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Norway

Oil & Gas report Part 4 Oslo - the new old city November 2013

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OSLO THE NEW OLD CITY OIL AS FINANCIAL MUSCLE OSLO’S HERITAGE PUSHING OUT EXPORTS THE NORDIC INVESTMENT POWERHOUSE NORDIC PLAYING FIELD 365 DAYS AT THE HELM OF LUNDIN SENERGY: EXPANDING ITS REACH BUILDING A NEW SONGA ADAPTING STRATEGIES NAVIGATING A HIGH-COST ENVIRONMENT

INTERVIEWS

24 INTERVIEW WITH Per Gunnar Ølstad, Senior Adviser of Oslo Stock Exchange 26 INTERVIEW WITH Eivind Reiten, former CEO Norsk Hydro, current Chairman Norske Skog 28 INTERVIEW WITH Jan Arve Haugan, CEO - Kvaerner 30 INTERVIEW WITH Jon Edvard Sundnes, CEO – Tschudi Shipping 32 INTERVIEW WITH Knut Brundtland, CEO – ABG Sundal Collier 34 INTERVIEW WITH Paul Bellamy and Amund B. Tørum, Schjødt 36 INTERVIEW WITH Torstein Sanness, Managing Director – Lundin Norway 38 INTERVIEW WITH Wenche Nistad, Chief Executive Officer - GIEK 40 INTERVIEW WITH

Thomas Fjell and Erik Sandøy, InterOil

42 INTERVIEW WITH

Roy Norum, Chief Executive Officer -PG Marine Group This sponsored supplement was produced by Focus Reports. Project Publisher: Ines Nandin; Project Coordinator: Isabella Romeo Gomez; Editorial Coordinator: Martijn Jimmink . For exclusive interviews and more info, plus log onto www.energyboardroom.com or write to contact@focusreports.net Copyright All rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports. While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. Opinions expressed in this report are not necessarily those of the authors.


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Norway Oil & Gas report part 4 November 2013

Opportunities in Oil & Gas Consulting McKinsey & Company is the leading global management consultancy, and our Oil & Gas Practice is the world’s largest. Our Oil & Gas consultants advise the world’s energy companies, service providers and public institutions on their most important strategic, operational, organizational and technical challenges. To strenghten our fast growing practice we are now looking for outstanding candidates with Oil & Gas experience. Your background can be within capital projects, operations (upstream and downstream), as well as gas and energy trading. We seek candidates with a diverse set of experience from Oil & Gas operators, service providers, or professional services firms. Doctoral and advanced degree candidates in energy policy, geology, geophysics, engineering, and related disciplines are also encouraged to apply. Should you be interested in joining our McKinsey Oslo Office with the Oil & Gas Practice as your main focus, please visit http://www.mckinsey.com/client_service/ oil_and_gas for more information. You can also contact: Anders Brun at +47 98 20 40 10 or Christopher Forr-Rydgren at +47 93 83 51 13. Application via www.mckinsey.com/careers/apply, referring to the Oil & Gas Financial Journal in your application.


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OSLO The new old city

T

he generation living at the time of hydrocarbon extraction is by no means the sole ‘owner’ of its value, and is therefore not entitled to spend it,” explains Sigbjørn Johnsen, former Minister of Finance, which effectively encapsulates the ideological basis for the economic and financial model that Norway follows in order to preserve and grow its oil wealth for future generations. To hedge the economy against fluctuating revenues and to maintain competitiveness in other sectors of the economy, petroleum revenues are invested abroad through the Government Pension Fund Global (GPFG), referred to in the country as the ‘oil fund.’ The profits from this fund are then reinvested back into the economy, building infrastructure and public works that will benefit Norwegians for generations to come, all while continuing to grow the size of the oil fund.


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Norway Oil & Gas report part 4 November 2013

However, the current strategy of the oil fund may now change,

revolutionized life in Norway. “For more than 40 years, petroleum

following the election of a Conservatives-led coalition in Norway in

production on the shelf has created considerable wealth for the coun-

September 2013, which is considering a number of different changes

try. The Norwegian government and regulatory bodies have done an

to the structure of the fund. Proposals from the various groups in

extremely good job in getting the most out of the resources on the

the coalition include splitting the fund into two or three competing

shelf. In fact, other hydrocarbon-rich governments now implement

funds, investing in foreign private equity and infrastructure, or even

the Norwegian model.”

using the fund for direct investment into domestic infrastructure proj-

While it may seem that Norway is benefiting from its attempts to

ects. The fund currently contains around USD 755  billion, with the

diversify its economic base, the problem of over-dependency on oil

Norwegian Ministry of Finance forecasting that the fund will reach

may be more deeply entrenched than the government likes to admit.

