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Interview

with Terje Skeie, Senior Vice President, Europe, Welltec Norway

28.03.2013 / Energyboardroom

In Norway, Statoil and Welltec have a very strong relationship, having established a number of firsts for well tractor technology. Can you sum up how important Statoil’s partnership with Welltec has been in pioneering this field?

Lars Mangal (LM): Welltec essentially got started in Norway and subsequently from the very early days of us pioneering the electric line (e-line) well tractor in the Norwegian market, there has been a strong collaboration between the major Norwegian operator, Statoil, and our company.

Statoil became the early adopter and champion of this technology in the industry. When you look today at how widespread the adoption is of the e- line well tractor system is, it has clearly been game changing not only in the Norwegian sector, but also on a global scale. Welltec and Statoil have worked diligently to bring this technology to the market.

Statoil has always been an embracer of innovation and an early adopter of technological developments. Welltec has a very strong spirit of innovation. We aim to pioneer new technologies and we are a company always looking for opportunities to make a difference. We seek out disruptive technologies to change not only the way things are done among our customers but to create value for the industry. The results Statoil have experienced from this adoption have led to more and more developments with them. Welltec has over the years introduced many innovative products for new applications for the oil and gas industry, primarily in the production domain, but more recently in areas such as the completions segment.

We are in fact pursuing several new developments to create value in the completions domain today. But over the years with Statoil we have introduced a whole new range of intervention technologies and methodologies that have changed the way Statoil operates its intervention programs across the board on all of its oil and gas assets.

Today we are enabling the operator to replace coil tubing intervention methods and jointed pipe intervention methods. We are even going one step beyond to replace semi-submersible interventions for subsea wells. These are truly game-changing technologies as we work vey closely with Statoil to understand their requirements and generate ways to create value for them.

Terje Skeie (TS): When Welltec introduced the well tractor the first client was actually Conoco Phillips. Operators across the board in Norway have seen the need to develop new technologies and have made their ambitions very clear. They want to replace heavy intervention methods and they are moving further and further to subsea wells. This is well known to the service industry and the opportunities it brings for Welltec. Innovative product development is a very clear objective in their business model, much more so than some of the countries outside of Norway. However, Norway is having an influence on the global oil and gas community and non-Norwegian oil companies.

Many of the production challenges that you find in Norway can be found in other markets as well. What is so specific about Norway that attracts a technology-driven company like Welltec?

(LM) This is something that we consider as we look at various markets. For example, just across the North Sea is the UK sector which has a number of similar features as the Norwegian side; mature with highly depleted wells and lots of challenges with respect to reservoir maintenance and well integrity. Nonetheless, there are very different approaches being taken between the Norwegian sector and the UK sectors despite being adjacent to each other.

There are of course other areas where you have large offshore developments such as the Gulf of Mexico, Brazil and West Africa. All have different challenges, considerations and fiscal regimes. Ultimately it comes back to the macro drivers for the market; fiscal regimes, production sharing contracts, regulations, direction from the government and so on that supports the development of the industry which in turn sets the stage for how things progress.

From the very early days in Norway there was a strong focus on maximizing recovery which became the overriding driver of why production maintenance and well work activities have been so strong here compared to other markets. This has forged a partnership between Welltec and Statoil from the very early days to bring technologies that were going to complete the portfolio, enable the step change and support continuous strides to improve the recovery factors from the offshore Norwegian Continental Shelf (NCS).

What Statoil has realized is that they are creating as much value by focusing on well work, production maintenance and improving recovery factors on existing assets as they are by bringing new developments online. In fact they have done parallel comparisons on the value creation of drilling new wells and enhancing and maintaining production on existing assets. The findings revealed, on balance, the return on investment is on a par; hence they have pursued the two tracks very successfully — perhaps more successfully — than any other operator. Indeed, this is one of the flagship successes of the industry.

