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Interview

with Svein Ilebekk, CEO, Cairn Norway

28.03.2013 / Energyboardroom

The Agora management team was largely responsible for building the extremely fast-growing exploration company Revus before it was acquired by Wintershall. How is this acquisition by Cairn different in nature from the last time?

Ten years ago, a group of individuals from consultancies and enterprises joined forces and created Revus. The company was bought by Wintershall. Given the economic situation at the time, it was natural to be taken over by Wintershall. The managers then left Revus to found Agora.

Despite the terrible financial market at the time, Agora managed to access capital to maintain the company from Lord Rothschild. The company had a good start with discoveries at an early stage. While discoveries equate to exploration success, it is even more important to know how and when to sell such discoveries at a competitive price. The company therefore focused on development and production, which would require additional capital. The company met with Cairn, who had exactly what was needed in terms of human resources and capital to carry the discoveries forward. The match is therefore very good this time.

Cairn has certainly brought significant financial muscle to Agora’s operations as well as resources. How are you now positioned in relation to the 22nd licensing round, and the 27th in the UK?

Cairn will carry on as an exploration company. Exploration is Cairn’s strength, as well as development and production: Adding value across the pipeline. Cairn will remain as a non-operator in Norway, as opposed to the UK where the company does operate. If the opportunity is there, Cairn will also consider operatorship in Norway. For the time being the main focus in Norway will be to continue exploration and create higher equities. [subsequent to the interview the 27th UK license round has occurred where Cairn has been allocated a number of licences]
Cairn Northwest Europe will cover the UK and Norway, which will focus on operated and non-operated exploration, as well as non-operated development and production.

Cairn’s CEO, Simon Thompson said that the acquisition of Agora allowed the company to balance out the transformational assets that you have in Greenland and India with a lower risk and fast development projects in the North Sea. Do you see this acquisition affecting the type of assets that you are targeting from a risk perspective?

I think that when Agora met Cairn for the first time, I perceived Cairn to be a company willing to take on risk, particularly in West Greenland. The beauty of Greenland is that there is access to a huge area and I think it will be exciting to see the next group of wells being drilled there. I have also been impressed by how rapidly Cairn has positioned itself both in the UK and Norway, both of which are lower risk countries. All exploration takes on risk, though. For example, if you have a 30% probability of discovery, there is a 70% chance it will be a dry well. If you are not willing to take on risk you should not be exploring. Our strategy revolves around finding value at appropriate risk levels.

On the NCS there is a higher percentage of discoveries found after exploration compared to many other areas of the world. Do you think that the North Sea has any innate qualities that make it a steady base for discovery?

Ten years ago, there were 18 companies active on the NCS, with about ten wells drilled per year. Then the authorities introduced the Awards for Predefined Areas (APA) as well as the numbered rounds every second year. In 2004 the tax was changed in Norway which incentivised exploration. Today there are 50-70 companies active on the NCSand 40-50 wells drilled per year.

What do you see as the main difference between operating in the UK sector and the NCS?

I believe this is about the nature of the company. In Norway there are still many of the majors: Statoil and Petoro have a dominant position in Norway. The same-sized national companies in the UK North Sea do not really exist, and instead there are many smaller companies. Quite a few of these smaller companies have probably been involved for a while and farm out to enable them to develop projects.

Given the issue of capacity in Norway, particularly regarding skilled labor and rig access to drill on wells, do you see there being any log jams in Norway as opposed to freer access in the UK?

The biggest obstacle to overcome in Norway for upstream activity is access to rigs. Therefore there are a few rig consortiums in Norway that have been very successful. Access to exploration rigs has increased significantly and that is the reason why Revus became an operator.

You have more capacity now to launch projects in both Norway and the UK. From a personnel point of view how much are you looking to expand?

Cairn does not want to expand for the sake of expansion. If the company continues to bring on quality licenses there will be an increased demand for manpower. Cairn has a resource pool in Edinburgh on which to grow, but the company’s headquarters do not have a large staff. The access to quality people applies everywhere, and there is constant headhunting in the industry worldwide.

You mentioned earlier that we see a lot more players on the NCS compared to a decade ago. The number has increased from 14 to 80 companies engaged in upstream activity in Norway. How would you see this company positioned on the NCS and the UK side in about five years?

I think you will see that some of the smaller independent companies in Norway will struggle in the future because money is available to them only for quality projects.

For Cairn Energy, what are your ambitions for the next five years in terms of what you would like to achieve?

This is about value creation for the company, which is to access quality projects both from exploration and also development and future production.

As a Norwegian entrepreneur, what has been your experience working for a British company?

I would say that it has been a positive experience. The main machinery of the company is going very well, particularly in subsea service development where the company needs to adjust the services related to this niche. I would say that so far it has been very good, and that there is a very positive attitude from the employees who are extremely friendly. There has been very good communication between the members of the executive team as well.

How will Cairn lead the E&P industry in the future?

