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Interview

with Bernhard Krainer, General Manager, OMV (Norway)

22.04.2009 / Energyboardroom

You’ve worked in Pakistan, Vienna, London, Canada, Libya – but you’ve been in Norway since January of this year. Can you compare and contrast some of these markets to Norway, and give your impressions so far as to how the country rates as an operating environment?

Norway is very well regulated compared to some other countries. The oil industry is really seen as an asset to the nation, and they are not interested in making a very fast profit implying a short term gain in exchange for long term pain: Norway is more long term focused, and consequently, the overall environment for the oil industry in Norway is quite positive.

Is the Norwegian framework an attractive alternative to some of the more get-rich-quick schemes of other countries, who could use this longer term and more measured approach to their resources?

I don’t think you can apply the Norwegian model one-to-one to every country, firstly because political systems are so different, with Norway being a very mature, stable democracy. Also, the ownership in some countries of the oil and gas reserves is not always in the hands of the government, such as in the USA. It is sometimes the case that the ownership of the raw materials is based on who is the landowner, for instance in Canada where it sometimes belongs to Aboriginal tribes, which necessitates a different approach.

OMV acquired a further Norwegian license in February, bringing the total number to seven. What is the current state of Norwegian operations, and what does the country represent in the company’s portfolio?

In Norway OMV is currently operator of five operation licenses, and is involved in two licenses where we are not the operator. What OMV has done so far is a lot of original work, and we have shortened the operated licenses, done some 3D surveys including in the Barents Sea, and as we are new here and starting up we don’t have drilling operations at present, but there are plans in place to drill a first non-operated well in 2010. OMV is a member of a rig consortium, so we have some reserved drilling slots: Two slots for 2011 and one slot for 2012, based on the current licenses. OMV has applied with other joint venture partners for several blocks in the 20th round, so we are, like the rest of the industry, waiting for the results of this latest round, and if successful hope for a few more licenses. Then, for the new licenses the company would need to become involved in another rig consortium and arrange drilling. However, for all current licenses OMV has its drilling needs met.

Among the licenses you already have, what would you highlight as being the most prospective?

OMV is in Norway for two reasons. One is to gain access to interesting exploration opportunities. For that, we are more interested in the frontier areas – mid-Norway, and further out in deep water, especially in the Barents Sea. The company now has three licenses in the Barents Sea, which fits strongly into OMV’s overall exploration strategy: going into emerging basins and deeper water, and becoming an operator there.

The second reason is that OMV is not just an exploration company, but for a large part also has a lot of downstream. OMV is a very integrated organization with its own gas business, and so is naturally interested in accessing the more mature areas with gas reserves in the North Sea and the mid Norwegian Sea. OMV in Austria receives around 10% of its gas imports from Norway, and if the company is involved in the whole value chain from production to transport to the end consumer, it’s more interesting than just buying gas from Norway, which has been done mainly from the Troll area via long-term contracts since the early 1990s.

You mentioned three licenses in the Barents Sea, and looking towards more of those frontier areas for the highest prospectivity in Norway. What is the status of the Barents Sea licenses for OMV?

First of all, we are operator of all three licenses, and have performed 3D seismic surveys which are currently under evaluation. The preparations are ongoing for drilling in 2011, and the area remains quite important for OMV.

You spoke before of the importance of the joint venture. Who are OMV’s partners in these licenses and what makes OMV an attractive partner for potential joint venture participants?

OMV has different partners, including Wintershall, DONG and Sagex. OMV is primarily a company which is very much exploration minded, and the Barents Sea is a new area. From its geological history, it’s a little more complex than the well-known North Sea area. As you know, Austria is in the Alps, and so OMV is used to very difficult and complex geological situations because we have a lot of deformations and a very complex geological history. Personally, as an explorer, so far working in different countries, I have to say that almost everywhere I have found the geology to be simpler than in Austria, so this is certainly an expertise OMV brings to the table. The company has also been working for a long time in the UK, not only in the North Sea but also in the Atlantic margin, and so we have some experience from that side. The Atlantic margin is very similar geologically to the mid-Norway area.

As a geologist and explorer by trade, what are the most exciting things, coming to Norway, a new geological environment? Acting as the General Manager however, I suppose you don’t get your hands dirty as you did in all the other countries, but what’s the most exciting part for you?

