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Interview

with Claus Hemmingsen, CEO, Maersk Drilling Norge A/S

28.03.2013 / Energyboardroom

Within A.P. Moller – Maersk’s investment strategy, we see a higher emphasis being placed on drilling. What are the expectations being placed on this aspect of Maersk’s portfolio?

A.P. Moller – Maersk is not pulling out of shipping as was erroneously reported recently, but there will be a rebalancing of the portfolio with focus on four strategic core businesses within container shipping, terminals, oil and gas, and drilling..Looking five years ahead Maersk Drilling will be a significant player in harsh environment and ultra deepwater drilling generating a profit in excess of USD 1 billion. . This is our driving motivation over the next years. In 2011 and 2012 we committed USD 4.5 billion in investments in three ultra-harsh environment jack-ups for Norway and four ultra deepwater drillships. We have 16 rigs today, so these investments will take us through to 23 and we probably need three or four more as a minimum to reach our USD 1 billion target.

Currently Maersk has a three percent share of the global drilling market. What are the main opportunities to expand on this market share in Norway?

Maerks Drilling has been active in Norway since 1989 and today, Maerk Drilling owns six of the 10 jack-ups operating in this market. Over 2014 and 2015 we will add three more jack-ups to this market manifesting our strong position in this market; Norway is a key market for us.
In addition to the ultra-harsh environment jack-ups for Norway, we are expanding in the ultra deepwater floater segment. These rigs are designed for exploration and development drilling at up to 12,00f0ft water depth The ultra-deep-water market is where we see the next big expansion, and offers in our view on of the most compelling growth stories in the offshore space.

How do you see the balance of these two segments: harsh environment and deep-water?

Drilling activities and skills do not vary that significantly between deep and shallow water, however there are some additional skills required for both ultra-harsh environment and ultra-deep-water segments. The connection we see between these two segments is the very high requirements that the Norwegian sector imposes on operations. Naturally, there are differences in the work between dynamically positioned deep-water rigs and jack-ups but the way that we approach the work, the management systems and the overall competence levels of our employees are largely the same. Thus far we have not experienced any challenges that we were not able to handle.

How do you perceive risk, in relation to moving into Arctic conditions?

At the moment we do not see ourselves operating in the Arctic region for the time being. There is a significant difference between the North Sea, Norwegian Sea and the Arctic region. We would need to amass greater experience to move into this region.

Operational and personnel safety measures are extremely important parameters for our movement into this region. If we cannot find satisfactory solutions for these risk factors then we simply will not go into this region. However I am sure that the industry as a whole will progress to this stage. One third of the world’s oil and gas resources are hidden in the Arctic region, so I am confident that the contractors and operators will find the necessary and safe solutions and that they are all aware that they are dealing with a very different environment.

What does your exposure to the Norwegian regulatory environment give to your operations globally?

After twenty years of conforming to Norwegian standards, we have more or less adapted to these standards on a global level. We are talking about two different sets of regulations: one set for rig design and another set for well integrity and safety. It is not necessary for us to design all our rigs to Norwegian standards, e.g. for ultra deepwater rigs for benign areas, but when it comes to safety and well control we implement the procedures that we use in Norway across our global operations. Thus, Maersk Drilling is a company well accustomed to working in highly regulated environments.

Øystein Michelson, EVP of Development & Production at Statoil said that the company was pushing for a different ownership model of drilling rigs on the NCS and targeting more “fit-for-purpose” rigs to reduce the cost of drilling. To what extent is this affecting your commercial strategy in Norway?

Statoil is one of our closest partners, and we hold the company in the highest regard. However, at Maersk Drilling we have our own operational procedures and ways of doing business. We have a preference of being the majority owners of the rigs we operate and being fully responsible for them. Therefore, if Statoil were to adopt an ownership model for rigs, where contractors merely provided the personnel then that would not offhand fit with Maersk Drilling’s business model.

Regarding the “fit-for-purpose” concept, I’m very confident that what we are building for the Norwegian market is in line with the needs of this environment. In particular, our rigs have been built in accordance with the requirements for the Ekofisk field. This direction makes sense, given our focus on Norway.

Given the high cost level associated with Norway, particularly when it comes to the salaries for offshore workers, what is the strategy for building up profit margins in line with your USD one billion target?

As a company, we are content with the margins that we currently have in Norway but we are obviously concerned with the trend we see in cost inflation. Ultimaltey higher costs will need to be passed through to the oil companies which will simply need to adjust to the higher day rates,.
If you build rigs for the Norwegian market, living up to all of their standards and regulations then day rates around USD 450,000 are necessary in order to generate acceptable return for the contractor.

Do you have a final message for our readers?

I have my eyes firmly set on achieving our USD one billion target by 2018 and think that in order to achieve this, Maersk Drilling’s standards will become those of a world-class company. We should be able to provide advanced rigs for the markets in which we operate but should also be able to adjust quickly to new trends in the industry.

Norway is currently in a very healthy position and the new discoveries have added to the great outlook for the economy over the following years. My note of caution would therefore go to the industry itself. It is clear that we need to discuss how we will raise the workforce necessary to deal with the growth of activity. Each company must take their share of responsibility in taking young people in to work on these fields. At Maersk Drilling all of our rigs are now single cabin, which really raises opportunities for gender diversity on board platforms. However, much greater steps will need to be made to attract people to the industry and deal with the human resources dilemma.

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