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Interview

with Haakon Skretting, Regional Director for Arctic, Canada, Russia, Kazakhstan, Azerbaijan, China and Australia, INTSOK

08.04.2013 / Energyboardroom

Your work at INTSOK now concentrates on very important yet very different countries. What was the logic of tying these very diverse markets together?

Tying these markets together was not planned from the beginning. When I started with INTSOK, we were only a few people and the countries we started working with were the countries about which we had the most knowledge. We also made sure that the Norwegian industry had a similar interest in these countries before opening up doors to these markets. In 1998, I started working with Canada, UK and Azerbaijan. At that time, I was also responsible for all the drilling related activities given my previous experiences from Transocean in Houston, Aberdeen, London and Baku.

As we developed more activity in the East with Russia and Kazakhstan we hired more employees, and gave more focus to each country. I have been working with Russia for more than 10 years, which is the longest collaboration I have had compared to other countries I work with. Concerning Kazakhstan we have been receiving support from Statoil as they saw great interest in this country.

Our focus on different parts of the world, then moved from regions to specific countries. In the beginning I was overseeing the Caspian region, and slowly I passed on some countries to my colleagues. We also started focusing on
Asia, with Singapore, Malaysia and Indonesia. Recently changes in the organization have given me back the responsibility for Caspian Region.

In the end it is everyone’s personal knowledge about a specific country and region that defines which countries they manage.

Which markets are most problematic for you and which ones let you rest easy?

All markets in fact are difficult to work with. Even when a Norwegian company works with a very similar country like Sweden, there are many challenges to resolve before moving there. Different challenges are to be expected in each country. Seen from Norway, business in most countries is based on relationships, and as individuals or companies we must assess how to develop useful relationships. Developing these personal relationships has been Norway’s biggest struggle.

We have the tendency in Norway to think that if we provide the best technology, the customer will instantly acquire it. Of course this rarely happens because the most important step to respect when conducting any type of business is trust. Building trust is a complex process, demanding time, understanding the culture, and showing interest in the counterpart’s values.

Our foreign partners value our efforts in coming back to the country repeatedly over time and when an expatriate is sent for a couple of years and never comes back, the relationships cannot be strong. FMC has for examples been really successful in developing strong relationships with Russia. They have developed trainee programs and educational support for postgraduate students in the subsea field with a university in Saint Petersburg. They have even set up in agency there to hire skilled Russian technicians coming out of the university. This example of FMC shows Russian representatives their long-term commitment and interest in Russia, and other Norwegian companies should engage in similar activities in other countries to build this trust.

Entering the Russian market with the right technology is not very complex, and many Norwegian companies have been successful there, especially software companies and technology suppliers. However, if Norwegian companies were to set up drilling modules or other types of large systems, the process would demand much more time and effort.

You were mentioning the importance of building strong relationships. To what extent has Norway achieved a strong relationship with its Russian partners?

A lot of progress has been made in developing the relationships between Norwegians and Russians. We have established several programs to give Norwegians the most precise information on how to do business in Russia, understand the decision-making process, and commercialize their products.

In Russia because of their hierarchy structure, the selling process is much slower than in other countries. Both upper and lower management need to be aware of what technology and services you are offering them.

The 2013 exports from Norway to Russia should decrease as activities related to offshore projects in Sakhalin area are in completion phase. Kvaerner has finished a concrete-based structure for Exxon Neftegas and FMC is about to finish building subsea templates for Gazprom. Only large projects will see Norwegian companies maintaining their momentum in Russia. Even though the current investment level does not qualify the Russian market as Norway’s first choice, Norwegian activity on Russian soil is much stronger today than it was five years ago.

How strong is the Norwegian impulse to move into this and other foreign markets at the moment, given the growth opportunity in Norway?

With the current booming activity in Norway, Norwegian companies had never been as busy as today on the NCS. Therefore many companies argue that there is no need to go to other countries like Russia when they have everything in their home country to prosper.

Current market figures show us that today South Korea represents the most valuable market for Norwegian oil and gas service & supply industry. Following the South Korean market, the most valuable markets were in 2011, Brazil, UK, Singapore, Russia and Kazakhstan, which complete the top six countries for the Norwegian oil and gas service & supply industry. Last year, the Norwegian service & supply industry represented 1, 4 billion USD.

