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Interview

with Dag Nedrum, President & CEO , Petrolink AS

20.03.2013 / Energyboardroom

Petrolink operates in the production consultancy and training segment of oil and gas services. Would you begin by outlining how much development you have seen in your business over the last few years?

I have been very happy with the growth and development of Petrolink’s business over the last few years. In four years, our business has doubled taking us to a turnover of NOK 220 million (USD 40 million). This growth has been on the back of major contracts with traditional players on the NCS like Statoil, Shell and BP as well as relative newcomers like Talisman and Wintershall.

One of the most significant projects for us was the Valhall re-development project for BP – the production actually started up last Thursday. Petrolink was BP’s partner on Ready for Operations activities responsible for development of the RFO plan, strategies and development of all of the maintenance engineering analysis and preparation work with the maintenance program and spare parts stock in warehouse and offshore. Petrolink also delivered all operating procedures and did all the technical training for the Valhall crew. This package of services also included development of competence assurance and assessment duties. simulator training,OJT programs and production of CBT’s was also a part of this delivery.

One can see a change in the nature of contracts over the last four years. Back in 2009 the operating companies were content to buy services from many different companies. They would find a few individuals from a variety of contractors and then incorporate them into their own team. By contrast, today, the operators choose to outsource the entire project scope to a contractor – essentially transferring responsibility for the management of the project to that contractor. Contracts are now made as package agreements with service companies.

You could see this development with our Valhall project, where we were asked to take on all of the responsibility for training, operational procedures and for maintenance engineering. At Petrolink, we actually prefer this way of working as we can take greater control over the running of a project and use this overview to optimize the delivery and implementation of services.

Of course, there is a risk, when increasing the portfolio of services, that you will incur higher overheads and thereby undercut profitability. As a contractor, you have to make sure that you are confident in your portfolio and ask for a fair price in contract negotiation. All this places greater emphasis on the pre-project planning stage.

Petrolink has traditionally worked with Statoil, Shelland BP. With more and more E&P players on the NCS today, how do you see your client base evolving?

Petrolink has recently started working for Wintershall, which is a relatively new E&P company on the NCS. They are about to begin operating the Brage field and will also soon start up on the Maria field. They have chosen Petrolink as their partner in production operations and we are highly involved in their projects, contributing a strong team of specialists, which is establishing the Production Operations Readiness Assurance activities securing a safe and sound start-up of oil and gas production. From this we can say that Petrolink is already dealing with the newcomers to the NCS and we see this as a growing opportunity. Wintershall has strong financial capabilities and a great management team, but they do not have the production experience in Norway, because their focus has traditionally been on finding new fields, rather than operating them. As Wintershall moves into an operating phase on several assets, they needed us as a specialist.

Regarding Petrolink’s offering the company is caught in the debate about whether to outsource or integrate services. How much of a challenge does this uncertainty present?

Geir Egil Ulriksen, CFO (GEU): I believe that many of the majors are now at a stage where they will choose whether or not to build up their own production capabilities or continue to outsource these to companies like Petrolink. However, the choice is not always this stark, indeed, there is a stable position in between where oil companies might subcontract services but then supervise these activities with their own stakeholders.

Dag Nedrum, President & CEO (DN): Petrolink is used to this dynamic even with companies with which we have concluded frame agreements. In the case of Wintershall, they are both using Petrolink and employing production specialists themselves. Our business model has evolved to be flexible so that if they need complete production outsourcing, we are ready and if on the contrary they just need additional services, we can scale our business to this level as well.

One of the trends we have observed is the proliferation of consultancy companies as operators would rather rely on outsourcing services than deal with the labor migration issues in a tight labor market. Are we heading towards a situation where consultancies will take over the running of the NCS?

DN: I do not think so. Although it is true that there are many more opportunities for the development of a consultancy and service company like Petrolink today than a few years back. I would say that the main driver for the growth in the consultancy business is the number of newcomers to the NCS, which do not necessarily have the experience to meet their ambitions as an operator.

There are many cases where these newcomers might only operate a field for a matter of a few years and they might only have a marginal asset. For such small and short-term developments, there is no need to build up an internal production team. It is much better to outsource these duties to a professional team of production specialists.

In the case of the majors, the government is pushing them to make greater efforts on marginal fields and tail end production. Our cost base for these projects is lower than theirs with the same level of safety. It therefore makes sense in this scenario as well.

Petrolink is tasked with the job of finding people and expertise to run production operations in a labor market, which is extremely deficient in people. How do you address this challenge?

