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Interview

with Johnny E, Torp, BW Offshore

12.09.2011 / Energyboardroom

How and when did you arrive in Mexico?

The first I came to Mexico was many years ago when I participated in the installation of PEMEX’ first SCADA system in the Gulf of Mexico. I had been looking for an opportunity to work abroad when in 1981 my company got its first contract with PEP and I jumped at it! Since then I have either been working in Mexico or had close contact with the country. Over the years of working contracts and doing business development in Ciudad del Carmen and Villahermosa I got to know many PEMEX managers, people who today hold key positions in the company, such as Ing. Carlos Morales Gil, who is now Director of PEP and Ing. Javier Hinojosa Puebla, currently Sub-director of drilling.

I have been on and off in Mexico, as I have spent some time in many countries – amongst them UK, US, NL, Sweden, Venezuela, Norway and Russia. But I really never spent more than 9 months in any one country, with the exception of Mexico, Norway and Canada where I have lived for longer periods.

In 2005, BW Offshore signed a 15 years, U$1.2 billion to operate the Yùum K’ak’Naab FPSO –the world’s largest FPSO- in the Ku Maloob Zaap field. What do you think made the difference, why according to you did PEMEX chose to take the risk?

PEMEX were, at the time, highly aware of the decline of the Cantarell oil field and needed to find the quickest way to counter the lost production. The natural choice was to speed up the development of the KMZ field by adding in the wells producing heavy oil of API 13-16. This available oil, however, has low market value and building offshore improvement facilities would take time and lead to lost revenue.

The solution was an FPSO with blending capacity, so that the heavy oil could be mixed with lighter to make a Maya type crude, easily sellable at a high market price.

The FPSO produces the heavy oil, receives lighter for the blend, mixes to sellable grade, stores for many days in case of bad weather and offloads the product to buyer’s tankers.

This all ended up in PEMEX awarding BW Offshore the ongoing Contract.

24th of July 2011 was our fourth anniversary of operation, and in those four years we never had to stop production other than for yearly maintenance. And I hope it stays that way!

This contract was certainly a milestone for the company. What have been the most important lessons learnt from the experience?

Well the first lesson that we learnt was probably how to cooperate with PEMEX. We had we to learn how to work together, how to communicate. It was not easy at first as it was the first time PEMEX was collaborating with a foreign operator on their fields.

During that time PEMEX had to decide what exactly they wanted and how they wanted it done. It did take some adjustments, but at the end of the day I think we have developed an incredible relationship. And the contract that we signed in 2007 was the first of its kind. It represented a lot of money (U$1.2 billion).

One of the things that we discovered with time is that PEMEX is a fantastic and very solid company. And it always respects its financial commitments. This is very important when involved in a longtime relationship. People in PEMEX are demanding, they know what they want, are fair and adhere to the Contract.

Besides the relationship we have developed with PEMEX, you are right to say this was a milestone for our company. Not only is it a milestone because of the size of the ship we operate, but also because we were the first to be dealing with such heavy oil. We deal with API grade 13-14 heavy oil which was definitively something new. This experience I feel is another advantage for our company in the longer run.

From our part Mexico has somehow become a showcase of what we can do, both in operating such a large FPSO, and in dealing with heavy crude. Actually we received the visits from the US Coast Guards as they are the ones that deliver FPSO licenses in the US Gulf of Mexico.

Since this was something completely new to them they did not know what to expect. And I believe they were quite impressed by what they saw onboard our vessel. It made things much easier to get the permit for US waters. Very recently we received the visit from another global operator who also wanted to see our operations.

What have been the benefits for PEMEX?

Actually I am sure that for PEMEX the FPSO project has been a fantastic success, both operationally and financially. To give you an idea of the strategic importance of our ship, we have offloaded 1000 times in 4 years, during which we have exported almost 600 million barrels of oil! In comparison a typical FPSO elsewhere in the world offloads 40 to 100 times in the same period.

Now from PEMEX point of you, I believe that the relationship has been extremely beneficial, one third of the oil exported from Mexico is processed on our ship!

One may wonder, why having been so successful, BW Offshore has not tried to move in with a second FPSO agreement in Mexico?

We have tried, but there have been no new opportunities, other than for smaller FPSO to be used for well work over and our core business revolves around bigger projects. But we are here to stay. To start with we have a 15 years contract that is unrolling very well.

The developments of deep water in Mexico are under way and I can assure you that in the future BW Offshore and our FPSOs will play a growing role in that process.

Our presence and our experience should give us important advantages. Being here we can hear early on about any opportunities rising here. We know where PEMEX are drilling, we know the people, we know the market. And we will surely go for those opportunities. Other foreign operators might not be so anxious about getting into Mexico because things take time here and some are not ready to invest the amount of time that it takes to do business here!

Most of the FPSO market is actually controlled by smaller but local operators. Foreign companies seem to have a hard time finding their place in this market. How do you explain this?

Time is key! Anyone that comes to Mexico should understand that things take time here. When people come from Europe or the US I think that the first thing they need is patience.

