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Interview

with Kjetil Hove, President, Statoil Brazil

04.06.2010 / Energyboardroom

Statoil’s Peregrino Field under development is one of the flagship projects for the company and it’s been in the headlines – most recently for the sale of 40% stake to Sinochem. It has also been your project for a number of years, dating back to 2005 with the initial development plans. Is this why you were brought to Brazil: to raise your child?

You would have to ask my boss to figure out exactly why they put me here but I think my knowledge about the project was one of the key reasons. Moreover, my background is as a Petroleum Engineer and given that Statoil believes there are a lot of opportunities in the Peregrino Field to increase recovery from the 20% currently estimated it makes sense to have someone with my background in Rio.

Statoil also has seven other exploratory blocks in Brazil. What is going on in the development of these areas while Peregrino is nearing production? What is the approach to these areas?

It’s a very active period in Brazil. – it’s not only Peregrino. We’re involved in drilling several wells at the moment. In Espirito Santos we’re partnered in a project with Repsol which is currently drilling one well. Statoil will also drill two other exploratory wells in the Peregrino area in 2010/2011. Then in 2011 we will drill in the Camamu area also as an operator while participating in another well in the same region as a partner with Petrobras.

These are the firm well commitments as they stand right now.

Currently, Statoil is the largest operator in the world in offshore waters deeper than 100m. Of course, Brazil is one of the most obvious markets for the future of the deepwater oil and gas industry. Nevertheless, the ANP has frozen bid rounds for the last two years as the government figures out what to do in the pre-salt. How is this affecting your strategy?

At present, we have a very attractive portfolio which will carry us over the coming 18 months. However, I think it’s important both for Statoil and every other operator in Brazil that new opportunities are put on the market. We need other options to develop in Brazil and be a bigger part of the business.

Can international operators do anything more than hope this barrier gets resolved? How are companies working together to meet this challenge?

I think there is a lot of cooperation going on between the various International Oil Companies (IOCs) in Brazil. There are also a lot of asset shifts at the moment, such as BP buying up Devon’s portfolio and a recent Maersk farm-in so it’s clear there are opportunities out there.

The growth we like to see is certainly through new bid rounds in the future. We have a good footprint with the Peregrino field but we will need more outside of this.

Playing in Brazil means playing with Petrobras and since Statoil and Petrobras have some commonalities such as origins in the State, listings on exchanges and technological orientation, do you think you are more predisposed to a positive relationship?

There are certainly a number of similarities between our companies. Even though it may sound a bit strange, the cultures of Norway and Brazil are not that different. This in turn leads to greater cooperation between us. So as regards the history, focus and culture there is clearly a good starting point for cooperation.

For a number of years Statoil has had a technology agreement with Petrobras where a lot of good work has been done in both companies by sharing information and having common technology projects. This also creates a strong foundation for other opportunities and partnership with Petrobras which is important when you are operating in Brazil.

What do you think you can teach Petrobras and what can you learn from operating here?

You have to be careful when you say that you can teach Petrobras anything: it is a very competent company. Together we can develop both Petrobras and Statoil.

However, Statoil has been in the forefront developing several areas in the oil and gas industry. We believe we have an excellent track record within reservoir management, and if you look at the fields we operate in Norway they are running at the highest recovery rates in the industry.

To date we have been a very subsea-focused company and while we were the largest subsea user some years ago, I think Petrobras may have passed on this figure. In Norway we have already installed two subsea separators and we are planning to install two subsea compressors. This is an area where we would like to cooperate with Petrobras.

Statoil also has long experience in executing mega-projects on the Norwegian Continental Shelf. We have had the opportunity to learn from our projects over the years which is why I feel Petrobras would like to co-develop similar projects here.

Finally, another key area of focus that Statoil has which I would highlight is our commitment to environmental issues. This is an issue to which the industry is paying increased attention, in particular on reducing CO2 emissions. Statoil has three carbon capture and storage projects at the moment. Two of the projects are in Norway – both operated by Statoil and one in Algeria where we are 50/50 partners with BP. I think this experience in a growing segment and is something Brazil would like to take advantage of as there is CO2 associated with the development of the pre-salt region. It can be used both for storage as well as increasing the recovery of the fields.

Again, I don’t think we can necessarily teach Petrobras anything but by combining our experiences we can develop together. This is the whole idea behind our technology agreement: to find areas where we are strong and improve them in partnership.

