with Ragnar Hjelmen, Operations Director, J P Kenny Norway
Would you begin by outlining how you are growing the scope of JP Kenny’s operations in Norway and how much assistance you receive from WGK HQ in London and from Aberdeen office just across the sea?
JP Kenny Norge is working very closely with both Aberdeen and London offices. Our offices in Norway have been involved in some major projects where we have required help as well as some additional specialists from our UK offices. Since JP Kenny restarted its operations in Norway in 2005 we have also had a close collaboration in developing engineering in cooperation with our office in Perth, Australia. The link between these operations is that they are at the same technological level and using the same engineering tools as we are in Norway. As a consequence, there is a lot of exchange between Perth and Stavanger with four engineers from Australia working for us at the moment. JP Kenny in Norway therefore benefits from the company’s global knowledge and skills base.
This cooperation however maintains the Norwegian nature of the business here and a fair degree of independence. Many British businesses fail and do not get the expected success when they come to Norway because they do not adapt to Norwegian business practices. There is a difference between the British model of business and the Norwegian model. Norwegian labour laws are very different to those in the UK, for example overtime is paid for in Norway but not in the UK and there are many different Norwegian tax laws and social benefits. JP Kenny has succeeded over the last few years partly because we have many Norwegian employees, among them many from the old JP Kenny which was in existence until 2000. These people are well adapted to working here and work together with others high qualified engineers and it has been a great success factor for us.
Wood Group is in the process of integrating its Wood Group Kenny subsea division, comprising: JP Kenny, MCS, MSI, Wood Group Integrity Management (WGIM) and Sgurr. This will also be the case in Norway where we already have WGIM integrated, which falls under our control. We are looking to further integrate the business divisions of Wood Group Kenny into our operation. The exact nature of this integration is a decision which takes place at the group level. The integration will be of great benefit to our clients as we will be able to provide one address of contact in Norway for all our engineering activities. We will be able to provide the complete life-cycle of the field from FEED feasibility study through to decommissioning.
How do you see the competitive landscape in Norway and how JP Kenny can differentiate itself in the engineering market?
In many countries you have a standard client relationship where you can expect to receive a lot more work without competition than we do in Norway. In Norway this is not the case due to Norway is strictly following common market regulations and laws for contracts. This is a highly regulated market with prequalification to be put approved on the Achilles procurement system and you have to be on the bidder list for all clients. Our clients governing rules also require that contracts of a given value shall be sent out on tendering to more than one contractor.
For most of the work in Norway, JP Kenny is not competing against the major EPC companies, but against the specialized subsea engineering companies like Reinertsen, Det Norske Veritas and IKM Ocean Design. However, if you add our sister company, Mustang, which is doing the topside engineering, then we are able to compete with companies like Aker Solutions for a full field development contracts including platform.
We exist within a changing engineering market in Norway. There is a push towards initial concept and FEED studies to cover the total field development from the platform to the subsea infrastructure rather than split into smaller packages like pipelines, riser structures etc. A second change in the Norwegian market is operators used the engineering companies for detailed design and then went out to tender for fabrication and installation with construction companies. Now they go for EPCI contracts for the full detailed design through to installation. As a consequence, the construction contractors have become our customers and we are now doing the detailed design for them. This is in line with the wish among E&P oil companies to fast-track development projects.
JP Kenny has been involved in the Shell Linnorm project which is an early test for the framework agreement between the two companies concluded recently. How much responsibility is the Norwegian office taking on?
The Linnorm project is run by this JP Kenny Norge AS office in Norway with some additional assistance from London and Aberdeen. The Linnorm SURF FEED has been one of the most challenging projects for us and on the NCS at the moment. As such one of our major milestones achievements was delivering the project on time and given the complexity of the conditions with high temperature, high pressure, and uneven seabed and trawling. This is the project that we are most proud of here in Norway reaching a value of 10 millon dollars.
Through this project JP Kenny has demonstrated that we are capable of undertaking demanding projects on the NCS. We see ourselves as a strong competitor in future tenders with a lot to offer as new projects extend further North and into the Barents Sea. There are quite big projects being launched which are similar to Linnorm in terms of high pressure and high temperature conditions like current development projects by Wintershall, which is not far from Linnorm.
To take on the increasing demand for complex engineering projects, JP Kenny has now grown to around 70 people with 12-15 based in Oslo and the rest here in Stavanger. Wood Group Kenny can use its specialists worldwide in any project. For the Linnorm project with extreme HP/HT we actually also developed many tools to carry out this project. On the technical side we are becoming more and more integrated as a group.
The Norwegian market is very cost conscious at the moment given opex cost inflation. How do you tailor your offering for this market?
It is true that costs are high and clients are focused on these costs all the time and on ways to push them down.
JP Kenny is doing a lot of work on R&D to develop efficient tools that are ready for use on new projects with only small modifications required. This helps to reduce the hours spent on construction engineering and therefore hence the costs. There is a high competition for the rates when bidding. In Norway you need to be very clear in the tender process on regarding the method statement and the deliverables, that you have the experience everything is ready and the manpower is available. In Norway, they call it a reimbursable market rather than a lump sum market.
In our section of the market, the major costs come from investment in equipment rather than the engineering that we are doing. Most of the subsea equipment is Norwegian produced by Kvaerner, FMC Kongsberg, Aibel and commands a high price. The premium for technology comes in part from the challenges of producing from difficult wells.
Minister Moe talked about the time-critical nature of subsea tie-back projects. How does this opportunity influence how you target your operations?
There will be a lot more wells where they tie-back to existing infrastructure and given this trend in the market, the subsea investments are projected to double from 2012 to 2016. However, we have not yet seen this happening in 2012. As yet, not that much engineering work has been up for tender and it has mostly been very small-scale feed studies. However, the projected investments are huge, taking into account fabrication and installation and we expect the market to grow significantly next year with this projected growth in investment.
In the far North and the Barents Sea, it is yet unclear whether they will do as they did with Snøvit, where the production facilities onshore or if they will have floating platforms offshore. This is something that oil companies are currently grappling with evaluating.
As Wood Group Kenny we will plan to build up the business in integrity management with WGIM. We will continue work closely with the construction companies in tendering so it should be possible to grow over the next five years.
Sir Ian Wood is due for retirement next month. What would you like to communicate to him on?
I have met with Sir Ian Wood on a couple of occasions and I feel that he has been a strong leader for the company and built it into an excellent group able to integrate its offering to clients. JP Kenny is one of the leading subsea engineering companies doing full SURF but are also able to do field developments with the use of our sister companies. We will in the future be able to deliver more in Norway on the integrity management front. We are already delivering operational support and will also be focusing more on risers and flexible risers. We will make an entry into the green power market and we are already doing flow assurance and system design. Wood Group Kenny is therefore transforming into a much more complete company in the near future.