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Interview

with Flemming Horn Nielsen, Country Manager, Dong E&P

10.05.2013 / Energyboardroom

Dong E&P is about to be shot into the top three of biggest producers in the country once the Hejre field comes online; exciting to manage the operations of Dong in Denmark. Could you begin by outlining the significance of the Hejre field in the context of the Danish Continental Shelf (DSC)?

The Hejre field is highly important for Dong, but also for Danish society. The development of the Danish sector of the North Sea started off with the Chalk-fields in the south, fields with low temperature and low pressure. That was the low-hanging fruit in the Danish context.

As time passed, other companies like Dong and Hess came in and started looking at the Northern part of the Danish North Sea. The water there is slightly deeper – 60/65 meters – but some of the reservoirs are also more challenging.

The Hejre field is the first High Pressure, High Temperature (HPHT) field that is being put in production in Denmark, and a good example of the not-so-low hanging fruit on the DSC.

Hejre is also extremely important for Denmark in production terms. The curve representing the national oil production in Denmark over the years and in the years to come shows a bleep-up around 2015/6, when Hejre comes on stream. The field has a significant impact also on a national scale. We have a P50 saying it is around 44.000 barrels equivalent per day, most of it oil. For any company that is significant.

Hejre is the largest development project in the Danish sector of the North Sea in recent years – in money terms, but with a pressure of 1011 bar and a temperature of 160 degrees Celsius in terms of complexity as well. Is Dong ready to overcome the complex challenges associated with developing such a field?

Yes we are. On a bigger scale Dong is a smaller player, but we have been operating the Siri field for more than ten years now. From that we have gained a lot of valuable experience. Siri is a real fairway of platforms and production systems consisting of three satellites and one subsea platform. We have used Siri to not only practice on an operational day-to-day basis, with focus on safety and high production, but also to answer questions such as how to set up an efficient organization, management systems and reporting systems. Especially over the last few years we thought a lot about how we could make sure that we can easily scale up our organization to incorporate Hejre as well. On that part we are prepared.

Besides a challenging reservoir, the most challenging part of Hejre is first and foremost facing the dimensions of going from a normal-pressure platform to a high-pressure platform. Everything grows with this. On top of that the temperature is higher, so for some of the designs we had to go to more automated systems simply because the flow lines become so hot that you cannot touch them.

We have a great deal of respect for those two parameters, sizing and heat, and we have done and are doing a lot to get knowledge from the service industry and from other operators on how to deal with that. On a global scale of course what we are doing is not new, but we simply have to make sure that we understand the differences between running such a field and a normal platform.

What are the most exciting Danish assets, discoveries & prospects in the Dong portfolio outside of the Hejre field?

The story of Siri is the story of the oil & gas business in Denmark. A fairly fit-for-purpose built platform was put on the Siri field with a number of wells to produce for 10 years. Then we explored our near-field opportunities and by having smart designs and low-cost projects we have been able to do the Nini, Nini East, Cecilie – unmanned wellhead platforms linked into Siri. We have done the Stine subsea wells tied into the Siri platform as well.

By developing the field in such a way we have made the Siri platform into much more than what it was thought to be when the investment decision was originally made. The value created on the near-field exploration is approximately the same as the value that we have done on the original field. This is the same as we are doing now in Syd-Arne with Hess as operator.

What has been the strategy that enabled Dong to accomplish such remarkable successes in the mature and challenging circumstances of the Danish North Sea?

The absolute main strategy here is to have the right people in the right seats. First on the exploration side, but then also definitely on the development side.

Good development staff can see opportunities and use the seismic data in a clever way and understand what has happened over time in an area, and are on top of that brave enough to push for a platform there. It is a lot about innovation and definitely about disciplined skills and understanding your reservoirs.

Dong is an internationalizing former state oil company that is still majority state owned – how does this reflect on its E&P strategy in Denmark?

It has a positive reflection as we have first of all a patient owner. We do not have a stock market constantly pressuring us. We also have an owner that understands the value of security of supply. That means that there are investments that they would like to see in the country for which they could go to a foreign country and make ten percent more profit. Our board has however agreed that we need to focus on North Western Europe, and that is what we are interested in.