We had a comment from Mr. Pedersen of Petoro that there was a danger with the renewed E&P activity in Norway and that operators would start to look more towards new developments at the risk of a potentially neglecting more mature assets. What is your feedback of that assessment? Is there still a strong focus on enhanced oil recovery in this new oil and gas boom?

LM: I am not that current with the look-ahead in Norway, however I expect that the focus on improving recovery and maintaining extremely high rates from assets — new and old — will continue to be pushed by the operating companies. The engineers and operating teams at Statoil will continuously be challenged now and in the future to improve those recovery factors. I don’t think there is any letup or any signs that they are realizing diminishing returns on the investment they are making. On the contrary, they are seeing tremendous upside and the return on investment is extremely strong. I see no indication that the focus will shift towards new developments.

With respect to those large developments coming online, the focus on recovery, best practices, and the knowledge gained from mature assets will be incorporated into those projects and form part of their design concept. But I don’t anticipate there will be any reprioritization away from enhanced well work production maintenance activities that directly support improved recovery from assets.

TS: There are a lot of new fields being developed which is bringing about a change in Norway because of a dramatic increase in the number of operators in the market. New players may have different expectations on recovery to those we have established here in the Norwegian market. We seek to challenge those mind-sets to continue to strive for much higher rates of recovery than the global average.

It is an industry assumption that subsea wells have a much lower recovery rate than platforms. However, Welltec is positioning itself as a light well intervention specialist, capable of increasing subsea well recovery substantially. The more innovative we can be with our portfolio of projects the greater the possibilities for higher rates of recovery from subsea wells. Our approach and our success, therefore has a direct impact on how the industry functions overall

LM: The pioneering efforts of Welltec to champion open water e-line intervention in subsea wells — referred to as “riserless light well interventions” (RLWI) — is a methodology that is changing the game for very high value oil and gas assets in the subsea domain. It has the potential to be applied around the world and it is resonating with many major operators who are now looking at it as an extremely viable method to enhance recovery from subsea assets. Welltec has staked its name and been recognized as one of the key pioneers in that space with respect to all the well work associated with RLWI on subsea wells.

TS: The first light well intervention job where we applied this approach with our technology was in 2001 in Norway. The North Sea has certainly been the center for this type of work but gradually we have seen a applications growing in the Gulf of Mexico and Asia but we are now talking 12-13 years since it we first started it in the North Sea. As it stands today, the Norwegian market is booming in subsea intervention, but has some way to go in other global markets.

You talk about this being a game-changer for the technology you are applying. Have you done any studies on the recovery rates that you can have for a company like Statoil?

LM: We have had a significant impact. Enabling access into subsea wells provides a step change such as doubling the recovery factors. By being able to intervene regularly and cost effectively on subsea assets you are potentially doubling the recovery factors, if not more.

TS: I would add that Statoil is very focused on safety and the environment. Our light solution, which can be flown out by helicopter contrasts strongly with the big solutions, which involve heavy lifts, HSE issues, more people and longer time requirements to do something. We also work in the North Sea where the weather is not the nicest in the world. It’s a rough place to work. By using heavy equipment you are committed from the time you mob, to doing the work no matter what weather delays you encounter. The RLWI method allows you to be nimble, to move on and off wells quickly should it be required. This way of doing interventions has also improved the working environment. If you are looking at Statoil’s strategy for intervention methods, they are always trying to move as light as possible.

LM: What’s remarkable is that Statoil, over the years, since the adoption of the e- line tractor and many other e-line based methodologies of intervention they have pioneered alongside Welltec, is that they have been able to completely eliminate snubbing operations from their intervention activities and dramatically reduce the number of interventions they conduct with coil tubing from 40-50 per year to now less than 10. They replaced snubbing interventions in 2005 and haven’t done any since.