USD 1 trillion by the end of 2019. Despite the recent change of gov-

As the Pareto Group, a Norwegian holding company, wrote in its

ernment, Norway knows that its oil and gas will not last forever, and

2012 annual report: “The Norwegian economy was solid to the core

plans to ensure that for as long as possible, its citizens will be able to

– but was probably more oil-fueled than most people realize.” Svein

benefit from this all-too-temporary good fortune.

Støle, CEO of the holding company, explains that with a continued high oil price, “the oil sector will remain extremely profitable and as a result will attract the best people, thus increasing labor costs. At the same time the public sector will continue to grow, while many ordinary businesses are feeling the pressure between a lucrative and profitable oil industry and the public sector increasing its wages.”

Sigbjørn Johnsen, Former Minister of Finance

Christer Tryggestad, Director, McKinsey &Company

Eivind Reiten, former CEO of Norsk Hydro

Despite the attempts of the government to preserve oil wealth for future generations, it is clear that Norwegian citizens today do feel the results of the oil boom in their everyday lives. On The Economist’s

OIL AS FINANCIAL MUSCLE

2013 ‘Big Mac Index’, which aims to show the purchasing power of

The GPFG is open about its investment strategy, its annual results,

citizens in countries around the world, Norway comes in at the top of

and the size of the fund. With investments of the GPFG in over 7,500

the list, at USD 7.51 for a Big Mac, against USD 4.66 in the EU area

companies around the world, in both stocks, bonds and real estate,

and USD 4.56 in the US: in raw terms, the Big Mac is overvalued in

the fund's risk is quite mixed.  And just because the fund has the

Norway by 64.7% when compared to the exchange rate between

intention of diversifying investments away from Norway, this does

the NOK and the USD. There is a danger that Norway’s oil sector will

not mean that energy is left out: the fund is currently invested in 147

leave other industries out in the cold because of the salaries on offer

of the world’s 200 largest companies in terms of reserves of coal, oil

for skilled workers.

and gas. 

However, this situation is not a new one, and despite the challenge

The fiscal guidelines for the fund state that only the profits from

of rising wages and increased living costs, the Norwegians remain

investment can be reinvested into the Norwegian economy. How-

generally stoical, as is their wont. Eivind Reiten, former Minister of

ever, with the fund returning 13.4 percent on its investments in 2012,

Petroleum and Energy and former CEO of Norsk Hydro, sums up the

the second best performance in its history, this strategy appears to

situation by saying: “It has been a consistent issue, albeit a small one,

be no barrier to investment. In the Nordic region, Norway is com-

ever since we found oil in the country. However, Norwegians have

monly referred to as the ‘rich cousin’ for a very good reason.

not broken a single window in any shop over the last 40 years despite

As Christer Tryggestad, director at McKinsey & Company explains, the discovery of oil on the Norwegian Continental Shelf (NCS) has

some challenging decisions. Norwegians citizens are extremely disciplined.”


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Norway Oil & Gas report part 4 November 2013

While economically, the country might be heavily influenced by the

Among the firms that decided to establish in Oslo is Lundin Petro-

oil and gas sector, in power generation at least, Norway has estab-

leum, a Swedish independent oil and gas exploration and production

lished real independence: today, over 99% of Norway’s electricity

company with core operations in Norway and Southeast Asia. “That

production comes from hydropower plants. Around 850 small hydro-

we remained in Oslo was something new,� says Torstein Sanness,

electric plants situated all over the country generate almost all of the

Lundin’s Managing Director. Lundin, with its main offices in Lysaker

country’s electricity. As a result, all of Norway’s produced gas and

in the Oslo area, is involved in one of the largest oil discoveries ever

most of its oil is exported.

made on the Norwegian shelf, Johan Sverdrup, together with Statoil and Det Norske Oljeselskap.

