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Interview

with Bart van de Leemput, Managing Director, NAM – Nederlandse Aardolie Maatschappij

03.12.2009 / Energyboardroom

For many in the international oil and gas industry, it comes as a surprise that, in homeland of Royal Dutch Shell, most of its E&P operations are actually done by a joint venture (JV) of the company with one of its main competitors – ExxonMobil. How did this JV manage to successfully last 50 years?

The JV between Nederlandse Aardolie Maatschappij’s (NAM) mother companies Royal Dutch Shell and ExxonMobil has lasted for more than 50 years because the two companies have constantly benefited from the success of this partnership.

Royal Dutch Shell and ExxonMobil soon realized that to join its forces was the best way to explore the important gas reserves found in the Netherlands many decades ago. Since their interests were and continued to be aligned, they had no reasons to change a winning strategy.

How does NAM build its own identity and what is the level of independence from its two shareholders?

NAM is an independent company which has its own board, with members from both shareholders. They provide a framework in which NAM can work, but within that framework there is freedom to create its own identity.

Many in the Dutch oil and gas industry believe that, during its development, NAM reshaped not only itself but most of the Dutch oil and gas sector that grew around it – and to a large extent it even reshaped the Dutch economy. What’s your assessment of the role NAM played in the development of the Dutch oil and gas industry?

Two of the key underlying events in the development of the Dutch oil and gas industry were the discovery of the Groningen field and the Small Fields policy. The Groningen field was discovered in 1959 and it was developed by NAM. It reshaped the country and even the continental Europe in terms of gas. Besides Groningen, important smaller fields were also found.

The impact of these findings in the Dutch economy and society was immense – people went from using mining gas to natural gas in less than one generation. This switch was quite successful and nowadays almost every single Dutch household use gas for heating and 45% of them use gas for energy.

Afterwards, the key milestone in the industry happened in the 1970’s when the Dutch government decided that we should have a small fields’ policy to depend less on the Groningen field and save its gas for later generations. The environment created was one in which there was a natural outlet for gas so that any producer that found natural gas in the Netherlands could find a safe buyer – GasTerra, buying this gas at good conditions.

Thus, the E&P industry has had ever since a guaranteed outlet for its gas, knowing what the price will be linked to oil and creating a fairly good environment in which investments became much more attractive. This policy was extremely successful, since the Small fields have been producing at considerable sums in the last 30 to 40 years.

Still nowadays this is the cornerstone of gas developments in the Netherlands. Now producers have the option to sell their gas to other companies besides GasTerra, but the whole concept that you can sell to GasTerra and that Groningen will take the swing capacity is still in place and is a cornerstone for the Dutch Small Fields policy. Naturally, this development has been of great importance for NAM and for the Dutch industry as a whole.

In the wake of a new effort by the Dutch government to prolong the country’s reserves, how do you see Groningen contributing for the long term survival of these reserves and transform the Netherlands in the Gas Roundabout of Europe?

If you look towards the future, what you will see is two main trends: the small fields becoming smaller and more mature and Groningen becoming emptier. NAM has just celebrated the 50th anniversary of Groningen, but I think there is still potential for another 50 years of Groningen – there is still 40% of its gas remaining, so there is a lot of potential there.

In Groningen NAM recently finished a renovation of all its logistics and production facilities. This has been a fairly big program that started in 1995; thus Groningen is now fully modernised and ready for the challenge to produce gas for the next 50 years.

Compression has been stalled so that NAM can supply whatever capacity needs to be supplied. Now with the push of a bottom we can swing the capacity of the wells, while before there were more than 200 operators in charge of that. To have an idea of Groningen’s current ramp up capacity, it is around 120 million m3 per hour. This is comparable to three or four LNG terminals that you can switch on in one hour. This is especially helpful in emergencies and during a surge of demand caused for instance by a strong cold front.

And what is at stake in the Small Fields Policy for NAM?

Regarding the small fields, it is an inevitable truth that they are becoming more mature and NAM is adapting to cope with this maturity. Number one, for the fields that are now old the company is looking at innovative technologies to get more gas out.

Thus, NAM pushes the limit of these fields, getting more gas and making their operation longer – and the company is being quite successful with that. If you compare our plants from a few years ago to now you will see that NAM has guaranteed considerable longer field’s lives by using these unique technologies.

At the same time, NAM needs to keep focused on costs. The global crisis is a clear example that costs should remain an important driver – hence, NAM has kept its costs downs and is making its fields run much longer.

Secondly, NAM is looking for new fields to be explored and which smaller fields can still be connected. In the old days the company used to believe that it needed a field of 3 billion cubic meters in order to make it economically viable, now it can go for fields of 1 billion cubic meters. By going for smaller fields NAM has more development options and naturally there will be more volume available.

Last but not least, NAM is reassessing its existing fields to see if there is further potential hidden there. For instance, we have started a project to reopen the Schoonebeek field, an oil field discovered in the 1940’s and closed down in the 1990’s.

Those who talk about ‘The good old North Sea’ are mistaken – its potential is not over. We are still pretty young and with our know-how, technology and the existing infrastructure in place there is a great potential. NAM is making sure that it is taking full advantage of that.

Looking towards the future of the company, how do you see NAM developing in the coming years – especially in the wake of big changes such as higher demand, increased CO2 demands and so on?

What we see in the global context are three main trends. First, there are more people in the world, they are all developing and hence they need more energy. Secondly, the easy oil & gas is already in use. Finding a new Groningen field but simply won’t happen – We will find new resources and we know that they are out there but it will be found in a remote or difficult places such as the Arctic or the deepsea areas. Thirdly, there is an important CO2 issue developing and therefore there will be environmental restrictions as well. These three givens create a lot of tension in the system, whatever the system may be.

If you look five to ten years ahead what you will see is an important growth in energy demand. Since the easily found resources were already found, in order to have more oil the difficult tasks will have to be solved.

And because there is a CO2 problem, we need to move towards less CO2 emissions. Still, to reach a CO2 clean society there are some generations to come and we will still need hydrocarbons to make this long bridge. Meanwhile, people would love to buy hydrocarbons with the least CO2 footprint; and gas is the cleaner hydrocarbon source available for the transition towards clean renewables.

There is a fair amount of gas to offer to the world – the beauty of the gas that NAM can offer is that it is close to the market and is in a very stable environment. The best of the bridges towards a cleaner future is made of natural gas, and for that the Netherlands can count on NAM.

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