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Interview

with Jan Skogseth, CEO & President, Aibel AS

31.03.2009 / Energyboardroom

Last fall Aibel Group and Aibel AS split. What was the strategic driver behind this split and what has been the implication for Aibel AS?

Historically, through our previous ownership we were left with a Deferred Prosecution Agreement (DPA) with the Department of Justice in the US, which was terminated in connection with entry into a plea agreement in November 2008. At the same time, we decided to consolidate the international business and focus our growth on the Norwegian Continental Shelf. Some of the business areas that we had been involved with had not been successful and most have been exited. However we are transferring operations in the UK, Singapore and Thailand into Aibel AS. Most likely by the end of 2009 or early 2010 all these subsidiaries will be part of Aibel AS.

In this time of significant change, what is Aibel AS’s current strategy?

The strategy now is to refocus back to the Norwegian Shelf and this is partially driven by the financial crisis. We have to slim down operations because of projects being postponed or cancelled. In areas where we do not have a critical mass, we are shutting down operations or including them under Aibel AS which means we will either provide service to the local market primarily in South East Asia or use those services to provide for the Norwegian Continental Shelf; we have to make the right business decisions for our core market which is here in the North Sea.

Given this core market, how would you define your relationship with StatoilHydro and how fundamental is it to your business?

Our two biggest customers are StatoilHydro and ConocoPhillips, but as you know StatoilHydro is the dominant oil and gas company here in Norway, and we have an excellent relationship. Our business is on a win-win basis; they need the supplier industry but we need to stay competitive and adapt to the environment. In 2009 we certainly have had to adapt with a streamlining of the organization, reducing staff numbers and cutting costs.

How has oil price volatility affected operations? How does the environment look for drilling upgrades in the North Sea, and where does Aibel play a role?

It has impacted us in the sense that projects budgeted for on an annual basis have had to be postponed at times. I would estimate that it has created a 20-30% uncertainty in our revenue stream. However a lot of our revenue comes from long-term contracts with StatoilHydro and ConocoPhillips which obviously helps our horizon projections. While we have to adapt to projects being postponed, most of these will be needed in the future at some point, so in the interim we will focus on backlog projects as well as those that are favourable now in 2009. Drilling upgrades are a large portion of upcoming investments in the North Sea. As such we have teamed up with Odfjell to take on drilling upgrades from StatoilHydro and ConocoPhillips as they come, where we will the main supplier and Odfjell will take care of engineering.

In your view why is Aibel a partner of choice for a large company like StatoilHydro?

Because of our size and the nature of our portfolio – we have proven our competence in this field with StatoilHydro and there is a long track record of experience.

Moving forward, much of the activity on the Norwegian Continental Shelf is shifting towards the smaller players; how are you positioned to take advantage of this changing landscape?

Aibel AS normally competes above a certain size; we don’t necessarily want to compete on smaller prospects and every possibility that presents itself. Sometimes we have to compete with certain small players but there is room in our section of the industry for more competitors.

With Norwegian companies that have international operations, we often speak about exporting the “Norwegian Model” abroad and the obstacles in doing so. Can you speak to the Norwegian ethos of running Aibel and what this mentality means to you?

We export our values, capabilities and know-how; in Singapore we have 100 engineers and in Thailand we have a fabrication yard set up in a similar fashion to here in Norway. This is done in the same systematic execution chain so that a project operating in Singapore works identically to here in terms of competence, method and people. Initially, we send out key people to begin an operation, but when it is up and running and fully trained we let go knowing they are at the same standard as here.

Last year Aibel was one of the first integrated solutions providers to open an office up north in Hammerfest; what is the importance of the frontier areas and exploring the Arctic to Aibel?

