Jan Arve Haugan President & Chief Executive Officer, Kvaener, Norway
Jan Arve Haugan President & Chief Executive Officer, discusses the establishment of the new Kvaerner, what differentiates Kvaerner’s strategy from that of its competitors and why 2014 will be a big year for the company.
Kvaerner’s history goes back to 1853. In 2011 Kvaerner re-emerged and got listed on the Oslo stock exchange. Could you start by giving an introduction of Kvaerner today and explain the rationale behind the demerger from Aker?
The demerger from Aker Solutions and the establishment of the new Kvaerner in 2011 was a response to customers’ requests for more flexible and specialised EPC contractors. More flexible, in the sense that Kvaerner would be able to meet low cost requirements through strategic partnerships and local content requirements through regional partnerships. More specialised, in the sense that increased attention to cost and risk efficiency is a prerequisite for a global EPC player and requires a dedicated management focus on project execution and risk management.
The listing of the new Kvaerner on Oslo Børs in July 2011 is a revitalisation of an almost 160 year-old brand and is a result of a process where the previous Aker Solutions’ activities for delivery of platforms and onshore plants were established as a separate corporation – the new Kvaerner. Kvaerner leverages the previous organisations’ combined offshore experience and expertise built up over more than 40 years.
Where is the company focused today?
Today, Kvaerner is a specialised engineering, procurement and construction (EPC) company focusing on executing demanding projects for oil and gas operators, industrial companies and other engineering and fabrication providers. It is an international company headquartered in Oslo, with offices and operations in nine countries which deliver turnkey solutions to its customers, who include some of the world’s major oil and gas companies.
Kvaerner possesses the full value chain of EPC service offerings, providing project management, engineering, procurement and construction expertise. In addition to its own resources and two fully-owned fabrication yards in Norway, the company ensures flexibility and capacity through a wide range of partnerships and subcontractors within engineering and fabrication.
Our project execution model (PEM) is developed based on best practice from many of the industry’s most challenging projects. This ensures safe and efficient project execution and risk management. That being said, PEM is our product—based on that we can deliver power plants in the United States and a concrete substructure in Newfoundland.
Jackets is typically a regional business as you do not transport them over large distances. We have developed and continuously refined our Jacket PEM for execution of EPC contracts fully integrated with our in-house design office and in continuous and close cooperation with the supply chain including steel manufacturing, rolling of tubulars and provision of cast nodes.
The issue related to onshore and offshore production facilities is the inherent complexity. Looking at a drilling rig for example, they are built according a known standard and are moveable. However, the offshore topsides are built for a specific reservoir. If a drilling rig is late, someone else can drill the first well. If the topside is late there will be delay in the production. Time is extremely important for those who are investing in offshore field developments which are big investments executed under strict weather conditions. All components have to be delivered and installed on time, and therefore we say that on-time-delivery is so essential.
Based on the competence that we have built over the last 40 years in the North Sea, our aim is to conduct complex jobs in harsh environments within a certain time window. In order to deliver in time you need to manage concurrent project activities. The critical path in such an execution is what we monitor: we handle the risk, control the delays and know to accelerate. Over these 40 years, project management has become one of our core competences.
What have been Kvaerner’s main growth drivers?
The demand for EPC products and services is driven by the global demand and consumption of oil and gas for transportation, industrial activities and energy production. It is estimated that global energy demand will rise by one-third by 2035, with the majority of this increase coming from the Middle East, India and China).This demand is a key driver for increased capital spending in the development of oil and gas fields.
Several new fields have been discovered, particularly in Kvaerner’s home markets on the Norwegian and UK continental shelves. The accumulated growth in EPC spending between 2012 and 2020 is expected to be approximately USD 75 billion. This represents an increase of almost 20 percent compared to the market forecast made when Kvaerner was stock listed in July 2011.
Our growth drivers are also related to the oil and gas price. History shows that when the financial crisis hit such as in 2008, companies put their brakes on. For that reason, I believe that the market drivers will be the oil and gas price—trending from crude to LNG and probably heading to floating LNG. Thus having the right technical solutions to meet market trends is what we consider to be our drivers of growth.
Naturally maintaining our market share is also a growth driver. If we would do a quick cross reference I would say that looking at everything that has been built in the North Sea, close to 75% has been built by Kvaerner.
We see a huge upside in the industry as a result of the discoveries over the last couple of years. Companies such as ENI and Statoil are moving further North. How is Kvaerner adapting to this trend?
We do already have a track record of designing and delivering solutions into the Arctic harsh environment.
The concrete substructures we provide are an important product in this respect. Harsh environment challenges as we have in the Arctic region require technical solutions that withstand weather challenges. In the Caspian Sea region, where we have had substantial business through the Kashagan hook-up project, we are coping with Arctic weather during the winter and a tropical climate during summer. In this region we built a technical design that can withstand 40 plus and 30 minus degrees Celsius.
Technically, we do have experience in meeting requirements of harsh environments due to our 40 years of experience in the North Sea.
As a final question, could you give our readers two reasons why they should by shares of Kvaerner?
The market is prosperous and the regions we are focusing on are very robust.
Moreover I believe that the value of the company is driven by our ability to deliver. We are aiming to deliver on our commitments and that is what we are communicating to the market. We are not promising glory days but predictability.
The more predictability we demonstrate, the more it will reflect on the price of the company in the long term.
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