I think the most exciting part is definitely getting into new areas, new licenses, starting out from the original evaluation where you have some ideas: then you are focused on an area and if you are lucky enough to get the area awarded by the authorities then you can really work up the prospect, make it grow and define it. In this way, there’s a progression all the way from an idea to finally where you really have a point on the map to start the drill-bit. Usually the most exciting part is when the drilling results come in. I always compare drilling a well, and getting to the reservoir zone, as like an AIDS test: either you have it, or you don’t have it.

Speaking of the role of technical competencies and management competencies, we’ve been speaking about this with a number of your counterparts, regarding understanding the economic risk of the business, and then understanding the geology and the technical aspects. How would you compare the situation for a general manager with a technical background, compared to a manager with a less technical background?

If you come from a technical background, especially from exploration, you speak the language and you understand a lot more clearly what the geoscientists are talking about. As an exploration manager I have drilled some 70-80 wells, so there is a certain understanding of risk from that. But then, once you get away from the pure technical to the management side, it needs to make economic sense in the end. OMV is a big company doing exploration and production in a lot of countries, from New Zealand up to the Faroes and Norway, so in the end we have to be prepared to take some risk. Without taking any risk you are not contributing to progress and development here on the NCS. But you should not take stupid risks. What I mean by that is that if you take a risk you have to be aware of the variables: what you know, and what you don’t know. What you don’t want are surprises, things you never considered. This is where the technical and the economic risks overlap and come together. For example, if I know for an exploration prospect that the main risk is whether the reservoir sand is there or not, this is something I want to prove with the well. But all the other factors, like how deep it is, if there’s oil or gas in the area or if it has migrated, the temperature, the pressure, a lot of these things I should know. You have to know what risks you are taking, and focus on the limits. There is a certain catalogue of questions which you want answered, but once you have this catalogue, you know what you are doing and which risks you are taking. Just going out and drilling is taking a stupid risk, it’s like throwing dice. Then you know what you’re doing, and don’t just drill one well, but many as a company and compare them on a corporate level to see how the wells fit in.

How much of a difference is there between drilling wells in different locations? Obviously technically it’s not identical, international managers often say it’s important to always keep in mind the cultural differences and sensitivities, rather than the specific competencies involved in, say, drilling in Libya vs. New Zealand.

You certainly have to adapt to the location, although in the end the technical process shouldn’t be much different. From the risk taken, it shouldn’t make a difference whether drilling in the desert or offshore: you shouldn’t take a stupid risk in either, and should know in both locations what you’re doing. When it comes to drilling the wells, and environmental and safety regulations, there are different regulations in different countries. Overall, the difference is not so big, because OMV has its own internal HSEQ standards on a corporate level, which we have to follow regardless of where we are. You always have to follow the legal requirements, and corporate standards are usually above the legal requirements, for example in Pakistan. In Norway, the legal standards, HSEQ and safety standards are very high, and rightly so, so you always have to fulfill them. If you are in onshore, you have the local population and land owners to deal with. OMV has a lot of experience in this regard, having drilled up to 3,500 wells in Austria, in many densely populated, culturally sensitive, and agricultural areas. We are used to dealing with stakeholders. I was involved in a 3D survey in Austria with 32,000 individual landowners, where OMV had to talk to each one of them and receive written permission from each before stepping foot on their property. Getting the permits for this was a bigger job than performing the survey! There are differences, but with offshore, the main interest is from the fishing community.

As General Manager of OMV Norway, what are your biggest priorities right now?

My biggest priority as a newcomer is to build up a good portfolio, experience growth, and establish the company as a safe and competent operator in Norway, acknowledged by the authorities and our joint venture partners.

The foundation of everything is good technical work. If you do good technical work, firstly you get into prospective acreage in which you believe in yourself and your own ideas. Also, other industry partners acknowledge that you are technically competent, and if you liaise and operate with stakeholders, especially the authorities but also NGOs and the fishing community, you will build up your reputation. It is important that OMV has a good reputation, not only technically but in our way of handling things.

If we were to come back in 5 or 10 years, what would you like to us to see at OMV Norway? What are your ambitions?

We currently hold seven licenses. I would definitely like to double this amount, ideally having as many as 20, in the next 5 to 10 years. The most important thing will be to have some exploration success, to find some new fields or resources which we can develop commercially.

As a final message to Oil and Gas Financial Journal readers, what would you like to say to them about OMV Norway and your ambitions for the future success of the company?

What we really want to achieve is to get well established, to have exploration success in the years to come, and OMV is certainly a company who wants to stay in Norway. We are not here for the short term; we are here for the long term, to integrate the company’s downstream gas business and secure gas equity of our own.

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