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Interview

with Jeff Sluijter, Partner, Ernst & Young Netherlands

04.03.2010 / Energyboardroom

Ernst & Young is a firm which is active in more than 140 countries, delivering global solutions for global clients. The Oil and Gas industry, in the same way, is a very international industry. However, international clients’ needs differ according to their location. Hence, how would you portray Ernst & Young’s relation with the Dutch Oil and Gas Industry?

The Oil and Gas sector is a specialized industry – with, for instance, its own specific tax regimes and accountancy rules – and thus needs specialized and therefore dedicated professionals with the right competencies, attitude and experience to serve them. Although this aspect is sometimes overlooked, you need to have a passion for the industry to work successfully within it.

The Ernst & Young industry group offers a wide network of such experts, with more than 7500 Oil and Gas professionals worldwide and around 300 in the Netherlands alone. Through this, we can offer truly global solutions, while simultaneously recognizing local market circumstances and needs. Ernst & Young, more than any other professional services firm, ‘thinks global and acts local’.

We serve a wide range of Oil and Gas clients across the globe, delivering Assurance, Tax, Risk Management, Performance Improvement and Transaction Advisory Services.

How do you differentiate Ernst & Young from the other Big Three and other growing players in such a competitive market?

As indicated in the previous question, the Oil and Gas industry is truly global, with clients demanding seamless high quality cross-border and multidisciplinary services.

EY is not only one of the oldest firms, but also the first to become truly global: A couple of years ago we became one worldwide firm, a LLP, which really sets us apart from the competition. This global approach and management structure makes it considerably easier to mobilise our professionals wherever our clients need them. Our account-centric approach puts our clients and their needs at the heart of everything we do. We serve our international clients consistently as one team across the globe. We regard ourselves as the industry leader in taking a coordinated approach to supporting our clients, wherever in the world they may need that support.

In the last three years the Oil and Gas industry has experienced a major turnaround due to the crisis. How has this influenced your service portfolio and, in particular, which have been your main growth drivers?

Ernst & Young has strong business relationships with the leading industry players both internationally and in the Dutch market. These relationships have positioned us well to continue to support our clients though the downturn.

Whilst the financial crisis has undoubtedly impacted the oil and gas sector, it’s interesting to note that certain sub-sectors of the Dutch Oil and Gas industry, in particular the oil trading companies and the Oil and Gas service companies, have fared relatively well compared to other sectors. As our recent survey amongst 300 Dutch Oil and Gas service companies shows (LINK), the performance of the service companies could largely be explained by their existing order backlog, but many of these companies are now also starting to see the first signs of recovery in their markets. As a board member of IRO, I have only witnessed a few bankruptcies since the beginning of the crisis. We are further witnessing an increase in the number of transactions and more consolidation can be expected in the coming years. Having said this, there are clearly still challenges, in particular the postponement of projects and the tightness of capital.

The crisis, after years of very strong growth, shifted the industry focus towards cost cutting, risk management, better working capital management and improving the investment decision process. These are all areas where we are very well equipped to advise our clients. Putting this positively, we are aiming to help our clients “do more with less”.

Looking at the upstream side, the Netherlands shows clearly the characteristics of a mature area. The fact that a significant number of smaller newcomers have entered the Dutch market, due to the gradual departure of some of the E&P majors, has opened up an interesting niche for Ernst & Young. We can provide valuable in-depth knowledge of the local market requirements to those who are not familiar with it.

Besides that, the Netherlands is also an attractive place from a tax planning perspective and consequently hosts many tax efficient Oil and Gas structures.

You brought up the issue of majors selling their local assets in search of more profitable fields elsewhere. Do you believe these newcomers can deliver, without the benefits of strong financial support and the necessary history and experience?

