with Simen Skaare Eriksen, Chief Executive Officer, Frigstad Offshore Ltd
You were working in Copenhagen before coming to Singapore. What pushed you to make this career move and enjoy a company under the sun?
Even though Copenhagen was already a working experience abroad for me, I wanted to move to more “exotic” places. In fact, I have always been attracted by the international environment of the drilling business. Obviously it pays off to go abroad and see what is out there. I was asked to join Frigstad by some former colleagues that were in Singapore and one of the things that I found intriguing was the opportunity to become a bigger piece in a smaller picture. Having the opportunity to be part of the development and expansion of a smaller company was a very attractive aspect for me.
How challenging is it for the company to have restrictions in size compared to many of Frigstad’s competitors, which are generally larger? What are the pros and cons?
Starting with the pros, its smaller size allows Frigstad Offshore to remain extremely focused. The smaller size enables the company to maintain great flexibility and be dynamic, which are essential attributes. Frigstad is not tied to executing specific projects and can look at a number of different opportunities. Over its more than twenty years of existence, Frigstad Offshore has been able to engage in a variety of different projects. Being dynamic, the company has the capability to turn around quickly when conditions change.
The flip side of this, in the short term, with most of the projects and activities being quite large in proportion to the company’s size, is the limitied number of projects we can manage simultaneously.
There was a global financial crisis of which the Asian markets have already recovered quite well. What was the direct impact for Frigstad Offshore?
The direct impact was that it became virtually impossible to fund projects in the same way as before the crisis hit. The most prominent effect was on the company’s plan to launch another new build project, similar to the first ultra deepwater semisubmersible project that is still ongoing, to build one or more rigs of our Frigstad D90 design. A separate company, Frigstad Discoverer Invest Ltd (FDIL), was established for this first project, funded by a combination of equity and bonds through private placements and listed on the main board of the Oslo Stock Exchange. The credit crunch put a, at least temporary, stop to the plans of doing a repeat project. However, such opportunities are slowly coming back again which shows already in the amount of smaller projects being launched. For larger projects, it will likely take longer among others as this requires a significant amount of equity.
Ten years ago, the founder of the company, Mr. Frigstad, decided to shift the focus of the company towards ultra-deepwater projects. How does this reflect today in the company’s projects and the offer Frigstad Offshore brings to the market?
The development of ultra-deepwater designs is a lengthy process requiring a lot of energy and resources in order to keep the focus of the company on this niche. So far, this strategy has paid off since the first rig has been financed and is now getting to the point where it can be delivered and go out to drill. At the same time a contract with a large international oil company has also been secured. In the third quarter of 2007, FDIL was acquired by Saipem who has secured a 5 year drilling contract with an international oil company. This reflects the broad market acceptance Frigstad Offshore and Frigstad Engineering have achieved for the project and the rig design. Further to that, the company continues to have a strong belief in the ultra-deepwater market. Nevertheless, the company will not overlook other opportunities if they arise.
Today, what are the main characteristics of the Frigstad Group and what is the kind of services you can offer to your clients?
Frigstad Offshore is primarily focusing on project and operational rig management, being refurbishment and new build projects. Activities of this kind are the company’s priorities and constitute niche services requested by Frigstad’s clients. When the first Frigstad D90 new build project was launched, there was a boom in the industry. Building slots were being taken up and prices were increasing rapidly. This was a reason for Frigstad to secure a contract with a yard in China rather than Korea.
In the meantime, the price differences between China and Korea have decreased. Six to nine months ago, no orders were placed during the credit crunch. At the same time, the competitiveness of Korea on commercial terms such as price and payment terms has also been increasing quite significantly. Thus, as of today, Korea is also a very likely place to go next for Frigstad.
To be honest, this is not a severe strain. Frigstad Offshore has got offices in Norway and Brazil, while it is common for anyone involved in this industry to travel frequently.
Singapore’s proximity to the Asian markets is a great benefit. There are offshore drilling related activity and deepwater areas all over the world and Frigstad Offshore’s presence in Singapore for over twenty yearsis a testament to our view on managing offshore drilling projects and activities from South East Asia and Singapore in particular.
Apart from the major project that was postponed during the crisis, what are the upcoming developments and projects Frigstad Offshore is currently undertaking?
The company continues to focus on such major projects. It is not an activity that is placed on the shelf and taken back when the market improves. The company is continuously involved in various projects but it is difficult to say when exactly new major projects will be launched. At the same time, Frigstad Offshore is working together with financial institutions, other rig owners, shipyards and so on, to handle smaller projects. While the company has primarily been managing rigs on behalf of other companies, Frigstad’s objective in the longer term is to become the operator of its own rigs.
