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Interview

with Bernhard Krainer, General Manager, OMV (Norway)

31.10.2012 / Energyboardroom

In 2009, OMV was just establishing itself as a newcomer onto the Norwegian Continental Shelf (NCS). Last year you drilled your first operated offshore well, and significantly increased your license portfolio on the NCS. How do you see the progress that you have made in the last three years of development?

Since 2009, OMV has grown significantly. The company has more than doubled its license portfolio to 17 blocks, and OMV is the operator for eight of them. OMV has also become a drilling operator; the company successfully drilled its first offshore well in Norway last year. OMV Norge is still a company focused on exploration with a major emphasis on the challenging Barents Sea area.

We will looking for production from this area but that is still a long way off. OMV does not want to sit around for 12-15 years before it sees production from the Barents Sea. Therefore in parallel to the Barents Sea exploration activities, OMV is also focusing on the Norwegian Sea for gas. OMV has made acquisitions there; we acquired 20 percent of the Zidane field development project at the end of last year. In early October OMV was able to close the deal for ExxonMobil’s 15% share of Aasta Hansteen and with these two projects we are also involved in the Norwegian Sea Gas Infrastructure (NSGI) pipeline project. OMV will be investing strongly into infrastructure in mid-Norway until 2017 The company sees this as an area where OMV can have considerable production in the midterm. The production start-ups from this region are scheduled for around 2017, which will shorten the waiting time for any bigger discoveries yet to be made in the Barents Sea.

But recently we even went a step further and acquired 20% of Edvard Grieg in the North Sea. This deal is currently still subject to ministry approval but it will allow for production as early as 2015.

So we will have a material asset base till our ambitions for the Barents Sea become reality.

Given these opportunities, how does OMV see Norway within its portfolio?

When OMV originally came to Norway, the company was looking at the more high risk /high reward part of the global exploration portfolio. OMV felt that based on its more mature core countries we did not have enough exploration projects in this specific segment. Norway is a country where opportunities for such projects still exist and so it remains an important exploration country for us.

Norway also provides good stability. In terms of our global portfolio, where some countries carry a certain amount of political risk, Norway provides a good counterbalance. OMV operates in several North African and Middle Eastern countries, where the situations can be less predictable as compared to Norway.

OMV is in 17 countries which are competing internally for E&P funds and projects. The executive board of OMV introduced a new strategy in September 2011 with OMV focusing more on the upstream sector for future investments. As our activities in Norway are upstream focused, we are here certainly profiting from the new strategy. So given Norway’s potential and stability it is a good country in which to invest.

What do you feel are the key advantages that OMV offers to its license partnerships?

One of OMV’s advantages is that we are willing to support projects which are long-term. OMV has chosen Mid Norway with Aasta Hansteen not just for this one project, but rather as a hub for future deepwater gas projects, which the company is keen to explore for and will allow for using the new infrastructure over many years to come. This long-term perspective and the fact that OMV will bring sufficient financial stability to handle these projects are aspects valued by our partners.

Additionally, OMV is strong in terms of G&G, reservoir management and exploitation measures. OMV is a mature, integrated company and some of the fields in its portfolio have been in production for over a hundred years. This provides a great deal of in-house experience in terms of mature field production and enhanced recovery. We are operating in densely populated areas in Central Europe, therefore stakeholder dialogue, sustainability and environmental concerns are belonging to our core competences.

OMV has a strong Gas & Power division and we can use their experience for our infrastructure joint ventures in Mid-Norway. OMV has been dealing with large gas pipeline projects for decades and OMV’s Gas & Power division is interested in accessing equity gas from Norway in the future. From a sustainability point we see the trend in Europe towards more gas as positive, as gas is a relatively clean fuel compared to oil or coal. We are therefore happy to help in developing these gas assets in Norway.

The extent of E&P activity and growing competition on the NCS has created greater demand for services, generated capacity shortages and increased costs. What is your perspective on these challenges?