OSLO’S HERITAGE

“In Oslo we take advantage of a larger talent pool. We have seen

Until today, the Stavanger area has seen most of the effects of the

quite a few companies wanting to participate on the NCS setting up

Norwegian oil boom; the city is widely referred to as the oil capi-

their offices in Stavanger. As a result these companies are facing chal-

tal of Norway, despite being a town with a population of just under

lenges, as people stay for only two years then leave. For that reason,

125,000. The largest company in Stavanger, alongside a number of

companies are starting to move from Stavanger to Oslo. Naturally, if

large E&P players working and operating on the Norwegian Conti-

you change out your crew every two years there is no continuity; it is

nental Shelf (NCS), is Norway’s national oil company (NOC) Statoil,

expensive and makes it impossible to establish a company culture,�

which has its headquarters located just outside town. Nevertheless,

Sanness explains. Among other companies that have recently moved

an increasing number of oil-related firms are now setting up head

to the Oslo region is also the French oil company Technip, which

offices in Oslo.

hired an additional 100 staff in 2012.

ABG SUNDAL COLLIER

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Stockholm

New York

Copenhagen

Frankfurt

Lundin Petroleum AB

Dansk Oljeog Naturgas AS

Pertra AS

USD 165m Acquisition of certain assets from DNO

USD 1,200m NOK 500m Bond

USD 155m Sale to Talisman

ABG Sundal Collier Advisor to Ludin Petroleum 2004

ABG Sundal Collier Joint Lead Manager 2004

ABG Sundal Collier Advisor to PGS 2005

Petrobank Energy Corp

PetroBakken Energy Ltd

DNO International AS

USD 250m Convertible bond

USD 750m Unsecured convertible bond

USD 240m Senior unsecured bond

ABG Sundal Collier Sole bookrunner 2007

ABG Sundal Collier Sole bookrunner 2010

ABG Sundal Collier Joint Lead Manager 2011

Wentworth Resources Ltd

Petrominerales Ltd

IGas Energy Plc

NOK 77m Private placement

USD 400m Unsecured convertible bond

USD 165m Senior Secured Bond

ABG Sundal Collier Joint Lead Manager 2011

ABG Sundal Collier Joint Lead Manager 2012

ABG Sundal Collier Sole bookrunner 2013

London

Gothenburg

www.abgsc.no

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11 Even though Statoil is headquartered in Stavan-

in 1972 that was acquired by Norsk Hydro in 1999. After the merger

ger, the company has now opened a new 67,000m2

between Norsk Hydro’s oil and gas division and Statoil it became a

non-headquarters office in the Oslo area for 2,600

part of the latter. “As a result of the merger in 2007, former Statoil,

employees, which has corporate functions and

Saga and Hydro people are dominating many of these newly estab-

heads the NOC’s international operations. The noteworthy structure, costing the company around

lished companies in Oslo,� Tørum adds. He acknowledges that it is a

Amund Bjøranger Tørum, Partner, Schjødt

relatively new trend for oil and gas companies to establish themselves

USD 313 million and comprised of nine-floor build-

in the Oslo area rather than Stavanger. “The most obvious explana-

ing blocks stacked vertically and horizontally, has enabled Statoil

tion is the availability of human resources, which is rather challenging

to consolidate its activities and strengthen its position in the Oslo

in the booming Stavanger,� he says.

region.

PUSHING OUT EXPORTS

Amund B Tørum, Partner at law firm Schjødt, explains that the heritage of Statoil derives from three major Norwegian petroleum

The shipping and offshore drilling industries present unique chal-

companies: Statoil, Norsk Hydro and Saga Petroleum, which were all

lenges anywhere in the world: high capital requirements, frequently

originally based in the Oslo area. “After the merger between these

volatile markets and mobile assets that require special financing

companies, a number of excellent people in Oslo became available.

structures. Swedish bank Nordea expects capital expenditure for off-

This explains the little boom of small to medium-sized oil companies

shore drilling and support vessels to rise to USD 22.3 billion in 2013

establishing in Oslo.�

from USD 14.4 billion in 2012 before falling back to USD 14.6 billion in 2014. "There is not enough money in the banks to fund the capital

Saga Petroleum was a Norwegian upstream company established

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Oil & Gas Survey & GeoEngineering Alternative Energy Software Training NOVEMBER 2013

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Norway Oil & Gas report part 4 November 2013

THE NORDIC INVESTMENT POWERHOUSE ABG Sundal Collier (ABGSC) is the result of a 2001 merger between ABG Securities and Sundal Collier & Co. The company has become an important force in the Nordic investment banking sector. Knut Brundtland, Chief Executive Officer of ABGSC, discusses ABGSC’s positioning and achievements since he took the reins in 2010. What is ABGSC’s added value in the Norwegian and international markets?

out of the four ‘grand slam’ titles: best sales team, best sales trading team, and best Nordic research team. Looking back at ABGSC’s 2012 achievements, what are you most proud of?