DN: When discussing skills shortages, we are talking about two kinds of people: management and workers. Our job is to address the supply of workers and having been established in 1990, Petrolink has built up a substantial network of offshore workers. This means that with good planning and recruitment, we can man a field of 100 people quite easily. Two fields is also possible but scaling this up to three or four fields would present a challenge to us.

In Norway there are strong union groups, strong regulations and procedures, and you have to speak Norwegian to operate. This is very different to the UK sector where the language is English and this creates a much broader scope of international offshore workers to draw from. Therefore Norway has trouble bringing in international talents to work on oil and gas offshore installations. The only solution in our case is to be aware of the procedures and use our existing networks to the maximum ability to find the appropriate people.

The Norwegian market is also deficient of around 10,000 engineers, however these are easier to bring to Norway than offshore workers. Petrolink has been sourcing skilled engineers from within Scandinavia and countries like Romania to find people. It is always a challenge to find the appropriate competency and experience, but this is more manageable on the engineering side.

Of course, bringing in high-caliber Norwegian employees puts a stress on margins and this means that it is often better source skills abroad. Petrolink collaborates with some of the world’s leading engineering companies. For Total’s Martin Linge field, Petrolink has formed a partnership with Cetelec, one of Total’s partners worldwide. We delivered a joint bid for the maintenance and inspection engineering contract for Martin Linge. I believe this will strengthen our position with Total and it has strengthened our ability to collaborate internationally to supply services.

One of the big drives on the NCS by Statoil is the integrated operations concept – essentially minimizing the number of offshore workers, and having more consultants onshore. How will this concept shape the way operations are done on the NCS and your work in particular?

DN: Our new building is actually designed to Statoil’s integrated operations standards. We have extra height in the rooms allowing us to create control room support environments. In fact, BP has decided to operate Valhall from the shore and Petrolink does this together with BP on their behalf. So the concept of integrated operations is already shaping our work.

Relative to production, drilling operations on the NCS are actually a little ahead in terms of integrated operations with remote operated vehicles being controlled from the shore as well as consultants giving advice online. Production will follow and I believe that by using greater expertize and collecting more data this will contribute to enhancing operations and production, even when compared to having an entire crew of experienced personnel offshore. This is a step forward.

A few years back, Petrolink was looking to expand internationally. With all the activity on the NCS and the strain to find human resources, do you feel the same motivation to go abroad?

DN: At a certain market share it is impossible to grow further in the domestic market, other than by offering new services. The other option is to find a new market and offer the same services. At the moment, we feel there is significant room to expand in Norway, especially with these new companies entering production on the NCS and the market is of course expanding. Nonetheless, we believe that there are international opportunities which we should explore at the same time and this is why Petrolink is now in Malaysia and Qatar.

GEU: The other aspect that we need to stay aware of is the procurement strategies of major oil companies. Recently Statoil has had many difficulties stemming from the union groups and we wonder whether the union leaders they have today, who were with Statoil from the beginning and could act as intermediaries will still be there in 10 years time. In 10 years Statoil will probably decide that having more people on their company payroll and dealing with the union groups will not be useful for their core strategy. At this point they will likely choose companies like Petrolink for a greater share of their work, providing another expansion in growth.

Moreover, looking at the increase in newcomers on the NCS from 15 around six or seven years ago to around 60 today, there is plenty of scope for domestic expansion. Petrolink is projecting NOK 600 million (USD 109 million) by 2015 and the majority of this growth can come from Norway without adopting any radical new strategies or business models.

From the employees’ perspective, Statoil offers a very clear employment proposition with status and pension and numerous other advantages. Given that you face the same challenges as an operator in finding skilled personnel, how do you aim to offer the same value proposition?

Petrolink pays the same rates and our welfare is the same. This is actually in line with a new directive acting on Statoil, which states that the contractors of Statoil must have the same work benefits as employees of Statoil. This has been implemented since the 1st of January this year. This government directive gives everyone the same cost-base. Our emphasis is on keeping the employees that we have and we believe that if you treat employees well then they will stay.

What would be your final message on behalf of Petrolink?

DN: Petrolink owes its origins to Saga Petroleum on a field called Snorre. They were looking for a company, which could help them with their operational activities and they wanted to have a Norwegian company doing this. This gave us an instant client and we developed from those origins.

Today we have a very strong experience in operating terminals, refineries, offshore fields and even CO2 projects and LNG plants. Petrolink is the company, which operates major facilities on the NCS and we believe that in the majority of cases and given our experience, we can bring improved operating efficiencies to production. Ultimately, we know how to run production operations.

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