I hope that the Cairn Energy will be a prominent player on the map in the future as a very valuable company that has had successful business not only in the North Sea basin, but also worldwide. Cairn certainly has the ability to do so.
Ten years ago, a group of individuals from consultancies and enterprises joined forces and created Revus. The company was bought by Wintershall. Given the economic situation at the time, it was natural to be taken over by Wintershall. The managers then left Revus to found Agora.

Despite the terrible financial market at the time, Agora managed to access capital to maintain the company from Lord Rothschild. The company had a good start with discoveries at an early stage. While discoveries equate to exploration success, it is even more important to know how and when to sell such discoveries at a competitive price. The company therefore focused on development and production, which would require additional capital. The company met with Cairn, who had exactly what was needed in terms of human resources and capital to carry the discoveries forward. The match is therefore very good this time.

Cairn has certainly brought significant financial muscle to Agora’s operations as well as resources. How are you now positioned in relation to the 22nd licensing round, and the 27th in the UK?

Cairn will carry on as an exploration company. Exploration is Cairn’s strength, as well as development and production: Adding value across the pipeline. Cairn will remain as a non-operator in Norway, as opposed to the UK where the company does operate. If the opportunity is there, Cairn will also consider operatorship in Norway. For the time being the main focus in Norway will be to continue exploration and create higher equities. [subsequent to the interview the 27th UK license round has occurred where Cairn has been allocated a number of licences]
Cairn Northwest Europe will cover the UK and Norway, which will focus on operated and non-operated exploration, as well as non-operated development and production.

Cairn’s CEO, Simon Thompson said that the acquisition of Agora allowed the company to balance out the transformational assets that you have in Greenland and India with a lower risk and fast development projects in the North Sea. Do you see this acquisition affecting the type of assets that you are targeting from a risk perspective?

I think that when Agora met Cairn for the first time, I perceived Cairn to be a company willing to take on risk, particularly in West Greenland. The beauty of Greenland is that there is access to a huge area and I think it will be exciting to see the next group of wells being drilled there. I have also been impressed by how rapidly Cairn has positioned itself both in the UK and Norway, both of which are lower risk countries. All exploration takes on risk, though. For example, if you have a 30% probability of discovery, there is a 70% chance it will be a dry well. If you are not willing to take on risk you should not be exploring. Our strategy revolves around finding value at appropriate risk levels.

On the NCS there is a higher percentage of discoveries found after exploration compared to many other areas of the world. Do you think that the North Sea has any innate qualities that make it a steady base for discovery?

Ten years ago, there were 18 companies active on the NCS, with about ten wells drilled per year. Then the authorities introduced the Awards for Predefined Areas (APA) as well as the numbered rounds every second year. In 2004 the tax was changed in Norway which incentivised exploration. Today there are 50-70 companies active on the NCSand 40-50 wells drilled per year.

What do you see as the main difference between operating in the UK sector and the NCS?

I believe this is about the nature of the company. In Norway there are still many of the majors: Statoil and Petoro have a dominant position in Norway. The same-sized national companies in the UK North Sea do not really exist, and instead there are many smaller companies. Quite a few of these smaller companies have probably been involved for a while and farm out to enable them to develop projects.

Given the issue of capacity in Norway, particularly regarding skilled labor and rig access to drill on wells, do you see there being any log jams in Norway as opposed to freer access in the UK?

The biggest obstacle to overcome in Norway for upstream activity is access to rigs. Therefore there are a few rig consortiums in Norway that have been very successful. Access to exploration rigs has increased significantly and that is the reason why Revus became an operator.

You have more capacity now to launch projects in both Norway and the UK. From a personnel point of view how much are you looking to expand?

Cairn does not want to expand for the sake of expansion. If the company continues to bring on quality licenses there will be an increased demand for manpower. Cairn has a resource pool in Edinburgh on which to grow, but the company’s headquarters do not have a large staff. The access to quality people applies everywhere, and there is constant headhunting in the industry worldwide.

You mentioned earlier that we see a lot more players on the NCS compared to a decade ago. The number has increased from 14 to 80 companies engaged in upstream activity in Norway. How would you see this company positioned on the NCS and the UK side in about five years?

I think you will see that some of the smaller independent companies in Norway will struggle in the future because money is available to them only for quality projects.

For Cairn Energy, what are your ambitions for the next five years in terms of what you would like to achieve?

This is about value creation for the company, which is to access quality projects both from exploration and also development and future production.

As a Norwegian entrepreneur, what has been your experience working for a British company?

I would say that it has been a positive experience. The main machinery of the company is going very well, particularly in subsea service development where the company needs to adjust the services related to this niche. I would say that so far it has been very good, and that there is a very positive attitude from the employees who are extremely friendly. There has been very good communication between the members of the executive team as well.

How will Cairn lead the E&P industry in the future?

I hope that the Cairn Energy will be a prominent player on the map in the future as a very valuable company that has had successful business not only in the North Sea basin, but also worldwide. Cairn certainly has the ability to do so.

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