Knut Brundtland, CEO, ABG Sundal Collier

ABGSC is a Nordic-based investment bank focused on three main areas: research, sales and distribution, and corporate finance. The company has a large footprint in Norway, Sweden, and Denmark, providing a wide range of investment banking services. Moreover, we are present in financial centers of London, New York and Frankfurt. We provide superior distribution of Nordic securities to local and international investors. The combination of global reach, top-ranked research and high quality corporate finance advisory services has established us as a preferred supplier in the markets where we compete. Our slogan is ‘Nordic companies, global money.’ Additionally, we serve the international investment community with top-ranked equity research, sales, and seamless execution. ABGSC has been voted ‘best Nordic broker’ in the annual Thomson Reuters Extel survey, in which both local and international investors compete. ABGSC has won three

We are proud of our leading position as a lead manager for IPOs and our unique position within convertible bonds. Last year ABGSC was sole lead manager for two IPOs in Oslo. These transactions in combination with last year’s USD 400 million Petrominerales convertible bond illustrates the strength of our distribution platform and our global reach. To illustrate our strengths with an example: if a large oil company has the desire to sell one of its branches on the stock exchange, we will advise the client from our corporate finance team and execute through our sales and sales trading arm, all backed by independent research. Subsequently we will follow the client for our investors through regular research updates, roadshows and other events. You were appointed Chief Executive Officer in 2010. What made you the right person to take charge of the company? It is my background, which is a combination of business and law. As a lawyer, I advised on M&As, transactions, and IPOs, thus having a great deal of experience with the products that ABGSC offers to its clients. This allows me to make quick judgments and not to involve many external parties or follow long procedures.

expenditure requirements in the offshore explora-

of capital goods and services. After the EU and

tion and production sector," says Magnus Piene,

the US, Brazil is the country where Norway has its

global head of offshore at Norway's DNB bank.

largest investment abroad: currently, a quarter of

"Since the banks cannot perform the role they used to, we are looking for alternatives, and we hope that pension funds will join us and help

the offshore vessels operating in Brazilian waters Wenche Nistad, CEO, GIEK

Per Gunnar Ølstad, Listing Manager, Oslo Børs

have Norwegian owners. The first agreement with Petrobras in 2010 provided guarantees from GIEK

finance the Norwegian oil and gas export industry," Wenche Nistad,

totaling USD 1 billion. “Under the existing agree-

CEO at the Norwegian Guarantee Institute for Export Credits (GIEK)

ment, several Norwegian companies within the oil and gas industry,

said. GIEK, established in 1994 as a public sector enterprise, pro-

including their sub-suppliers, have entered into business contracts

motes investment and the export of Norwegian goods and services

with Petrobras,” says Wenche Nistad, CEO of GIEK.

by helping companies to secure competitive loans and by taking on

Critical in the capitalization and financing of the Norwegian oil sec-

some of the investment risk. GIEK makes it simpler for a company to

tor from the early phases to today has been the Oslo Stock Exchange

obtain sound funding and secure key export agreements. The agency

(Oslo Børs). Many of the companies listed in Oslo are considered

is currently targeting pension funds for investment in the offshore

industry leaders, and a listing in the same market as Statoil, Seadrill

oil and gas export sector, as the Eurozone debt crisis and tighter

and Subsea 7 will always be attractive for new international energy

financial regulation mean that banks are not able to provide enough

companies. Per Gunnar, Listing Manager, Oslo Børs explains the role

funding.

that Norway’s global investment banks play in bringing investment to

In January 2013, GIEK and the Brazilian NOC Petrobras signed a

Norway: “Norwegian investment banks have also built up top notch

cooperation agreement with the aim of financing Norwegian exports

competences in the oil and gas sector in terms of research capacity

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13 GIEK: A REFLECTION OF THE NORWEGIAN EXPORT INDUSTRY Key figures year-end 2012