What will make the difference between failure and success in the long term strategy?
Besides a number of external factors, Frigstad Offshore will continue to focus on its core strengths and remain an attractive employer. The most important aspect is probably to keep attracting new talent. The company’s attractiveness on the labor market once again exists in its small size, enabling employees to have a larger influence on decision-making, setting directions for the company strategy with the additional benefit of working with projects involving the very good rig designs from Frigstad Engineering.
What are the competitive advantages of this design?
Designing and constructing a drilling rig you have to make certain critical decisions which involves accepting a number of compromises with respect to cost, weigth, size operational capabilities etc. If you set out to do this, starting with an entirely clean sheet of paper, rather than e.g. attempting to modify an already existing design, you are in a much better position to impact the end result and reduce the number of compromises that you have to make.
In the development of the Frigstad D90 design, Frigstad Engineering focused on the main purpose of the rig, which is to drill wells. The concept was established on the basis of our own experience and our predictions of future technical and operational rig requirements, along with input from major equipment suppliers, oil companies, other driling contractors and industry authorities and governing bodies. The end result is a modern an extremely well-packaged ultra deepwater semi submersible rig with capacities and efficiency which goes beyond other rigs in the market place, while still applying proven and well-known technologies.
There is more demand for rigs while at the same time, there is concern about market fluctuations, versatility and operating costs. How does this product fit in accordance to current industry demand?
One of the decisions that were taken in the design process was to focus on the worldwide deepwater market except Norway and the Barents Sea niche, because of its “ultra harsh environment” and special regulatory regime. This automatically takes away some essential cost-driving and capacity-hampering factors which would reduce the competitiveness of the rig when operating outside of these niche areas. The Frigstad D90 design is able to cover 95% of the world’s deepwater areas.
How has the market received the product?
The market has received this design very well and there is in our opinion a clear need for this product. The industry is moving towards deeper waters, operating at more remote locations and drilling more complex and demanding wells. As operational criterias change, many units out there are being stretched to their limit.
Is this design in a way spearheading what the industry is heading for?
In a way it is. There is nothing groundbreaking about the methodology and technologies. It is all about being able to make the right decisions, prioritise & focus on the key operational objectives which the rig is meant to satisfy. , Delivery of the first Frigstad D90 will be a very important milestone for both Frigstad Offshore and Frigstad Engineering, and we hope and believe this will give us a boost going forward.
As for the return on investment for the investors putting their confidence in this project, what has been the result so far and is it still a good choice for investors to consider Frigstad Offshore?
If you ask the investors that gave us their confidence during the first project, I believe they would respond that they are very satisfied with the return. Frigstad Offshore keeps in touch with many of them to provide another investment opportunity as soon as a next major project can be launched.
How will the Deepwater Horizon disaster affect the industry and how will Frigstad Offshore manage to adapt itself to any changes in regulation?
This question lies on everybody’s lips these days and it is difficult to predict what the outcome of the investigations will be. The immediate consequence is that the supply and demand for this type of rigs hastermporarily shifted, a challenge for any company trying to raise funding for deepwater new build projects. Most of the consequences will likely be of a procedural and regulatory nature, with tighter requirements for independent third party verification of procedures and well design & -engineering, test routines for equipment and so on. On top of that there might be some equipment-related changes as well which may be of benefit to companies like Frigstad Offshore and Frigstad Engineering which are at the forefront of developing and integrating the latest technology.
Is there any reason to see the owners of the rigs asking or passing on more responsibilities to the operators?
The contractual regime that is in place today is probably strong enough from a drilling contractor’s perspective and is unlikely to change over time. Even today, it is the operator that is taking overall responsibility of the drilling operations. Essentially all the activity taking place on a drilling location involves many different parties, all under the coordination of the operator, being the oil company. The principles of allocating risk and liability between the many different parties involved in offshore drilling operations are unlikely to change in my opinion. Nevertheless, or rather as a consequence of this, offshore operations in general will most likely be subject to closer scrutiny not merely from external parties, and I believe operators will be monitoring and controlling their subcontractors to a greater degree than before.
Conditions in Northern Europe are not as nice as in Asia. There is uncertainty, the need for reconversion etc. Why will Singapore capture more compared to hubs such as Stavanger and Aberdeen?
In general, there is a shift in focus on a lot of areas towards Asia as a region of emerging economies. This makes Singapore an even more important hub within Southeast Asia to get access to its growth markets. On a personal basis it is good for expatriates to come and live in Singapore which, besides being a very pleasant and well functioning environment to be in, provides an excellent opportunity to increase your network, and to see and learn to understand new cultures.