Alf Ragnar Lovdal, CEO, North Atlantic Drilling Ltd, Norway
Would you start by introducing North Atlantic Drilling to our readers and explain how it emerged from the Seadrill Group in 2011?
North Atlantic Drilling was established in 2011 as the harsh-environment drilling operator within the Seadrill group. Our goal has been to cover all harsh-environment drilling operations east of Greenland, including Ireland, the UK, Norway and the North of Russia. Since our foundation, we have been bringing new rigs into our fleet every year, this will continue in 2013 and 2014 and we even have a rig, which is currently being built on speculation, ready for 2015.
North Atlantic Drilling is a relatively new name in the industry, though the company itself has roots going back over 40 years, as a part of Seadrill and before that Smedvig, which was the first Norwegian drilling company to build a rig back in 1971. North Atlantic Drilling is therefore one of the pioneers of Norwegian drilling.
Overall the separation of the harsh-environment drilling business from the rest of Seadrill’s operations has been well received by the industry as well as by our own employees. North Atlantic Drilling is operationally independent from Seadrill, but we are able to share financial instruments and knowledge between the two companies. Both companies are also based on the same management system, which has been developed over the last 30 years. Our management model is therefore well established and functions efficiently with that of Seadrill’s.
Regarding our personnel, Seadrill and North Atlantic Drilling have been running specialist education programs for drilling personnel for many years. Out of the 1,400 employees now working at North Atlantic Drilling, approximately 400 have passed through our in-house apprenticeship schemes. This training is fairly unique in the industry. Our company brings a lot of experience to drilling operations and our employees have worked across most of the North Sea and Atlantic basins; the company was previously even involved in platform drilling.
How important have your apprenticeship schemes been in dealing with the major human resources challenge facing Norway?
Our apprenticeship schemes are a collaborative effort. North Atlantic Drilling has an agreement with the Offshore Technical College in Stavanger in which theoretical work is conducted at the university and practical work is carried out on our offshore rigs. We believe that this split between the school system and our practical training, coaching and monitoring offers a great development prospect for our employees and is a good reason for them to come work with us and stay.
The turnover in our business is around two percent, which is very low for the industry and I believe that this is an indication that our employees appreciate working for North Atlantic Drilling. In addition to the high-quality training, we are a fast growing company significantly building our rig capacity. Having to man up rigs with 120 people every year provides a lot of career opportunities for our employees and those with experience have great opportunities for promotion.
People will always be tempted by higher rates of pay. However, I hope that we can continue to be a preferred employer and that we are able to convince people that we are the right choice.
In view of the strong harsh-environment drilling market, what are your growth expectations for the coming years?
We see strong growth opportunities over the coming years and that is why we are making such large-scale investments in the rig fleet. There will be a need to replace a significant number of harsh-environment rigs, which are currently between 25 and 40 years old, over the next 3-4 years.
North Atlantic Drilling is consolidating and building its dominant position in this market with our new units. We are also taking part in tenders for newbuilds.
I also see a potential for the company to expand its operating area. Today the majority of our rigs are in the Norwegian sector, but we have ambitions to cover the entire North Atlantic, east of Greenland. We already have an operation in the UK – West of Shetland for Total UK and we are focusing on having more rigs in the UK in the near future.
Generating growth will depend not only on an increased geographic coverage and more rigs in the market, but on putting the entire portfolio of rigs into the market. North Atlantic Drilling is the only company with a complete spectrum of harsh-environment drilling rigs ranging from jack-ups, to semi-submersibles and drillships. To capitalize on the overall growth in the market we will be looking for growth across all parts of the drilling market.
The next rig, coming in in the winter, has already secured a long-term contract with ConocoPhilips on a five-year charter. This has generated a secure revenue stream for the company. Demand is strong and we currently only have one rig, which has not secured a contract.
Given that your ambition is to become a pan-North Atlantic player, how hard is it to move your rigs across all the various jurisdictions, given the discrepancies of regulation?
We have been successfully moving rigs across these jurisdictions for the past 40 years and we are fully aware of the different rules and regulations. We can also observe some convergence in the regulation of the harsh-environment drilling market; indeed there are aspects of UK regulation, which now are equally as stringent as that of Norway. It is a great advantage that we know how the regulations function in practice as opposed to just on paper and our long history in the industry has allowed us to track these changes.
The rigs that we have on order are being built to comply with the most recent regulations in both the UK and Norwegian markets. This means that they will be able to swiftly switch between jurisdictions. Ultimately, if you know where your rigs are going to operate and you design a rig for those areas, the cost-differential between that rig and others operating exclusively in one jurisdiction, is not significant. The rig-cost factor is really nothing when compared to the personnel cost. Therefore our operational focus on the North Atlantic is to keep the cost-level appropriate for this area.
How do you see the progress made towards operating beyond the NCS and the UKCS?
It all depends on the oil companies; we will follow wherever they decide to drill. Growth in the UK is definitely a key target for us in the coming years. Having only one rig in this market is not very efficient for us. We will start to enjoy greater efficiency with two or three rigs in this market. We have always had some activity across these markets, but now we are after more permanent positions. When we return to these markets, we are seeking to add some length to our drilling contracts.
From an operational standpoint, we have already conducted some of the most advanced drilling in the industry to date. North Atlantic Drilling was responsible for the northernmost harsh-environment drilling ever conducted, on the Norvarg field for Total in the Barents Sea. The company has also drilled the deepest well in the Atlantic Ocean, to the west of Ireland at 1,920m water depth, using the ultra-deepwater drillship West Navigator.
Given these past achievements, what does the 22nd Licensing round mean for your business?
North Atlantic Drilling is on its way into the Barents Sea and will be operating there for the next four years with the West Hercules for Statoil. We want to take advantage of this contract to continue to build our experience of operating in the area. A year-round operation in the Barents Sea requires other skills than those required elsewhere in the North Sea and the Norwegian Sea.
Our entire operation involves careful risk management. We have to be humble about operating in this environment. The main difference is the low temperatures faced in this environment and we have taken the opportunity to winterize our rigs and provide better heating to make the environment more pleasant for our workers. We are applying the same drilling techniques and protocols, but we also need to plan better, because the infrastructure is placed further away from the shore and you need better supplies and more effective back-up mechanisms. Planning and logistics are therefore the biggest change for us when operating in this region. There are special requirements laid down by the PSA for this area and we are happy to take these precautions.
How do you see the 5-year development of the company?
We would like to have a hub of operations on the UKCS in the southern part of the North Sea and we would also like to have a hub in the high North. The northern area of Russia is also interesting for North Atlantic Drilling. The Russian part of the Barents Sea could become a very interesting area of exploration going forward and we are pretty certain that the company will secure at least two contracts in the area over the coming five years. We will need to adjust to operating in an environment with ice flows and this will mean working only during the summer season, but we believe that it can add a lot of value to the company.
Our vision is to set the standard in drilling. We know that we are not there yet, but we do have some pockets of excellence and we are trying to grow these. High ambitions attract motivated employees and if our clients say that we are setting the standard, then we will have met our ambitions.
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