As I said, it’s not because you have a nice solution, or a great presentation that people will buy it. You need to develop trust. Hence it’s important to listen, meet people and always remember that you are a guest in this country. People need to realize that, despite what might be heard, PEMEX is an amazing company which employs great people.

It’s quite easy to come across in an offensive way, often without realizing it, and in that can damage a relationship. That’s something many foreign companies do not seem to understand. I have seen companies actually leave the country and asking me why I am here, when things are so slow! Patience will be rewarded!

Considering growing global demand for FPSO vessels, and the existing opportunities out there, why would a company like BW Offshore allocate its future resources in Mexico rather than in Brazil or Australia which seem to be booming and where things don’t take nearly as much time?

First thing is that we are already present in the markets you mention. But really I think there are huge opportunities ahead for us in Mexico. And one of the things we have learnt is how to work with PEMEX. Having a reliable client is something priceless for us. As I said PEMEX is reliable, they stick to their commitments, and pay on time.

With the development of the deep water offshore, the need for FPSO will boom in this country. We are already present and once PEMEX have defined what it wants or needs, we will do our best to win those contracts.

Demand for FPSO has steadily grown in the past years, but it is now exponential. We are confident that we can grasp those opportunities. We are a financially strong company and being the second largest FPSO provider/operator in the world, it would be easy to become the largest. All you need is to buy one or two more boats. But it is important not to go in every direction and stay focus so the solidity and reliability is maintained.

What will make the difference?

Technology! Really PEMEX is in demand for technology. This is one of the reasons why we have recently reorganized our management, because we feel that this will definitively be a key point.

The other important point is that you have to be very careful and make sure that everything is done properly. Without getting philosophical, I truly believe that you have to take pride in everything you do. If you go to our ship you would be surprised at how orderly things are. Our inspectors at Det Norske Veritas (DNV) are always surprised that we call ahead requesting inspections, whilst most companies “fear” the inspections and try to put them off in time. BW, on the other hand, view the inspections as a means to discover problems before they materialize and to help us improve.

In order to reach this level of efficiency you must rely on HR. What has been BW Offshore policy in that regard?

We have 90 people working on board. Out of those, 62 are from BW Offshore and 50% of those people are Mexican. We decided to recruit local staff because we believed it is our responsibility to return value to the local economy, but most importantly because we knew there are good people here.
Our problem was not with finding good, technically skilled people, it was finding people who spoke English. So we put together a specific program where they could take English classes.

What have been the most noticeable changes that you have noticed the way PEMEX works?

Working with PEMEX over the years, one of the most noticeable changes I would say is respect to agreed time. In the past a 10 am meeting could start at 11 or 12 am. These practices are over and now 10 am is 10 am. This might seem like a little point but yet very important because beyond time, it has to do with efficiency.

The other noticeable change is the transparency act. PEMEX have opened so many things to the public, that little by little it is killing corruption. The one danger in that transparency is that there are continuous audits, and that the employees are continuously under pressure. Because that creates stress, it might somehow kill some initiative.

The next big change I feel will be a revolution. That is the introduction of incentives. So far PEMEX were only working on penalty based contracts. If you did not deliver you would get a financial punition. But there was nothing positive if you could deliver the service on time or even outperform projections or targets. The introduction of incentives should change this.

Corruption and lack of transparency is often pointed out. And the FPSO have received bad press…

In all the years that I have been collaborating with PEMEX, I have never ever been asked for anything of that kind. But actually, after we signed the contract, there have been accusations of fraud. A couple of years ago, when rumors resurfaced, PEMEX simply made the contract public and that ended the noise.

You come from Norway, a country which has very successfully built its success on its oil and gas economy. How do you compare what’s going on in Mexico and what happened in Norway?

The debate occurring now in Mexico about ownership of Oil and Gas occurred in Norway about 40 years ago. In Mexico the people from the upper level know perfectly well that the country should open up. But you don’t have to go far down to see resistance to the idea.
The reason might be that people don’t trust their government so much here. They always worry what the next government will be doing. In Norway there has been continuity, a red line, followed by all our governments since the start of country’s oil industry in the seventies. At the time we had exactly the same debate; should we let foreign investors in, despite the fear of them “taking over” our oil? And the result was, yes! So that is how it is until this date, foreign actors are developing and operating along our coast, but the oil still belongs to Norway and the financial returns greatly benefit our little country.

The other thing that I see is the impact in terms of innovation. It is something that I have witnessed many times. You find someone with a great technical solution, he gives his presentation and everyone is amazed. In Norway the question is what do you need to continue? If the answer is money and the idea is good, people will give money. This is how Norway has become a global leader in subsea and other technologies.

While in Mexico the dialogue is often:
Client: When will you test it?
Inventor: Well, I need money to finish its development and to test it
Client: OK, then come back when you have tested it
And so I think Mexico loses out on possible new technologies like this, because people simply go somewhere else for finance and often end up selling their technology abroad.

What are the key to successfully work in this country?

Knowledge of the local culture together with humility, honesty, tenacity and patience!

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