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with Kjetil Solbrække, CEO, Panoro Energy

28.05.2010 / Energyboardroom

Before getting into the newly established Panoro Energy let’s look at the roots of the company in Norse Energy do Brasil which comes from an interesting combination of a Norwegian holding company with operations in both the US and Brazil. Can you outline for our readers the origins of the company?

Norse Energy was formed through a merger in 2005, between the group’s US assets and Northern Oil’s portfolio that had assets from Coplex here in Brazil. The starting point was in three fields: Coral, Estrela do Mar, Cavalo-Marinho in the Southern Santos Basin. The Coral field produced oil until end of 2008, but we still believe we can produce more in that location as well as begin production in the other two. Currently, we are in dialogue with Petrobras as to how to best develop these fields which I believe would require utilizing all of the fields in the region.

As always we have our own views and they have theirs but we are roughly in line. Of course, they want to use some technologies but we also bring our experience from Norway which has been very useful thus far in Brazil. For instance, when you extract from a field you can have water-breakthrough which has to be separated from the oil being stored in an FPSO: if you don’t have enough water handling capacity, your production numbers will be limited. This is a simple experience from the North Sea that we want to apply locally.

A second example of our applied experience is with well slots, where we have found that extraction can be improved in a given reservoir when utilizing more wells. Of course, this demands numerous well slots on FPSOs which are very easy to build initially but much more costly after completion.

Thirdly we have different techniques for well completion than Petrobras. Currently, we are looking favorably at open-hole completion which is not the most common method in Brazil, but we believe is important in this instance.

Fourthly, I would highlight our experience in flow assurance which is a complicated area that requires a strong understanding. In this regard, we have studies applied to these fields that we are communicating to Petrobras on.

That being said, Petrobras is a very large company with a lot of opinions and experts so making yourself heard can take some time.

How do you manage a relationship with a large NOC as an independent operator?

It’s definitely a big brother, little brother scenario and everyone knows big brothers don’t always listen to good advice from their little brother. This means we have to be the brother that doesn’t give up and keeps trying to convince the bigger brother of some good ideas. Normally, if it’s a wise decision they’ll but this takes time.

Importantly, Petrobras is a very technically inclined company with very good people but you have to remember it’s a big organization – not very different than Statoil where my experience comes from. There are a lot of people who want to have a say in what Petrobras does both externally and internally so when you speak with them you have to be clear what you want, make your case and understand things take time.

There are a lot of operators looking to enter the market, including many independents. What makes your company a partner of choice for Petrobras?

It’s hard to make a differentiation in this market because you have all the good companies here and any of them could be the partner of choice for Petrobras. However, Petrobras doesn’t have any favorites but with the amount of work in front of them I feel they prefer collaborations with larger operators but the overall goal is to obtain technology and ideas.

Norse has a lot of experience represented in Brazil, not only from me but from others in our company. For example, Thor Tangen came from Hydro where he was project manager for 40% of the oil production in Norway. Clearly, we have people who have a unique experience in this industry.

We cannot help Petrobras in every area but in our particular fields we are quite certain that we know how to develop in the best way possible. It’s not realistic to think we can be Petrobras’ partner everywhere in Brazil so we focus on the assets we have.

There are a lot of outside influences shaping the industry at the moment. One of the most notable is the deferred licensing rounds from the ANP over the last two years. How has this impacted your operations?

To be honest it hasn’t impacted us much because we have our current portfolio which has kept us very busy. In a year’s time, it will be a shame if we are still not able to get new licenses and it might actually create some challenges. However, for the time being the ANP’s agenda fits us quite well since we can focus on what we do have.

It’s a disadvantage for the capital market because it makes people skeptical on future development and licensing rounds. Personally, I’m quite optimistic but I may be biased as I live here; I think Brazil has fantastic opportunities and people. I also think favorably of Brazilian politics since they have proven thus far to be pragmatic and it would be very strange for this to change all of a sudden. The idea of a state controlled company that is simultaneously open to private capital is very similar to Norway which I’m used to.

How do you convince the capital markets and investors of your own optimism?

In our company I feel I have been able to convince the skeptics with my enthusiasm but I’m not the only one: there are lots of companies eager to enter Brazil. I think we’re in good company with a lot people who have a positive outlook driven by several factors. Firstly, there is a lot of activity and new discoveries, not only in the pre-salt region but onshore and in shallow water as well.

Even though Petrobras is a fantastic company they’re still only one company who has been at the head for a long time. Diversifying the industry allows new ideas to flourish that despite never reaching the top of Petrobras, may turnout to be very effective approaches. This openness to outside possibilities is what allowed Norway to develop in the way that it has.

