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Interview

with Paul Horne, Managing Director, KCA DEUTAG Drilling Norge AS

22.03.2013 / Energyboardroom

With 23% of the market share for platform drilling in the North Sea, how much have things moved on from 2009 for KCA Deutag in Norway since the last time we met you?

Things have been developing well for us since 2009, particularly the core business of platform drilling. Our ethos and strategy in Norway have revolved around building up this core business, improving on what we are good at and maintaining consistent quality and standards of service – this strategy has not changed much over the last four years. We have enjoyed good continuity with our drilling partners in terms of securing new long-term contracts. Following on from Statoil’s merger with Hydro they finally tendered all 18 of their platforms in 2011, representing around 70 percent of the Norwegian platform market. KCA Deutag increased the number of contracts we hold with Statoil so that our market share of the fixed platform drilling market on the NCS now stands at 33 percent.

KCA Deutag also renewed our Kvitebjorn contract in 2010, which is a very important project for us, encompassing high pressure, high temperature challenges and managed pressure drilling technology. Given that most of our core business is in the mature market and that there is a growing call for managed pressure drilling for new wells on existing platforms, this is important expertise for us.

We have had a contract with Statoil since 2004 managing their drill pipe pool for six platforms. This was extended to 17 platforms and tendered this autumn, which we won. As a consequence, KCA Deutag is now managing 30,000 pipes for Statoil. The logistics of managing all the pipes from Bergen to Trondheim is complex and you need good tracking systems, maintenance and repair as well as logistics and base facilities. We are proud that our facilities gained this recognition with Statoil.

Some of the challenges going forward would be related to the need of upgrading of some of the older platforms. KCA Deutag is here to drill as many wells as possible for the clients. Proper and efficient drilling equipment to perform drilling is important, and upgrading the equipment to be even more efficient and reliable is the best strategy. Executing these projects without affecting the drilling trilling program is a challenge. This is why KCA Deutag has an in house an engineering service with long experience of upgrading drilling equipment. KCA Deutag engineering department RDS just received a contract to upgrade GullfaksB drilling facility as a subcontractor to Aibel.

The fixed-platform business is a lot more stable than the MODU market. How has the recent E&P boom affected business?

The fixed-platform and the general drilling market are known to effected by the price of oil. In todays booming market the demand for high efficient drilling rigs to drill more wells and discover new oil recourses seems to be very high. The available rigs and rig felt is getting older and the for more efficient and “fit for purpose” rigs seems to be increasing.

This is also affecting the fixed-platform market, where discovery’s within the existing infrastructure is possible to reach by drilling long reach wells from existing platforms. Upgrading these platforms to be more efficient and making them able to recover “nearby” oil and gas recourses by new technology and long reach capability is often a cost efficient solution in this booming market.

The fixed platforms are owned by the Client and less effected by the “availability” in the market and therefore considered to be more stable than the MODU market.

Some interviewees have mentioned that developments in the Arctic could create the need for more fixed platforms. What is your perspective on the longer-term development of this market?

There is a drive in Norway to reverse the production decline and one of the highest areas of prospectivity appears to be the Arctic, which is a relatively unexplored region. The business opportunities in the North are very good. However, there are also clear opportunities in the more mature regions of Norwegian production.

The main players in this market, is pushing for tools which are fit-for-purpose, for their long term demands. This explains the movement towards categories of rigs. The demand-side for moveable rigs is very strong at the moment and the demand for contractors able to perform high quality HSE and drilling performance is just as high.

This high-demand creates the challenge of finding skilled people. We will continue our endeavors, to invest in training personnel and developing their skills, however we are predicting a considerate shortfall in human resources in spite of this – some 4,200 offshore drilling workers are missing from the market over the next 3 years. This is definitely a looming challenge to address over the coming years.

How do you plan to overcome this challenge?

Actually one of the main challenges is that other nearby markets are in the same boat in terms of skills shortages so it is not easy to bring across people from other markets like the UK. With 8000 thousand people around the world doing drilling services, we believe we can transfer experienced people between countries. UK offshore workers could be transfer to Norway, however the demand for drilling personnel in UK seems to be equal to the NCS. It is simply a challenge that we are going to have to deal with over the coming years and unfortunately there are no simple solutions.

KCA Deutag has also been expanding other parts of its business over the last few years including the upgrade engineering and managed pressure drilling. How difficult is it to maintain focus?

These other elements have represented a important part of our business since day one. The potential of these markets is very high, however we are only growing these other aspects of the business in-line with the core platform drilling business. We could potentially grow the managed pressure drilling business bigger, but we do not want to divide our focus areas and become less efficient.