One thing I would like to note is that whilst the Netherlands is a mature E&P area, this does not mean that the upstream industry has come to an end: there are still plenty of opportunities. Major industry players such as Total, Chevron, NAM, GDF, Wintershall, TAQA, and PetroCanada still remain large investors in Dutch assets. EBN, the Dutch state operator, is taking an increasingly active and supportive role in sustaining our industry. We have also seen smaller players such as Cirrus, Northern Petroleum and ATP become active and demonstrate how newcomers can be successful through using new technologies.

The Dutch Oil Field Services sector has expanded internationally, well beyond the boundaries of its own national E&P industry, with world class leaders such as Heerema, SBM, Allseas and Fugro. To what do you accredit this success and is there room for new international Dutch flagship players to emerge?

For centuries, the Dutch people have turned their eyes to the sea and made a living as merchants and traders, we have a proud maritime heritage and when you combine this with cutting edge technology from universities, such as the TU Delft, then our success is understandable. The discovery of the Groningen field 50 years ago nurtured a magnificent oil field service industry which has created several internationally renowned flagship companies, –and a whole cluster of outstanding smaller oil field service companies.

The success of our Oil and Gas Industry can also be attributed to the unique and strategic transit position that the Netherlands has built. Just look at the thriving industry around Rotterdam, which for decades has been the biggest port in the western hemisphere.

In addition to oil field services, we have a large midstream segment in the Netherlands, with important players, such as Gasunie and Vopak, substantial downstream activities, especially in and around the Rotterdam harbour area, which also hosts well-known oil trading companies such as Vitol and Trafigura. These are all successful and ambitious companies, which will undoubtedly increase their international footprint in the coming years.

The fact that we have a mature, domestic upstream market should not limit the progression and success of the Dutch Oil and Gas industry. We should remember that oil and gas is perhaps the most global of all industries.

In addition to the opportunities that exist within oil and gas there will also be significant opportunities in neighbouring areas, such as Cleantech. It is in my view critical that we continue to invest sufficiently in R&D and maintain our technical expertise.

Still, many oil and gas players have highlighted challenges they face in the Dutch market such as an overly tortuous licensing system, especially when compared to neighbouring countries such as Belgium and Germany – who also fancy the idea of becoming the European Gas Roundabout. How do you assess these critics?

Our problem is that we like to do things very thoroughly and combined with our consensus culture, certain things do tend to take time over here. Getting an onshore license is a good example, and it is indeed a tedious process. The Netherlands is one of the most densely populated countries in the world; therefore we are sensitive to space and there is sometimes a bit of a “not in my back yard” mentality.

There are definitely hurdles which need to be, and are being addressed – EBN is for instance addressing the license issue – but this doesn’t mean we are not the best positioned player in the region to become the Gas Roundabout of Europe. In addition to its central position, The Netherlands has excellent infrastructure and know-how already in place. We have important projects such as the LNG terminals in the Port of Rotterdam, new pipelines linking the country to the UK, Norway and Russia and also E&P production that will still be there for the coming period.

But ultimately, investment largely boils down to the underlying economics of the project. Reducing the administrative hassle would be a good thing, but also tax incentives and/or subsidies could be considered by the government to support the industry. This could be to promote investment or, as has recently been done, to support the critical R&D function.

Looking towards the future, what are your main expectations for the Dutch Oil and Gas industry?

We have recently carried out a survey amongst 300 Oil Service companies. This survey confirms that the Dutch Oil and Gas Industry already has, for such a small country, a strong position in international markets and the expectation is that it is well-equipped to at least maintain this position in the coming years.

Although mature, the Dutch upstream sector is definitely not “dead”, with ambitious newcomers and numerous opportunities still out there. For example, in 2010, approximately 15 wells are planned, up from 10 in 2008 and 19 new fields will be coming into production.

Our unique location and the strength of Rotterdam as a port and commercial centre means that we are well placed to continue our success in this important sector.

All in all, I believe we have a magnificent oil and gas industry in the Netherlands which exemplifies every positive attribute the Dutch people have to offer. The problem is the Dutch can be , except when it comes to football, a bit too humble and modest. I feel we should be more proud of this great industry and the opportunities it offers.

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