with Carl Lieungh, CEO, Norse Cutting & Abandonment AS (NCA)
Although NCA stands for Norse Cutting & Abandonment, the company offers repair and maintenance, decommissioning and abandonment, as well as mooring services. What’s the focus between these areas?
The company’s history started some 20 years ago with repair, maintenance, and onsite machining services, and evolved with the help of creative people to provide decommissioning services. This began by inventing new tools based on the skillset that has been achieved, and thus the decommissioning part of the business emerged. In mooring services, NCA’s has a majority interest in IOS Offshore, and just recently signed a deal to acquire an additional 21%, now owning 91% of the company. Mooring services are by nature, as a rental and lease business, business-model-wise quite similar to the rest of the business, but the synergies as such are not extremely pronounced. It is more a matter of adding strength to the company, because the original idea, which is still very much a possibility although not currently at the top of the agenda, is to have an IPO – and for this, it’s necessary to have a certain size and robustness in our strategy.
NCA’s businesses are somewhat countercyclical. From a business point of view, you may say that repair and maintenance services are the bread and butter, being the stable income. Mooring services tend to increase with higher general activity and oil price, whilst the P&A/Decommissioning services are obviously related to the very last phases of field life. The idea is to have a predictability and commercial robustness built into the operation, but in terms of synergies, the only areas between mooring services and subsea removal of wellheads and the like is in some technology and equipment transfer by the means of anchor handlers, in other words, replacing expensive drill rigs with simpler and cheaper vessels.
Although you have a leading market position in the NCS how would you assess the opportunities in decommissioning for the North Sea?
The general impression seems to be that initially, when fields were first brought onstream, they had a given predicted lifetime. Then when they were taken over, it may have been reduced down to five or 10 years. Now that those five or 10 years have been passed, many operators are looking to continue on for another 20 years. Clearly there is a growing need as infrastructure ages, but what is the state of that niche right now?
Your question hits the nail on its head, because people are trying to extend field lives as much as possible, particularly when there’s a favourable oil price. The excuse of not being too keen on decommissioning during periods of low oil prices was being unable to afford it, but people are always rather reluctant because it’s not really a money generator for any company – it’s more of an expense and liability that is needed to be taken care of. As a result, there is an enormous wave of decommissioning projects steadily being pushed back. At the same time, we see the activity is picking up, and it’s clear to everybody that the older the structures become and the more operators try to squeeze out of them, the higher the risks are for something to go wrong, so the liability increases. There is also legislation which helps spur internal drivers within each company. Right now NCA is involved with BP Miller, Northwest Hutton, and also the Ekofisk removal. However, the biggest market by far is the Gulf of Mexico, which contains over 4,000 structures, many of which are small and in shallow waters. There is also a backlog of 12,000 wells that have not been permanently plugged.
Such backlogs represent a huge liability, but one which is ignored during widespread worry about the credit crunch and what is perceived as a relatively low oil price – although I think $66 is quite alright, people have a very short memory of these things! – even if the $140 range was only for a month or two, and unsustainable. I was interviewed by an oil and gas magazine just prior to the credit crisis, and was asked a few questions about how robust NCA would be with regard to oil prices. I replied that between $60 and $80 is an ideal because it is simultaneously very good for the industry to create healthy prospects that will be developed, allows for old platforms to be taken out because there is enough economy in the business, and the rest of the world will be OK with such an oil price – and it doesn’t delink us from the rest of the economy, which some people seem to believe from time to time.
Although you mention the company’s diversification, what has been the impact of oil price volatility on NCA’s business?
As previously mentioned, by providing the mixture of services we do, we feel relatively indifferent to the fluctuations in the oil price, and this strategy has proven successful in the past period of market turmoil. We have picked up business steadily, month by month, and we foresee a continuous growth in the coming years.
I have a quote from the Chairman of the Board upon your arrival here at NCA, saying “To attract a person like Carl Lieungh with such experience and network is very important for NCA in relation to the high ambition for further growth and development.” Given this laudatory introduction, what was your mission when you came to NCA?
It was basically two things. The first was to get control over and to consolidate the operations, because of the extreme expansion the company had been through in the previous years, and the second was growth. NCA is on a growth path. To achieve this growth, NCA has been on the acquisition path, making one major deal last year with a company now known as NCA Energy Services out of New Orleans, Louisiana. It was like a hand in glove fit with what we were already doing, and needed to be done. Now, NCA is working on having those acquired technologies and skillsets transferred to the North Sea, so there is some export and exchange. NCA’s current growth ambition operates on more of a semi-organic thrust, which is my main focus. Within those three business areas mentioned above, NCA has identified sets of strategic actions which will hopefully add volume and robustness to each.