For Dong E&P things in Denmark are looking great, but production on the DSC has been running back for years and no major new discoveries are on the immediate horizon. Is it justifiable to call the DCS a sunset production area, or do you see chances for a Johan Svedrup-style revival?

The number of discoveries and the number of active companies clearly show the modest size of Denmark as an oil & gas country. But Denmark has always been small. Denmark reminds of the story of the humble bee that cannot fly but does not know it. Denmark is a bit like that: it is there, and it flies. Although it should not really happen, it happens anyhow.

We have been extremely good at dragging out the resources that we have. It does not take a whole lot to keep being self-supplying in our energy needs for another twenty years to come.

Denmark has its position in the oil & gas industry. We will never get close to what is happening in the UK or Norway, but compared to other EU-countries we are doing well.

I believe that twenty years from now there will still be good oil production in Denmark with room for a few mid-sized players.

Shortage of manpower is a big issue for the industry, even potentially harming growth, and Dong E&P is looking to hire many new people as the Denmark operations expand. How do you attract and retain the talent?

Dong E&P luckily seems to have passed a growth hurdle that makes us big enough and with enough interesting projects to excite young people both in Denmark and abroad. Ten years back we were simply too small for that.

We also have a very innovative management style here. We are getting the reputation of allowing our people to be engineers. Furthermore, one of our culture statements here is High performance with a human face.

We have young mothers that leave at three or four in the afternoon to pick up their kids, but these young mothers are also the ones that work late at night. If you are flexible, we are flexible.

We are proud of having a Scandinavian work style, and that means having respect for people’s private lives and simultaneously demanding high performance. We do not measure people on the hours they work; we measure by the results that they are delivering.

Why is Denmark, with its highly developed educational system, not able to deliver the talent that the industry needs?

From a young age on, Danish children are told that the oil & gas industry is not a good industry – or perhaps they are told nothing about the industry. Overall there is a serious lack of knowledge about the oil & gas industry in Denmark. I see this as a result of politicians painting a wrong image of the industry, but also of the oil & gas industry.

The industry used to think, ‘he who lives a quiet life, lives a good life.’ But now that we are lacking human resources it seems safe to say that this proved not the best policy. Now we are changing direction with the industry, which was also why we set up a new industry association, Oil & Gas Denmark.

Sometimes however Danish politicians seem to find it challenging to unite their green agenda with the oil & gas industry and the 30 billion crones in tax revenue that we bring in. Our current Minister of Energy, Martin Lidegaard, luckily seems more realistic and aware of the value of the oil & gas industry to this country.

Speaking more broadly about contributions towards development of the DCS, what do you envision Dong to contribute in the next 5 to 10 years, and beyond?

First of all it is the increased production from the Hejre field. We are drilling the Solsord (Blackbird) find, very similar to a Siri-type reservoir. We believe it is commercial, we just need to find out how big it is and whether is a stand-alone or a tie-in. That is very exciting. Then we have several near-field opportunities. We are going to drill an exploration well in an area called Nena, close to Nini later this year – potentially followed by a well in the area called Nelly. Adding all that up and take projects in which we are involved as partners and look at oil production for 2016, the non-DUC production in Denmark is getting close to 50 percent. This means that the whole picture of ‘everything DUC’ is going to change. The contribution from Dong, Hess and Bayerngas will be significant.

Dong is Denmark’s former NOC and still 75 percent government owned. The company is internationalizing but is also the rising star of the Danish continental shelf, and as such slowly stepping out of the shadow of Maersk Oil. How do you want Dong E&P to be perceived by the international oil & gas community?

We are a player that is getting up to league to the mid-size E&P companies. On top of our Danish activities, we are probably the biggest equity holder West of Shetland and our presence in Norway is also very strong.

Our partners regularly tell us that they like the way we work with them, for example when debating the Chevron operated Rosebank development in the West of Shetlands. We bring new ideas and views when discussing the reservoir and the size of the reserves, and that is the kind of partner you want to have in this industry.

We like to be viewed as the mid-size, highly professional company that comes with new ideas and you therefore like to have as a partner. We will never be the guy that can take huge stakes in mega-projects, but we can take our share. Rosebank is a 7-billion pound development, and we have 10 percent of that. Similarly we have just above 10% of the Ormen Langen field in Norway.

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