What is the influence of Statoil on Norwegian suppliers going overseas?

Many companies state that if Statoil becomes involved in a project, then they will follow. When Statoil makes a large investment in in a country, other companies see a kind of signal and a good entry point to follow. However, when doing business in Russia, Norwegian companies prioritize what local companies like Lukoil, Rosneft or Gasprom are doing. Norwegian companies should prioritize a project’s potential instead of relying solely on Statoil’s choices. For instance in terms of interesting projects, Novatek’s possible LNG developments in Yamal should boost Norway’s export to Russia.

Moreover, Russia is the fifth most interesting country for Norway’s exports services & supply industry, and Norwegian companies have been successful there without Statoil’s help. Australia and Brazil are also markets where the Norwegian industry has settled before Statoil. It would be wrong to say that Statoil is always a first mover.

Moving to foreign markets is always a challenge and demands adaptation. What can the Norwegian oil and gas industry offer to international companies moving here?

If international oil companies learn about the competences and capabilities of the Norwegian oil and gas industry, it will be much easier for the industry to win contracts outside of Norway. Conoco Philips has been in Norway for many years, and their managers have learned to understand the qualities present here. These managers which have held positions in other countries tend to meet the same people as the industry is small. They develop strong relationships, and with time this trust spreads out of Norway and benefits both Conoco and its Norwegian partners.

You were up to January this year responsible for the Korean market. How would you define Norway’s relationship with Korea?

The Norwegian oil and gas industry has had a long-term relationship with Korea’s shipyards. Ship owners, rig owners and major oil companies started buying vessels from Korean shipyards. Korea, just like Singapore is mainly a shipyard and project-based country.

Concerning the drilling business, Korea and Singapore have built a large quantity of rigs in the past. Aker Solutions and National Oilwell Varco have been their major suppliers. Korea’s main competence is to provide the main steel structure, while Norwegian companies provide the technology and the supporting equipment for that structure. Korea will fail if they attempt to provide the level of quality that Norwegian engineers are providing with their equipment and technology. One’s ability to become highly efficient in a particular domain relies on the ability to focus on single elements. Therefore Korea should maintain its strengths in shipyards and Norway on the supporting services and equipment. If you try to copy someone, you are always behind.

Norwegian companies which depend on a high number of employees, mainly in the service industry (engineering, maintenance & modification) are reluctant sometimes to move to international markets because of Norwegian salaries, and difficulties to hire locals. However, technology companies sell a physical good which in the end is a fairly simple process for international companies to agree upon.

Norway is not sending a large amount of labor to Korea, rather supervisors to monitor the project and ensure the technology is working accordingly. As there are labor constraints in Norway, two fundamental choices arise – importing people or exporting work. Norwegians have chosen to combine both, and I believe this has been the right choice.

First, bringing foreign talent is essential for the country as they bring new perspectives for the company. Second, the knowledge they acquire here, given the quality of Norway’s high standard market, will have positive impacts on their future careers and in the way they will conduct business in other countries.

When conducting business in another country, both parties should actively participate in defining what each one will provide. For instance, if a Norwegian company were to sell a control system or any other type of equipment to a Russian company, the Russian company could provide the labor intensive work, while the Norwegian company would focus on the technology. This collaboration process could help Norwegian companies build stronger relationships in Norway, and focusing on what each country does best is always a good solution.

Of course, there are measures to be taken in terms of quality control and inspection. If Norway expects to have a high level of output in other countries, it is necessary to have constant monitoring with supervisors present on site. For instance, in the case of steel work done in China or other countries, it is mandatory to check for the steel’s certificate, welding, painting and other necessary requirements.

The global shipping industry is collapsing, making Korea vulnerable in this area. How has this changed the dynamic and extent of collaboration between the largest offshore producer in the world and the largest shipbuilders?

Korean shipyards are currently struggling. In general the top three shipyards – Hyundai, Samsung and Daewoo – have been focusing at a level of 70 percent on shipping and 30 percent on offshore. As the shipping business is slowly collapsing, this becomes a major issue for Korea, which mainly depended on this business. The transition towards increasing their offshore market is complex, as their local engineers who are experts in shipbuilding, cannot simply transition into a very different offshore market. Training and support are necessary for this transition, and no one knows if they will succeed. So far we see they struggle both with quality and delays. However they are showing strong commitments to the international community and believe they will improve.

