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Interview

with Kjetil Forland, Managing Director, Petrolia ASA

28.03.2013 / Energyboardroom

Given this combination of businesses incorporating both E&P and services, how would you define Petrolia’s position on the Norwegian Continental Shelf (NCS) today?

The company has begun the process of transitioning from pure drilling services to an integrated company incorporating exploration and production. The company now operates under three divisions – E&P, OilService, and drilling and well technology. Our objective is to become the new DNO and therefore our main focus is to prioritize E&P, while maintaining a strong share of oil services which accounts for over 250 employees worldwide in Norway, Holland, Romania, South Africa, Malaysia, Singapore, Dubai, Australia, New Zealand, and Houston.

Therefore, with our management team we have established a new strategy to safely transition between our drilling activities to a strong E&P company. To remain a strong corporation we will of course keep our strong worldwide focus on oil services.

As a pure Norwegian player, our main activities must become ever stronger on the NCS.

We are not planning to become an operator here, but to explore major areas and prospects close to our existing infrastructure. We will soon be able to focus on extending field life of mature fields through upcoming APA license rounds. Our current status prequalifies us for a license in February 2012, with 50% in PL674 license, in cooperation with E.ON E&P Norge.

This license represents a great opportunity for us, to develop it with a farm-in and farm-out agreement. Furthermore, this license is not far from Johan Sverdrup. Recently, we also did an agreement with Statoil on taking 10% of PL628, while granting Statoil an option of 10% of PL506.

From a personal perspective, I am very familiar with drilling activity, as well as EPCi. However E&P represents a new challenge and my previous background as an drilling and oil service provider, I believe, positions me well to take the next step and become part of the E&P industry.

From a financial perspective, making the leap from a scalable service business to the high financial commitments and risk factors of the oil and gas business must be challenging. What were the principal challenges for Petrolia and how did you have to adapt your financial model?

Our focus is to keep strengthening our group, by allocating financial resources to our current priorities. At the moment our main business revolves around the services so this sector is being reinforced. Both our E&P activity and services rely on strong equity, given that large investments are made on our equipment. The E&P activity only becomes a major financial responsibility when a new discovery is made whereas our equipment segment needs a constant investment flow to support our equipment.

We have no intention of jeopardizing our existing services to develop our E&P segment. Our profitable services division represents the backbone of our company, our largest source of revenues and our reputation. We will keep maintaining our strong focus on our services; otherwise our company would collapse rapidly.

From a management perspective, how do you maintain the competitive nature of very distinct business units?

From a business unit level, we maintain our operations separately. We appoint strong managing directors that report directly to the Group’s management. At the Group’s level, the different business units present their projects and allocate the necessary resources to maximize both Petrolia’s and shareholders value. All business units are constantly monitored through an evaluation system.

Between the business units, our priority has been to develop synergies and competence sharing. By using a wide range of capacities and skills, our employees share their knowledge and benefit the company.

Our employees, both in the oilfield service and E&P units, have great experience from communicating and working together.

The NCS has provided a strong environment for companies to move into the oil and gas business leading to around 60 companies present today. Several have come from private equity. How do you see the advantages that Petrolia’s background in services gives to its oil and gas business?

The main advantages of my previous experiences are fundamentally networking and funding opportunities. Moreover, our board of Directors has extensive experience in the rental, drilling business, and of the overall oil and gas industry. Our Chairman was the managing director for Odfjell drilling for many years, prior to building up DNO. Our diversified background and professional experiences have allowed us to hire the best employees within E&P activities.

Jarand Rystad from Rystad Energy, told us that companies from the service industry have actually been faster to adapt to the new realities of high E&P activity on the NCS than oil companies. In light of your own experience, what is your perspective?

His statement is accurate. For instance, Petrolia Norway transitioned in one year from an oil service company to an E&P company. This process was enabled by the diversified knowledge and experience present amongst the Board of Directors. The market evolves rapidly, and a company must always assess what new possibilities or markets are available. By monitoring these changes, and becoming a leader in a category, other opportunities appear. With the right knowledge, management, organizational structure, financial resources and strategy, Petrolia managed to transition from oil services to E&P and this extends from our natural business background.

You began working for Petrolia in 2010, when the company was just making the transition into oil and gas. What are the steps you are taking going into 2013 to further this transition?

Even prior to the Johan Sverdrup discovery, our Management and Board of Directors expressed a strong commitment to remain on the NCS. Our Chairman was one of the founders of DNO/Det Norske and turned DNO from a ten million dollar company into a one billion dollar player.

We had a strong recruitment period, and recruited the former exploration manager at Det Norske to help us with our transition from oil services to E&P. Nevertheless, our approach is rather different than other companies regarding E&P, as we do not engage across a large portfolio of well drilling. Our objective is to maximize FEED on a few wells on major areas of the NCS, with increased oil recovery technology.
We have geologists, reservoir engineers and a broad experience around Increased Oil Recovery. Our human resources provide with all the resources we need to be efficient and quality oriented when drilling wells.

With the APA round, we received a 50% stake of the PL674 license shared with EON. This license is close as well to Johan Sverdrup, and we believe such collaborations will help us grow our business rapidly. As we say humorously; PL674 is the best address in the city.

How would you like this company to have developed 3-5 years from now?

We will still remain on the NCS, improving our operations with the help of our wholly owned independent subsidiary Oil Tools AS, which is our financial strength for the present time. We wish to build a strong financial corporation; otherwise our evolution within the E&P business will be extremely difficult. In parallel we will continue working with licensees and implement our strategy to become the strongest innovative company on the NCS.

The market is extremely competitive but we feel that through cooperation with other companies, we will benefit from organizational and financial support. We have different stakes in many companies, and our image on the NCS is strong. Our future in the E&P business is yet to be written but I am confident we will perform as well as we have with oil services, creating the new DNO.

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