From the onset, Statoil was very much concerned about safety. That has been one of the overriding and key objectives of the technological development and pioneering collaboration between Welltec and Statoil. How can we change the game and develop inherently safer operations with respect to their intervention activities? Inherently safer operations meant reducing the number of lifts and the number of personnel placed offshore between Welltec, Statoil and other third parties. Also, the fact that you are intervening with e-line instead of pipe creates an inherently safer well control situation. The value proposition is extremely strong and powerful from a safety perspective. As you take it down the line, you are improving recovery and able to do many more things. The impact even extends to a positive environmental effect through a lower carbon footprint because you are using a lot less horsepower than if you were to use a full scale rig or coal tubing unit.

There is also a well tractor for coil tubing. What was the thinking behind this?

LM: We have done some pioneering work in Norway and beyond on extending the reach of coil tubing. Where there is a clear and compelling value proposition and the need for a customer, Welltec will take on the challenges that other service providers are not able to assume. We have always stepped in and taken on the more challenging projects for the key customers that we work with around the world.
As such, we have pioneered extending the reach of coil tubing beyond its point of lockup, just as we have done for extending the reach of e-line, beyond the point of gravity. Today we remain the market leader for the provision of well tractors for extending the reach of coil tubing.

TS: We support our customers in their well work activities because there is a recognition that a few, specific things that cannot be done with e-line as with coil tubing. We have recognized through the years that almost 90% of what was previously done with jointed pipe and coil tubing can now be done with e-line, but there’s still a few applications where pumping operations need to be conducted down into the well bore which creates the need for coil tubing.
Extending the reach of coil tubing is just a natural extension of what Welltec already does. Our value proposition has been providing inherently safer operations, extending operator’s reach into wells and performing heavy interventions with ‘light’ equipment.
Now we are looking at how we can create and maintain higher degrees of well integrity in zonal isolation with our new completions offering. Continuing down the path of development and disruptive technologies to introduce to the industry another way of creating value, we are now focused on a whole range of zonal isolation, well integrity application improvements through our completion solutions which we will begin commercializing this year. We have already done the first pioneering operations in the NCS and are working actively with Statoil to roll out further deployments during the course of this year.

How do you expect this technology to influence the global industry operations over the next 5-10 years?

LM: If you look at the coil tubing market around the world, then the scope for growth and development is just enormous. We are talking orders of magnitude that really would shock almost anyone due to the potential for growth and expansion of the technology. We are very excited to have had the opportunity to work so closely with Statoil and their partners. Using that relationship as a platform to export technologies in other parts of the world has been fortunate for Welltec. We in fact see that adoption outside the NCS to still be at a very early stage. But of course the adoption rate is increasing very rapidly — albeit from a low base — which opens up many opportunities for Welltec to grow at a tremendous pace. We are a high growth company and will continue to look at accelerating growth on the back of this market opportunity and our solutions.

Welltec’s predictions are that the interventions market will reach $18 billion by next year. The last figure I had for the company’s revenues was $220 million. What type of revenue and market share growth can we expect to see over the coming years?

LM: We have every ambition to continue accelerating our growth and to remain second to none in terms of the provision of e-line intervention services. We will continue our dominance in the niches which Welltec has pioneered and we will remain a market leader in well intervention services. We are also looking at the opportunity to provide a step change in well integrity through our products for lower completions.

That position is well maintained by having a high spirit of innovation. We sometimes refer to Welltec as being powered by innovation. It’s in our DNA and this is extremely strong across the company. It is something that Welltec is admired for in the industry by our peers in the service sector and our customers. We accept challenges that most others would refuse.

TS: We are very thankful for the recognition that we’ve had from Statoil. Our awards and partnership with them have resonated throughout the industry so much so that we have received congratulations from many, including competitors in the service industry. Our recent award of a “4+2+2 contract” with Statoil gives us a strong, majority position with respect to down- hole tractoring and intervention. It is recognition that Welltec has the scope to continue to deliver value, which is one of the key performance indicators that Statoil always maintain with respect to its contracting.

The years ahead of us are at the same time challenging and full of opportunities. We wish to remain as focused as we have been in the past, conveying confidence and quality throughout our operations and above all being the best partner for our customers and prospects to come.

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