We have economic benchmarks and performance indicators that all of OMV’s operations and projects need to fulfill, both in Norway and in our other countries in which we are active. OMV would not do a project just because it was in Norway; but on a clear set of economic and strategic parameters. However despite the challenges you mentioned Norway still provides plenty of opportunities.

Regarding the increased competition on the NCS, OMV has never been afraid of competition. It pushes us to put in more effort and provides ideas on how best to succeed in projects thanks to the presence of competitors. There are certain areas in offshore technology where OMV does not have as much experience as other major operators; we would probably not compete directly in these areas, but be interested to learn and gain additional experience. When it comes to exploration and drilling, OMV is a serious contender within the global competition.

I have seen you mention the geological similarity of the Barents Sea with Austria. Would you elaborate on this?

Generally, Austria is seen as a land of the Alps. Before the Alps emerged the south coast of Europe was located around Austria and Bavaria. For the Jurassic period geology demonstrates that source rocks and reservoirs common in the North Sea have their equivalents in Austria. The Alps only came later when African plate shifted north, thus the post-Jurassic geological story is far more complicated in the alpine foreland than here on the NCS. But all of OMV’s domestic oil comes more or less from the similar Jurassic source rocks as the ones in the North Sea.

Mr. Lund of Concedo said that the shift from the Barents Sea was actually presenting a few different challenges from a geological point of view. Do you agree with this?

The Barents Sea is different from the rest of the NCS because it is not as well known and explored. The Norwegian part of the Barents Sea is part of the larger Barents Sea area, most of which is located in Russia. We know that some of the sediments in this basin did not necessarily come from Norway but rather from as far as the Northern Ural Mountains, so we need to appreciate the larger regional framework.

Additionally, during the Ice Ages the weight of a huge ice sections pressed the whole Barents Shelf down by 1000 meters, and the shelf was moved up and down a few times during the different phases of the past ice ages, which is a very rapid phenomenon in geological terms. These recent movements affected also the reservoirs and make for a more challenging environment.

Regarding the Barents Sea, OMV has its main focus on the 22nd round, and we will be putting in several applications for licenses in the Barents Sea. OMV is working partly on its own but we also cooperate with other companies in this area. For our existing, operated licenses OMV has succeeded in demonstrating to its joint venture partners that the company is a technically capable and prudent operator.

How do you then see your role in unlocking this third petroleum province and contributing to the Barents Sea in a few years’ time?

One critical requirement for unlocking the Barents Sea is that there need to be enough and sufficiently large commercial gas discoveries to justify extending infrastructure in this part of Norway. Large oil discoveries are less a problem as oil can be delivered to distant markets via FPSO’s and tankers. However gas requires either an LNG solution, like the plant on Melkøya, or a pipeline. I understand that there is a big discussion what future decision to take, whether to construct a pipeline from the Barents Sea to the south or to build up additional LNG capacity.

Everything depends on the future volumes of gas being discovered. Once you have proven up volumes then the infrastructure decision can be taken. This is where OMV wants to contribute as being one of the companies that finds the necessary volumes; one key for new discoveries will be a better understanding of source rocks, migration of HC’s and an effort to unlock stratigraphic traps. Subsequently we then will also be involved with the infrastructure development.

What are your ambitions for the next five years?

Our immediate ambition is to see that OMV’s existing projects, Zidane and Aasta Hansteen, go into production by 2017, and that we close the Edvard Grieg acquisition which aims for production in 2015. OMV also plans to grow further on top of these projects either through business development activities or out of exploration successes, who can feed into. the new infrastructure. Currently for OMV production in the Barents Sea is the long term goal, but within the next five years we want to be in the position to know which of our discoveries would be commercial. Next year OMV is participating in up to six wells in four Barents Sea licenses and I hope that 2013 is a first step to establish our future production portfolio there.

Personally I am motivated by the possibilities in the Barents Sea and the potential to create and grow something that would change OMV in Norway and establishes us an important player. Finally I would be very happy if OMV Norge manages to add Norway as another core country with a substantial production volume to the larger OMV E&P family.

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