. This creates some barriers for workers from the UK, for example, to work in Norway. Of course, we can do a gap analysis to convert a UK driller to Norwegian standards but the process still provides a barrier. Personally I would actually like to have a little bit more rotation of our people out of Norway to experience other environments and others into Norway to understand the system we have here. However, bringing staff to Norway is not a major challenge because we have a strong presence here. Today, we have seven rigs operating in the Norwegian market and our goal is to educate the local population to take on the challenges of our business.
One of the main steps in growing the local footprint was the acquisition of Aker Drilling last year. How do you see the significance of this acquisition in growing your Norwegian presence?
In terms of numbers, we have gained a larger revenue base and have become a larger part of the Transocean family. We have gained more people as well as newer and more technologically advanced equipment. This has given Transocean a technological edge. The rigs that we have acquired fit within our vision very well, allowing us to serve in a leading position in demanding environments like the Barents Sea.
How has this integration process gone over the last year?
We have spent around a year with the integration of the two companies and we are mostly through with the major integration steps. There is still a little work to be done on the enterprise resource planning side and maintenance management systems side. Norwegian legislation drives this process and the adjustment of management practices is not something that can occur overnight.
We have gained, through this acquisition a small-company mentality which is being integrated within a much larger organization. Small companies are used to short decision lines, fast actions and a dynamic environment. We have tried to assimilate and maintain what was smart and efficient from Aker Drilling for the benefit of Transocean’s operations. That has been the most interesting aspect of the process for me.
The 22nd Licensing round is opening up the Barents Sea. How are you now positioned to operate in this environment?
We have been very active in the Barents Sea for a number of years. We drilled the first wells up there and we have continued to be the main contractor over its entire history. The Transocean Arctic and the Polar Pioneer are two rigs which have been working in the Barents a lot. With the acquisition of the Transocean Spitsburgen and the Transocean Barents, we have doubled this capacity.
This region demands that we take on a lot or responsibility for our operations. This is something of which we are very conscious and we have substantial experience in sensitive environments which makes us different from our competitors.
What is the importance of Norway in helping Transocean to build on its HSE procedures?
The Norwegian industry has always made HSE an important part of the oil and gas regulation. Looking after people’s health and wellbeing is a crucial part of this concept. Maintaining the pristine environment in sensitive areas like the Barents Sea is at the core of the industry’s focus when thinking about how to operate there. The Barents Sea is unique for a number of reasons including the presence of the fishing industry, and the fact that this region does not have the ability to renew itself, if damaged. The environment is relatively static and cannot reconstruct itself in the same way as other environments.
As an international contractor, we are aware of these concerns and take a great deal of responsibility in managing our HSE processes everywhere, including the Barents Sea. In Norway, we aim to be very proactive with the regulators and help to develop procedures. We all have a vested interest in preserving our clean environment and country.
What in your view is the cut-off point to drilling in the Arctic?
The technology is there to drill safely and environmentally in this region, and more technical advances are being developed. It will take time for society to be comfortable with this direction. Society needs to see how we operate and that the energy companies of Norway and indeed the Northern hemisphere are very careful about this process. There are reports about Alaskan, Canadian and Russian operators who want to push to the North. It is the work of the regulators to carefully choose the companies who move to these regions.
Where will Transocean be five years from now?
We have a value driven team which does not intend to grow simply for the sake of growing. Transocean is very responsible from a financial standpoint and we want shareholders to value and trust us. In Norway, we have a human resource challenge and this is a major issue. We are working internally and with the industry to approach this problem. We also want to serve as a trusted parnter as the Norwegian industry determines how it can keep production at a sustainable level and as energy companies look at their own portfolio of available slots and drilling possibilities to meet that demand. In short, Transocean wants to continue to be part of the NCS’s development story. It is important to us that we have been here for a long time and we intend to stay for many years to come. Our investment decisions are made for the long-run.