Statoil approaches development differently than many other companies, in particular the importance of looking long-term in the development of every reservoir which may delay the initial returns from a field. Why does the company take such a different approach from IOCs in the market?

It’s because of where we were born and a direct result of how Norway has chosen to develop the oil and gas industry. Recovery factors and resource management have been a strong focus from the beginning because we want to get the most from all of our fields. Therefore, when we develop a field we look first at the whole life-cycle and are willing to penalize the short term in order to get the best in the long term.
As a result, we’ve been successful in getting recovery rates above 50% and in some fields over 80%.

Development in any region relies on the people and in Brazil local talent is in high demand whether you’re an operator, international service provider or local player. As the industry continues to grow, how are you handling this?

There are a lot of very competent people in Brazil and our organization has been able to attract them. Being a Norwegian state-owned company with a firm long-term vision has been a very attractive combination for a number of people working in Brazil. Therefore, we have been very lucky and able to recruit a lot of very good professionals.

Of course, retaining them for a long period of time may be a challenge, but our company’s value-based culture has so far been very attractive. Then again, I’m Norwegian, so I may be a bit biased.

In general, in the oil industry there has been a challenge recruiting younger employees, particularly in the US and Norway. I think it’s actually the opposite in Brazil and there are a number of young people who would like to go into the oil and gas business.

Our goal is to continue to grow a local organization in Brazil. As a result of acquiring Anadarko’s stake in the Peregino field in 2008 the company had nearly 40 % expatriates. Today we have 25 % expatriates in the organization. We are working to reduce this figure to around 15 % by 2012.

We aim to continue this local focus and up until now we have been able to attract very good professionals to our operations.

Over the past five years you have been heavily involved in the development of the Peregrino Field so I’m sure you’re very excited for the beginning of production in 2011. Looking forward, what will be your next child here?

I’m here together with the whole team to develop Statoil in Brazil. Our target for 2020 is to produce 200,000 bpd. This will have to come from more than the Peregrino Field so we know we need to do more in Brazil. We have to develop the blocks we have and also obtain more blocks in new licensing rounds when they happen.

How important can Brazil be for Statoil?

Statoil has a four-pronged strategy for growing our international business which includes increasing our participation in the gas value chain, developing harsh environments, tapping into heavy oil and accessing deepwater. Looking at the latter two approaches, Brazil fits well into these “boxes”!

When you integrate the overall strategy with the Brazilian culture you quickly see that this is a great country for Statoil to grow in. At the same time, we have to be realistic and honest. If the authorities do not open for new licensing rounds it may be a challenging road ahead.

It’s also important to keep in mind that as an organization, we’re competing when it comes to investments in the Gulf of Mexico, Canada and so on. This means the commercial terms have to be competitive compared to other regions.

How much of securing investment from headquarters relies on you waving both the Norwegian and Brazilian flag at the same time to convince everyone that projects should be done here?

All companies face these issues and every country office has to work on their opportunities and present them to corporate which evaluates the potential.

However, the fact that Brazil and the opportunities present here fit our overall company strategy obviously gives us a good starting point when presenting our growth proposals to management. The potential is here and there is a wish to grow!

If we come back in five years time, what will Statoil look like in Brazil?

We will have further developed Peregrino (we are implementing Phase I right now) and have analyzed our 3D seismic data for the next steps. This means that our activities will be even more extensive in the future with more platforms and FPSOs being operated. Additionally, we will increase our operatorship in deepwater development and ideally participate in some pre-salt developments with Petrobras.

On Monday we’re meeting Jose Formigli again for a catch-up coffee; if I have to tell him one message from Statoil what would it be?

We have a long term strategy for Brazil and we are here to invest. The background exists for a solid relationship between our two companies so now it’s a matter of having the right petroleum laws in place in order to move our cooperation forward on the commercial front.

Petrobras has a big task in front of it to develop pre-salt in Brazil and while they’re capable of handling a lot of it they will in my view need support financially, organizationally and technologically, So we’re here to be a part of and support this development. Statoil is waiting for them and we’re more than willing to assist them.

Do you have a final message you would like to send?

The key message I tell every time I’m back home is that Brazil is a country where Statoil is able to operate and add value to both Statoil, our partners and Brazil as a nation. We should therefore be able to grow in Brazil. The premise is in place whether you look at Norway’s relationship with Brazil, our relationship with Petrobras and the oil and gas business environment.

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