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Interview

with Torkell Gjerstad, CEO, Acona Wellpro

18.06.2009 / Energyboardroom

2008 showed a lot of activity here at Acona, and most recently there was the merger between you and WellPro. Would you bring us through some of the highlights of the last year that stand out in your mind?

A main trend on the Norwegian scene has been introduction of new oil companies. Going back to the beginnings of the industry, traditionally only the multinationals were present, with the Essos and BPs of this world, plus Statoil, Hydro, and Saga once upon a time. These new companies come in all shapes and forms, but many haven’t got a large organization, and are certainly not integrated oil companies, and therefore need a lot of services and sometimes integrated services. The idea with Acona since 2006 has been to provide the wealth of competencies that particularly the new oil companies will need. Even so, the company’s largest client is StatoilHydro, but it’s difficult for that not to be the case when one player represents 80% of NCS production, and consequently 38% of Acona’s revenues. However, Acona’s business with the new companies has been increasing, particularly within drilling management, where we have Aker Exploration as our biggest client alongside Nexen and Centrica. Last year, Acona began establishing an emergency preparedness centre, officially opening in March 2009, that is an excellent example of a service directly applicable to smaller companies, in which there simply aren’t enough people to man such an operation.

During last year’s APA round and the 20th licensing round, Acona secured a lot of work related to G&G services. We are selling a product called the Barents Sea Report, which acts almost like a starter kit for the northern areas, and showed a great success in 2008.

Arctic Web is another interesting product launched last year, which is an idea originating from a seminar at Svalbard. Although there is such a strong environmental focus on the Arctic areas, it was still very difficult to find the best, most up to date, and reliable environmental data. Acona kicked off a project that ultimately took two years, with five oil companies as sponsors, creating a web portal where it’s possible to find the most up to date information on seabed conditions, the sea itself, fisheries, wildlife, protected shore areas, etc. As we developed this, Acona realized the scope could be widened. The first step was widening it to the whole NCS, because it was more difficult to reserve it for the northern areas than to take the whole Norwegian Shelf, which implied agreements with the governmental agencies that collect a lot of this information. Upon doing that, we realized we could find all sorts of other data, from the Ministry of Petroleum and Energy to the NPD on anything you could think of, and the beta release is out now. From this program, anyone who wants to drill a well can find out very quickly what time of the year there may be restrictions on seismic activities, the right areas where not to drill during the summer, in the event of a spill what the situation is with wildlife, fisheries, and spawning in whatever time of year, etc. In the future, this system may be extended to North America, because it has been presented to US and Canadian governmental bodies interested in developing a similar program.

This entrance of newcomers to the industry has been followed by a wave of consolidation, and Acona itself has participated in this regard – what made this an attractive transaction, and what is the expected impact of the WellPro merger?

Firstly, it doubles the company’s size, to a total of 320 people, two thirds of this falling within well engineering and drilling management.

If you want to provide these kinds of services which are often integrated, particularly with environmental and safety related regulatory matters, you have to have a certain size. An adequate size allows both the capacity to man every project and the flexibility in terms of responding to the smaller oil companies, which don’t have large drilling campaigns – sometimes needing just one well. This ability to man up and down means that our capacity, and thus flexibility, is key. With some 215 people in well drilling and engineering, Acona is home to the second largest department in Norway after StatoilHydro.

This size is interesting considering that you’re serving mainly the smaller companies – do you see some risk in growing to become larger when many of your counterparts cite small size and its advantage in being able to relate to and serve clients better? How will Acona remain partner of choice for the smaller companies?

Acona doesn’t have a vision of becoming super large, but we understand the need to have a breadth of competencies, because we help oil companies become an oil company. In a sense, Acona is an integrated oil company on a microscopic scale. Acona is still a small company by whatever scale used, although at double the size of our nearest direct competitors in Norway, we’re definitely the largest player. But this kind of company is new. Multinationals are interested mainly in consulting placement – they do everything in-house, and are looking for capacity only. New entrants are also obviously looking for capacity, but also the competencies they don’t have themselves, and the systems to go with it, like for drilling management or field development. Also, larger companies like StatoilHydro don’t place frame agreements with very small players any more, so size is another necessity in this regard. Acona is a good example of size evolution, having started with just Acona, then acquiring the company that is now Acona Geoservices, merging with CMG, then merged with a company which had been for 10 years been building up a next of kin service related to emergency response, then with drilling consultancy RGM later on in 2008, and now with WellPro, which itself is the result of three or four mergers. In sum, these activities were done to achieve necessary capacity and wealth of capabilities, to be able to handle anything.