Geographically, which are the most prospective areas? You mention the acquisition, which clearly targets the Gulf of Mexico, but there are opportunities Middle East and Far East activities as well…
NCA is a small company, and I’ve been involved with international business for quite some time, also heading up operations in areas like Malaysia, Australia, and Canada, enough to realize you have to focus and concentrate on what you’re actually doing. One of the pitfalls NCA fell into was the ease of doubling revenue from one year to the other as a really small company in the start-up phase. At a certain point you need to add more structure, systems, and processes, and the focus becomes more introverted as opposed to being out there speaking with your clients, so we have been focusing on speaking with our clients, asking what their needs are, and securing the projects and executing them. That has been our focus, and to this end NCA has opened an office in Dubai to serve the very prosperous Middle East area, which along with West Africa and basically anywhere else other than Gulf of Mexico and North Sea is related with conductor slot recovery. You will be familiar with the term increased oil recovery, which is a trend. NCA is using its technology to take, for example, old platforms on old fields in the Middle East with antiquated technology where all the slots for conductors and wells are full, and cutting out the old infrastructure to insert what is called a whipstock in order to drill a new well and increase oil production. NCA is using its technologies for that purpose, although it has nothing to do with decommissioning or P&A as such. There are also opportunities in Southeast Asia with structures to be taken out and planned decommissioning projects, but it’s still some years down the road.
Speaking to the possibilities in Houston or the Gulf of Mexico, you mention the 12,000 wells that have yet to be permanently plugged. What type of opportunity do you see for NCA in the Gulf of Mexico, a notoriously conservative market? How has been the reception to the NCA approach?
It’s interesting when we introduced our approach. NCA is famous for abrasive waterjet cutting. The system consists of water mixed with an abraser, essentially a type of sand or slag, forced at an extremely high pressure through a very little nozzle, which basically cuts through steel and concrete when cutting a conductor or well string. Although the timing of our GoM entry was perfect, just as the Rita and Katrina hurricanes struck, we are quite astonished how well the US market has received the technology we introduced. Since our first full operating year in 2006 until now, we have gained a market share nobody, not even us, thought was possible. This has been achieved by replacing inefficient and environmentally damaging technologies like mechanical cutting on jointed pipes and explosives. In 2009 we are looking to do well over 200 multistring cuts from inside with our proprietary abrasive waterjet cutting technology, working for a large number of clients, including both majors and smaller independents. After some initial years of strong support from the Norwegian head office, our US GoM operations are now all-American. To my pleasure, this has worked out very well.
You mention increasing the portfolio and getting the NCA name out there – why is NCA the partner of choice internationally?
Firstly, it’s very easy to understand NCA’s business proposition. What we do on the moorings and repair and maintenance is purely in the North Sea, so the international message is more toward P&A and decommissioning. I think NCA is looked upon as being extremely good at what we do in our particular niche, and that we can use our clients and cooperative partners to provide the large vessels or barges, while we offer a robust portfolio of services with all kinds of tools within a toolbox that can actually solve problems. For example, NCA was involved with salvaging the Russian Submarine “Kursk”, and has been involved in specific projects where such services were in demand. From a business point of view, my challenge has been getting enough clients, portfolio breadth, and volume to achieve predictability. Although that may not have been the case in the past, NCA is now well on track.
You mention a number of areas, but what’s at the top of your priority list right now?
My number one priority is to succeed in the Gulf of Mexico; it’s just a matter of how. At the core, from an industrial point of view, we need to look at partners to broaden our portfolio, and do more than what we do today. NCA has a focus of building up more project management and engineering services, so the company can take bigger projects and not only concentrate on specialist services, eventually evolving to become more of a solution provider involved in bigger projects.
What is your vision for NCA over the next three to five year time frame?
Over the next three years, I want to double revenue through a mix of organic growth and acquisitions, focusing on activities that underpin and add to the aforementioned three core business areas.
And what would be your dream project on the path to doubling revenue?
The dream project will be one in which NCA does it all: take the responsibility for project management, execution, removal and recycling of equipment, and having the full value chain and vessels to do the job and sent it ashore to leave a clean, safe spot behind, returning back to only the ocean again. It’s a very nice picture, to make the environment clean and safe for eternity, and we owe it to those who come after us.
What is your final message to OGFJ readers, particularly in the Gulf of Mexico, as well as your future and potential partners there and around the world?
Without any comparison, NCA has the most sophisticated and broad toolbox when it comes to our niches – that is understood. The company has a very good safety record, and is proud to work on old structures requiring our personnel to be extremely well-trained in safety issues, and feedback indicates we are executing projects in the safest manner possible.