There are opportunities for the engineering upgrade business, which we believe potentially could secure us an EPCI contract. The challenge of finding experienced engineers is as much of a problem as finding experienced offshore workers. KCA Deutag has therefore established the KCA Deutag academy, in cooperation with our corporate offices in order to source engineers from other parts of the industry and give them training within the drilling area.

We want to control this business and for it to grow in a sustainable fashion – it is about making the business divisions run in sync with each other which are vital to secure the clients requests. This is the only way to assure high quality, which I see as important competitive edge. You can find these services offered separately, but being in control of the complete delivery of a these combined services gives us a far better competitive position. Having one company offering complete solutions ultimately leads to greater efficiencies for the contracting company. So in this context, we have chosen not to allow this growth opportunity have a life of its own.

How important is Bergen as being a regional hub for the company?

Bergen is extremely important. Our entire regional contract portfolio can easily be administered from Bergen. This gives us a lot of leverage in the area in managing the operation. Our business is predominantly about managing human capital (skilled and experienced people). As such, it is important to be located close to activities so that there is constant communication happening about the tasks being undertaken.

The culture of our company is performance driven. Therefore, it is critical that all of our employees know how to prioritize their tasks in order to achieve our collective goals. Leadership by distance is not as effective or efficient, so it is important that we can have face-to-face dialogue with the different divisions of our organization here in Bergen.

On winning the contracts with Statoil we received a further 300 people on board the organization. Adapting these new employees to our culture requires the management of the company to be visible and show leadership. It is a challenge for management to spend time offshore because there is simply not sufficient bed space available. Therefore all the departure meetings before people go offshore occur in this office. In addition the utilization of Integrated Operation rooms, using the lasts available programs and video technology to be hands on have become important tools in the day to day communication between onshore and offshore.

The Norwegian model of offshore operations is heading towards integrated operations and reducing the elements of the business occurring offshore as much as possible. Do you see this becoming a less people-centric business as a result?

The industry will remain a people-centric business where compliance and leadership is important ingredients to success. Today’s technological advances with communication allow us to plan and prepare our staff far better than ever before for the challenges faced offshore. Our industry is facing possible hazards in almost every task we do and our employees need to be able to mitigate and prevent these hazards to makes sure there is no harm to people, the environment or equipment. . From a leadership perspective, this requires us to be hands-on to avoid incidents and deliver high quality services to our Clients.

One day we may reach the stage where an entire rig can be controlled and operated from an onshore facility, but we are a long way from that at the moment.

I understand that you personally spent 15 years working offshore, before beginning your career as an onshore manager. How much do you think the offshore operations have moved on since your time offshore?

There have been few fundamental changes in how the business operates. Nonetheless, the technology, particularly in the area of communication, has changed a lot. When I was working offshore, if there was a problem then you where “more on your own”. Nowadays, it is easy to communicate with people onshore to help you resolve the problem. Satellite communication, Internet, and direct diagnostics enabled assistance has improved the support side of the offshore business, tremendously.

A challenge is to alter our way of thinking and adapt to the tools and services available to us. As the industry and global players are changing rapidly, we must make sure we implement the right technology and adapt to the ongoing changes in the industry.

It is always easiest to carry on doing what you have always done. When moving to these new offices tree years ago, we installed an integrated operations room without a clear strategy on how to fully utilize it. It took brave decision to push the boundaries, change our working processes in the way that technology can be applied.

What do you count as success for KCA Deutag in this market over the next 5 years?

We must be willing to look for new opportunities to do things differently tomorrow than we do today. My organization is performance focused, yet sometimes a bit reluctant to change.

Our main asset within the company is our people, and considering the great opportunities the market has to offer, we could achieve leverage by defining and adopting new ways of performing what we do and thereby drilling wells even more efficient.

The overall ambition is to gain more of the fixed platform market share, based upon high and predictable performance. This company is positioned to be able to manage semi-submersibles and jack-up rigs which will provide an interesting route to expand the company. We therefore have a dual strategy of performing well in the fixed-platform business and developing a new business in the management of jack-up and semi-submersible market.

As the manager of the leading fixed-platform drilling contractor on the North Sea, what is your final perspective on managing this company?

First of all, within KCAD I work together with a lot of highly skilled and professional people capable to make a difference for the Clients and the company.

This industry in Norway is more than 40 years old, and having seen its development and how the authorities and players have shaped and developed it, has been fascinating.

I still “feel” we are a pioneer industry with lots still to achieve and possibilities still to discover. I genuine believe that KCAD and its employees the are set up to contribute and make a difference for this industry going forward.

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