If somebody said the company would be more competitive by breaking it up into individual companies, we wouldn’t believe it. Although we’re still small, the concentration is very much on Norway. In fact, local demand has remained much stronger than supply, such that even in the first quarter of 2009, Acona has no spare resources, and things are actually picking up again these days, slowly back to the situation of 2007 and the first half of 2008.

You mention the focus being still in Norway – although you also cite North America, and have an office in London. What is the international vs. domestic focus in terms of strategy?

The strategy is to become an integrated consulting house that can help oil companies with basically anything, and to do that in Norway first. There are two reasons for that: the first is that the demand is so high, and the second is that you must crawl before you can walk. Acona has some contracts abroad from time to time, such as a large project with Weatherford in Houston from 2002 to 2005, but generally we say no to such arrangements because it takes a lot of time to build the business outside our core market. That being said, Acona will probably be shifting the focus towards going international, but maybe from 2011 and onwards, when we have really consolidated not just the company but the kind of services provided. There’s a trick here, in that there hasn’t been a company like Acona before, so even the smaller companies have been thinking they need, in order to drill a well properly, separate companies with well engineering and drilling competencies, environmental competencies, site survey, emergency response, etc., so there’s an educational process to make them realize that companies like Acona can be a one-stop shop for an integrated package. And this process takes time.

How will you educate the public?

It’s basically a process of talking to all the companies – you can’t provide integrated services unless you are among the best within each category. Then, you generally have to show that it’s within their interest, and much easier to avoid multiple interfaces, in just going to one place to buy an integrated service.

As an example there are rig consortia of new operators which will probably for the first time be asking for a rather integrated set of services. Aker Exploration as well has shown this trend, having asked for drilling and well engineering, and realizing they would also need a solution on the environmental side, so the addition with them has been emergency response, which they didn’t know they could ask for! All the time, Acona is getting clients to realize it’s very easy to come to us, because you can get it all integrated from one supplier.

Now that you have this integrated portfolio of services, making people aware as quickly as possible, what would be your dream project here at Acona?

We have a couple of these dream projects already, so the dream would perhaps to just have more of these! The dream is to have a portfolio of clients which requires a stable team with all the right facilities, emergency systems, etc. That’s the main topic for 2009.

What are your projections for the three to five year time horizon?

Acona is working on a concept that we want to be a house of competencies, and we’re continuing to build that. There are some competencies still missing, for example subsea production. In terms of size, we will be turning over close to NOK 600m this year, and will probably reach NOK 1bn in the next couple of years, partly organically, but also through more M&A activities, probably not much more within drilling, but within production, subsea, and subsurface.

Acona is still building the house, so we have to finish that job which will take another couple of years, and then the next link will be to go internationally. In my opinion, it’s important to not go international unless you’re doing it from a very solid home base. By doing it properly, it will be that Centrica or Petro-Canada or others are very happy with our services in Norway, and wouldn’t hesitate to recommend us to companies within the same group – looking at the number of contracts we have, some 90% are won directly by our clients just coming and asking us to do work. It’s only with large, integrated drilling management contracts that we officially compete with invitations to tender, and that’s because of EU regulations.

What is your final message to OGFJ readers, particularly in Norway, as you build that house on the way to becoming an integrated solutions provider, but also internationally where we can expect to see you in the future, about Acona and what they should know about you?

A very important message is to make this new regime work in Norway, with 70 oil companies rather than some 15 or 20, you need a new category of service providers that will be able to take on a more integrated responsibility – and they need to take part in building that, because they need it. They also need to work with the authorities so that, for example, the Norwegian Petroleum Safety Authority will accept the idea of placing formal responsibilities with a service provider. This has already happened in the UK with the duty-holder concept. It’s impossible to have a duty-holder type of position in Norway, because of the regulatory regime. In my view, that will need to change, and if it doesn’t change formally, at least it will need to change practically. There is some friction going on because things haven’t fallen into place yet, and if they don’t it will become very financially inefficient, because newcomers will be required to have many resources they don’t really need, like capacity on the drilling side, but what’s the use of that if you’re only drilling one well per year? It would be a waste of money and people. Quality comes very much from people working continuously in a team, everybody knows that. You can have as many regulations as you like, but if the team isn’t used to working according to certain systems and procedures to optimize themselves over a period of time, it’s going to be inefficient.

If this is going to work, the way the industry is set up to deal with it has to change. It has only started to change in my view, and over the next two to four years, some practices will prove to be good, robust, and acceptable from all stakeholders. It’s a very interesting process where Acona wants to play a part, and while we can’t dictate how they do it, we will provide a very good service that they come to subscribe to, and by default be part of shaping the new agenda.

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