It is a big opportunity and very important. We have had an operation in Hammerfest since 2006 with 300-1000 personnel onsite annually. We are currently going through a major shutdown lasting from August to November for upgrades and maintenance. It is difficult to get permanent employees locally as there is a lack of oil and gas background in the region, so we are moving some people as well as hiring and training in the vicinity. The facility is a strategic move to broaden our marketplace and we take the same systematic execution methods as in other locations.

The focus on the frontier and Arctic regions is not only for the Norwegian Continental Shelf but abroad as well. How do you see this in terms of developing the necessary expertise as the world goes further into harsher environments? Is this a way of building a center of excellence around Norwegian expertise?

It is an important but broad issue, and we are more at a micro level at the moment. Looking at regions like Russia, I don’t think we would enter unless on the back of an international company like StatoilHydro, and we are not there yet. We’re comfortable with our growth strategy but if you look in the longer term, then yes it is important to pay attention to the development of such regions over time.

You are managing the business in a period of both internal and external change; what would you say are the biggest lessons to keep in mind for an international manager in today’s marketplace?

For Aibel the lesson has been to learn how to be adaptive to the marketplace and be modest in what you target and execute. As a company we have done things over the last few years that we are not proud of in terms of losing money on the international side, so we want to be absolutely sure that what we aim for what we have the ability to execute.

How do you foster that execution-based culture within the company; what is your management style and philosophy?

I like to find good people to put around me and establish a first-class leadership team who can develop the capabilities of the employees throughout the organization. Expanding this systematic model from the top down both domestically and internationally has been the key to our success until now.

What are the top three actionable items that you are more concerned with right now?

Right now the first is adapting to the financial environment to make the company more competitive. Second is preparing for the growth we believe is coming; this year’s setback may last into 2010 due to the current price of oil and slowdown in investment, but it is only a matter of time until growth rebounds. The third is to find the best people to execute this growth plan in the long-term.

In this last point, why do you think Aibel stands out in terms of being the employer of choice compared to your counterparts?

We have a company with a very good working environment, possibilities for career development, and locations where people want to live. Our composition of long-term contracts is attractive, as well as our system of execution and a focus on technology which engineers can find challenging and interesting.

How do you attract younger graduates, many of whom profess an interest in perceived “cutting-edge” domains such as green energy?

Long-term, Aibel AS has to move into those areas as well; we are doing work on StatoilHydro’s Mongstad carbon capture plant at the moment, and our strategic focus will have to shift into environmental areas, but at the moment we will start in applications for the oil and gas industry. Our technology can make the industry more environmentally friendly and perhaps in the long-term we will look to move into other energy industries.

Norway is well regarded for having strict regulations for clean oil and gas production; do you see openness to environmentally friendly solutions among all the markets you deal in and who will pay the costs associated?

It has to be a combination; I think the operators will take most of the cost but you need support from international legislation for this. Companies like ours will have to provide and innovate solutions for these problems but at the moment we are not expanding our business into these areas you consider as challenging. We are mostly focused on the Norwegian Continental Shelf and our operations in Thailand, Brazil and other locations can be a challenge from time to time, even if we want to reorient these businesses similarly to how we operate on the Norwegian Continental Shelf.

With this refocusing in mind what are your visions and ambitions for Aibel over the next 3-5 year period?

We are expanding the company between 10-20% annually in terms of revenue, and disregarding the challenges of 2009 we have had organic employment growth which has been exemplary. Moving forward, this pace of growth may be challenging; as you know Norway has a limit to engineering capacity so we are looking at cooperation models in places like Singapore to gain more of these resources. Our goal is to make this company competitive in the long-term by securing an appropriate mix of frame agreements, large modification projects and new build contracts.

What is your final message to Oil & Gas Financial Journal readers on the refocusing of Aibel’s business strategy and the long-term commitment to the Norwegian Continental Shelf?

I think we will primarily stay as a large competitive oil and gas supplier in the Norwegian Continental Shelf and we will focus on participating in the growth we foresee for the region, while expanding internationally as we see advantages for moving our business in that direction.

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