with Roar Tessem, CEO, Spring Energy
As the founder of the company, what was the opportunity you saw for establishing Spring Energy back in 2007?
You need to work with the opportunities that are available to you and 2007 was simply a good time to start. I saw a great deal of opportunity in prospects that had been missed within the mature areas of the North Sea and also growing opportunities in the Norwegian and Barents Seas. The Norwegian Petroleum Directorate’s files indicated a lot of remaining potential resources. This potential has certainly not diminished since then, in fact I rather think it is more focused now and this potential has been repeatedly confirmed by recent discoveries. Finding Johan Sverdrup last year means that there are probably still more giants to be found, although these are probably fewer in the North Sea than in the Norwegian and Barents Sea.
Personally, I started in this industry in 1980 working in oil companies, then I had nine years running a consultancy under the PGS umbrella, called PGS Reservoir Consultants. This companywas a vital part of the starting point for the E&P company, Pertra. When Norsk Hydro, as operator of the Varg Field, chose to initiate abandonment of the field, PGS started Pertra to take over the role as operator. And the consultants were the initial subsurface team for this E&P company, Pertra, and the operational part were sourced out of PGS Production in Trondheim.
A couple of years later, in 2003, I was asked back to DNO/Det Norske. I took on the task and asked for a “blank cheque” to hire the technical staff, which the CEO of DNO accepted. Operations developed for a few years on the basis of good farm-in deals with a few companies in Norway and we also secured a rig, Bredford Dolphin, through the first rig consortium on the NCS. The old Det Norske was valued at NOK 2.3 billion (USD 404 million) when DNO divested 20% to external investors. This took place mid 2007. Shortly thereafter there was a decision to merge with Pertra creating the new Det Norske. At this point I decided it was time to move on and Spring Energy was established here on 1st March 2008.
How has the company developed in terms of its capabilities since then?
In April 2008 we signed an investment commitment of USD 120 million from Hitec Vision and subsequently we were able to secure the first exploration loan. We have since then increased our exploration loan facility to NOK 2 billion (USD 351 billion) with five banks. In the course of the last three years and through our operations and transactions we have been able to pay back equity to our shareholders in exchange for them also re-committing. As a result, our current level of equity commitment is USD 210 million from Hitec Vision.
These are very interesting times for us and Spring Energy is well positioned for expanding our E&P activity with 31 licenses, and firm wells on twelve prospects. Within a year the number of firm wells should increase to eighteen, so we have already focused on a few additional prospects where we would like to drill wells.
The company is centered around delivering high profitability from what is an extremely high-cost E&P environment. How do you achieve this with your asset strategy?
Although I have spent some time working internationally the main part of my professional life has been focused on the NCS, which I know very well. Having run a consultancy business for nine years, I also know who the competitors and suppliers are as well as their capabilities and this allows us to make good strategic and operational decisions.
In my experience the most important thing is always the team and combining the right individuals to achieve maximum potential. If you have the right E&P team, good financing and a good business plan, there is nothing that can stop you from achieving your goals. It is also important that all our employees are shareholders because they are spending their own money.
I have been asked if our company has better employees than others. I definitely think my people are very qualified, but other companies also have excellent employees. One of the differences I would note is that Spring Energy has established very rigorous asset assessment processes which help us to formulate a most profitable E&P strategy.
At Spring Energy we focus on the subsurface; you have to obtain good data and analyze it thoroughly. From our foundation we have established two internal “edge” centers, one is basin modelling and the other is seismic processing. This is different from many other companies who typically outsource these activities; we keep it in-house so we can do test processing, sit together with the geologists and engineers and challenge each other. It is all about work processes with us.
At the moment we see a lot of licenses up for grabs in the 22nd round. How are you going to be aggressive on the NCS and at the same time maintain these rigorous procedures?
Spring Energy can actually process a lot of data in a relatively short amount of time. We screen a lot of data rooms and we are also very proactive when we screen areas – we usually go to the operator or partners in the license with whom we would like to work, and ask for permission to look at their data before formulating a business proposal. Typically we will screen about 100 assets, perhaps shortlist ten, bid for six and obtain five. The expansion of licenses on the NCS is something we are well able to manage.
Your annual report mentioned branching out to production in order to reduce the reliance on financial markets. How will this be put into operation?
Of course we would like to have more production than we have today. We would definitely like to take part in development as well, but it needs to be the right development and for the right reason. The first development for a small company are always a challenge but once you clear this initial hurdle things become a lot easier, for example it opens up reserve-based lending.
We are looking at opportunities for production and I’m sure we will also take part in development. At the moment the most preferred strategy will be to swap or share a good discovery with an operator to gain a production asset. We have done this on a small scale earlier by swapping 5 percent in our Grosbeak discovery for 2.5 percent in the Brage Field. This now generates the cash for overall corporate costs and means that when we take money from our investor, those funds go directly towards drilling to discover more hydrocarbons.
So it is either a swap and develop strategy, or take an asset directly into development ourselves. However it would have to be the right-sized development that does not take too long and generates cash flow quickly.
How much movement do you see in the NCS regarding farm-outs and asset swaps?
In recent years there has been high activity, although this level has dropped recently. We have screened through a number of licenses and we have not really found anything amazing lately, although there are still possibilities in the pipeline. Clearly there are several companies that have large portfolios and I think they would benefit from focusing their resources a little bit more.
If you were to highlight your objectives for 2012, what would they be?
I would like to continue to de-risk our current portfolio, and continue to drill wells with our partners; we have a solid drill schedule over the twelve firm wells for the next 18-24 months. We would also like to continue strengthening our ability as an operator because we will drill our first operated well in the second half of 2013 on the Mantra prospect just northeast of the Troll field. We are preparing ourselves for that and setting up all the systems and routines accordingly.
You mentioned earlier that having the right people is essential. With an expanding business potentially moving into production, how do you aim to deal with the tough competition for human resources?
I would not go so far as to say that it is easy but I think if you have worked on the NCS for a long time it makes it easier to find talented people to work with you. I have been through several companies over the years, and many of the people I have on my current team have worked with me before, even back in my consultancy days in the mid-1990s.We liked working together and working in a consultancy gives you the ability to meet a lot of people.
However, I do recognize that human resources are a challenge for the NCS. A lot of people refer to this business as the sunset industry, but clearly it is not. Young people need to be educated about energy and move into this business because it has a lot of resources, it is a lot of fun and hard work, and the opportunities will be there for years to come.
If we were to come back in 3-5 years’ time, what can we expect from Spring Energy?
I think you will see a stronger Spring Energy with higher activity level because our financial basis will have grown by then. We should then be able to take on more assets with a higher percentage share. We will also have moved into more acreage, particularly in the Barents Sea. Hopefully by that time we will have been participating as either a partner or operator on a few major discoveries.
You have an international background, with work in Africa and the former Soviet Union, are there any ambitions to take this company further afield?
I think moving into new areas along the borderline between the UK and Norway would work well given that we have a good Norwegian team of geologists. But if we are moving to somewhere else internationally, I think you need to have a lot of local knowledge and content so it is less attractive. As I said, I think there are so many opportunities in front of us on the NCS and we are also opening up towards Iceland. Also we are moving more into the UK, where we have been applying for acreage. But we have not planned for any major movements outside of our immediate surroundings.
Would you have a message from Spring Energy to our readers?
I have often used Paul Getty’s words: “Rise early, work hard, strike oil.” And with Spring I would like to say: “and have fun doing it”.