Clear signs show that many international markets are struggling; however one country where Norway has shown interest seems like the perfect fit – Australia. Do you believe Australia is an easy market for Norway?

Australia is a typical western international management country. It is extremely far away from Norway and most of the activity takes place in Perth where the tenders are located. Given the lack of resources of Perth and Australia, most of the engineering work is done outside of Australia – Paris, London, Houston, and even Oslo.

Our technology and engineering capabilities make us attractive to Australia, and in a way we can qualify Australia as an easy market. However, this is not the case for all Norwegian companies. For small companies Australia does not always seem like the best match. Small companies do not have offices spread throughout the world, and have limited human or financial resources to safely embark into large foreign markets.

Furthermore, many of the large suppliers in the market position according to regions, not specific countries. For example, as a subsea supplier of instrumentation equipment, your client in Australia might actually be hosted in Singapore or Kuala Lumpur.

On a cultural background, Australia is a great match for Norway, but logistically there are many challenges to face. In the end the management of the supply chain is key.

Most of the Norwegian companies who has explored the Australian marked has been successful. Australian look as Norway as the “Silicon Valley” for oil and gas related technology

Do you see Norway as having to adapt in terms of its overall model of exporting services? Is there a need for consolidation in order for companies to internationalize more?

Norway has a large pool of small innovative companies. When they discover a new idea, the development process is easy in the sense that their small size allows them to handle the project freely, without having to bear the type of management pressure and approval a large company would demand. The industry in Norway is very capable and adaptable. You will very easy find suppliers that can assist you starting up new production.

Statoil and other companies have been encouraging this innovation process, and participating with financial resources in many different projects. Financial support is critical for small companies to develop their ideas, and so far they have been receiving support from different sources including Innovation Norway. Furthermore, finding the right idea to increase safety, environmental, performance or quality standards is the hardest step, but once this idea is secured, many companies will be able to collaborate and develop the project.

Many Norwegian companies have been able to double their income year after year, through the process of acquiring small innovative companies, and consolidating their local business. Easy Well Solution is the perfect example of a company who was doubling its turnover each year and finally decided to sell their company to Halliburton. For Halliburton, acquiring this company might not have been the best option, but buying a company can sometimes be easier than wanting to develop the technology on your own.

Of course, not all small innovation companies become a success. Their journey is extremely difficult, and the industry needs to support them. In the end, Norway needs to prioritize this innovative tradition.

The Norwegian industry produces more than 25 billion USD in international technology and service sales. Which markets provide the key growth perspectives for Norwegian business over the next couple of years?

In 2011, our target was 20 billion USD and we reached 26. Today, Intsok has set a target to reach 34 billion USD by 2016.

Even with the Norwegian industry highly active on the NCS, the figures will grow. Oil and gas projects represent the biggest export, followed by services and technology and fishing (nine billion USD). It is clear that the fishing export industry is really small compared to services and technology related to oil and gas industry, but it is important to maintain Norway’s tradition in fishing as well.

In the end the fishing industry is a clear signal of the NCS’s environmental paradigm.

We are well aware that Norway intends to maintain the best standards on the NCS and ensure safety above all. What are your views towards Arctic exploration?

We are working on a new project with Russia to map the challenges present on the Arctic and show what differences there are between the Barents Sea and the Arctic. This project will cover five different areas – drilling equipment, transport & logistics, environment, subsea and platform. (www.intsok.ru)

By mapping these challenges, we will be able to understand who has the right technology to address environmental, operational and safety issues. We have created a task force groups with specialists from the industry headed by industry leaders like Johan Petter Barlindhaug chairman of North Group, Geir Sjøberg, former president of Aker Drilling and Transocean Norway, and Environment Team Leader with ENI Norway, Mr. Erik Bjørnbom With the results we obtain from the studies we are carrying out, we then set up workshops where the whole industry in Norway as well as Russia, to be able to share their ideas and concerns.

Hyundai in Korea has for example shown interested in this project as they realize the potential resources the Arctic has to unleash. But be sure: Norwegian technology and service industry will actively take part of the development of the Arctic.

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