The North Sea and the US both represent markets where independent companies have proven to flourish; can that be the case here?

In Norway, this development has only occurred in the last 10 to 15 years, before that the Norwegian sector was dominated by the big players. I’m sure eventually that will be the case here in Brazil because there are too many opportunities in the market for Petrobras, not in terms of capability but in terms of capacity.

I’m convinced that the government will realize that this is what’s best for Brazil because it provides the opportunity for raise more people, capital, and production while doing it at a lower cost.

The company is in a period of transition at the moment as you incorporate Pan-Petroleum from West Africa to create Panoro Energy. What are the synergies you’re looking to gain from combining these operations on different sides of the Atlantic?

The key thing is to obtain the critical mass to be operationally feasible. At our current size, general administrative costs have a larger impact than forthe traditional operator in the industry. This combination allows us to build a stronger foundation for the organization.

Pan-petroleum has a solid background on exploration and subsurface area while we bring the project development and commercial aspect, particularly with our listing in Norway.

In the immediate term my main concern is that everyone within the company knows their job is secure because we need every single person moving forward. It’s a very good match between the organizations so everyone will be busy from day one. Looking forward, like everyone else I’m slightly worried about the immediate future here in Brazil particularly with the licensing rounds. With the incorporation of Pan-petroleum, should there be an issue we have opportunities in other markets where we can continue to grow. While we look forward to developing in both markets, this provides with the ability to compare our possibilities.

You mentioned before that Brazil isn’t just about the pre-salt at that there are opportunities elsewhere – you yourself are in shallow waters. There are also possibilities onshore, is this an area you would consider developing?

For me whether it’s onshore or offshore is not so important but what we need develop based on knowledge. To be honest, at the moment not many people have solid knowledge about the onshore basins. There is some activity in the Paraná Basin as well as others which have attracted operators but as far as I know only 5% of the sedimentary basins have been explored because there are numerous challenges in these regions.

We have to allocate our resources in the best way possible which means narrowing our approach. In the immediate future we will remain in the Southern Santos Basin which we believe is very interesting and provides us with more than enough for now.

Fundamentally, the group is a Norwegian company but in many ways appears to be Brazilian. Now that you’re bringing in another organization from West Africa, can you speak to the combined business philosophy?

Formally, we are Norwegian but I think it’s fairer to describe us as a small, international independent that has an Anglo-Saxon, Norwegian face with a lot of influence from Brazil. It’s difficult to put this kind of a label on our company and while we are listed in Oslo at the moment I have the dream that we could one day be listed here in Brazil.

Just before you came to Norse you were running the South Atlantic operations for StatoilHydro. Today, you’re putting together a company focused on the exact same region – was this your plan all along?

It’s an interesting assessment but it’s not all that surprising since I like the region. I’ve been very supportive of this region because you find attractive opportunities here in challenging countries. You have to have a strong technical base but you also need the communication skills to work with the stakeholders such as governments with very clear targets.

Personally, I feel like we have experience in this domain and I have people around me with this understanding as well which provides us with a competitive edge. You need to put yourself in the shoes of the stakeholders and figure out what you would have done if you were in their position. With this element in mind you have to also provide technical solutions because without them you don’t have anything to offer!

Combined, these elements bring an offer the market wants and it’s only a matter of being patient then executing. It’s a matter of being honest and straightforward in business – some people complicate things by trying to be too smart. I believe it’s easier to say what you want than make other people figure out what you want.

If we come back in three years time, what can we expect to see from Panoro Energy?

Brazil itself will look much the same in the coming three years; Petrobras will have a better understanding of the pre-salt and there will be other pilot projects up and running. I hope that the license rounds will return in the non-pre-salt regions as well as clarification for the pre-salt itself.

For Panoro I would like to see us starting up production in the BS-3 area as well as discovering new potential in our round 9 licenses. Furthermore, we expect the Manati Field to be proven bigger than what the market anticipated.

I also expect to see consolidation in the market between independent operators as companies realize cooperation is the best approach to the Brazilian market and I think we will play a role in this. When you compare us to Petrobras – who is a giant – or OGX – who wants to be a giant – as well as the IOCs that are here we are very different. Among the independents we are unique because we are one of the few companies producing, developing, exploring and, importantly, trading on an exchange. Other independents are lacking one or more of these four qualities.

The Southern Atlantic focus of our company also provides an attractive characteristic for other operators because it allows them to access two different regions with very similar geological and technological challenges.



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