NORDIC PLAYING FIELD In June 2013, the Norwegian Government

Guarantees by industry

awarded 24 production licenses in the coun-

Total guarantees: NOK 77,5 billion

try’s 22nd licensing round: 20 in the Barents Sea and four in the Norwegian Sea. 29 com-

65

panies were offered participating interests, while 14 companies were offered operator-

6,2

ships. Among the winners is Lukoil Overseas

4,5 Oil/gas supply industry

Energy

North Shelf, a part of the Russian Lukoil

1 0.2 0.2 Maritime Other Environment ICT/Tele industry

group. Lukoil participated in the 22nd licensing round in alliances with Lundin Petroleum and North Energy, and was awarded two production licenses in the Barents Sea. The

and have a well proven ability to raise capital in the market on behalf of energy companies,

company will bring its knowledge and exper-

which is very important for such a capital intensive industry. In addition, many of the Norwe-

tise gained over decades of exploration and

gian investments banks have offices around the world in cities such as Rio de Janeiro, London,

production in the Russian Federation and

New York, Houston and Singapore, and we are confident that Oslo Børs is high on the agenda

abroad.

when international oil and gas companies are considering going public.�

In the words of Leonid Surguchev, Man-

  

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Norway Oil & Gas report part 4 November 2013 mations in the Barents Sea.” The Norwegian affiliate will also use Lukoil Overseas deepwater exploration drilling experience from its West African projects, according to Surguchev. Surguchev goes on to say that the long-term objective in Norway is to become a full-cycle upstream company with projects in different stages of the upstream process: exploration, development and production. “Over the years,” Surguchev explains, “we aim to have Lukoil activities on a level comparable to major international oil companies operating in Norway.” Repsol, active in exploration on the NCS since 2005, decided to open a permanent office in Oslo in 2009. The company has since acquired participation rights in 17 production licenses

Leonid M. Surguchev, Managing Director of LUKOIL Overseas North Shelf AS and the Mayor of Oslo, Fabian Stang

in the North Sea, Norwegian Sea and Barents Sea areas of the NCS. In the 22nd licensing

aging Director of Lukoil Overseas North

the NCS in recent years and we are now getting closer to the level we intend to reach. Our

Shelf: “In Timan Pechora and in the Caspian

objective is in the range of 20 to 25 licenses and drilling two or three wells a year in order to

region, the company has been producing

make at least one discovery annually,” says Jaime Suarez Alba, General Manager of Repsol

fractured carbonate and low permeable het-

Exploration Norge.

round the company was awarded four licenses, two as operators. “We have been active on

erogeneous reservoirs with new well and IOR

The Spanish company spudded its first operated exploration well in March 2013. The well

technologies. This experience of our geosci-

targeted the Darwin prospect, which is located in the Western Barents Sea. Currently, Repsol

entists and reservoir engineers will be useful

is participating in another well in the Barents Sea and will spud its second operated well in

for exploring and developing Permian for-

the North Sea later this year.

Image: Danclimb

STRONG ARCTIC PARTNERSHP

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Norway Oil & Gas report part 4 November 2013

Alba explains that the two operated blocks

Statoil, one of the company’s largest customers,

awarded in the last licensing round have been a

awarded Ramboll Oil & Gas the Polarled pipeline

milestone for Repsol in Norway. “This has made

project in January 2013. “This challenging project

us a serious player in operational activities on the

will involve pipeline installation at water depths

NCS and it is definitely recognition of the Norwegian authorities. Now it is up to us to fulfill expecta-

Jaime Suarez Alba, General Manager of Repsol Exploration Norge

tions,” he says.

Gro BaadeMathiesen, Managing Director, Ramboll Oil & Gas Norway

reaching 4,150 ft, setting a world record for deepwater installation of a 36” pipeline,” says BaadeMathiesen. “Furthermore, the job encompasses

For engineering consultancies, the growth of the Norwegian

installation assessment for the large diameter,

energy market represents immense opportunities. Ramboll Oil &

deepwater pipeline and mechanical design including wall thickness

Gas, headquartered in Denmark, holds offices in Norway, Qatar, Abu

optimization and buckle arrestor design.”

Dhabi, Russia and India, and ranks among the top five consultancies

John Sørensen, Ramboll’s global Managing Director of Ramboll,

in Norway. The company expects to grow its Norwegian operations

describes the company’s key strengths: “we have trained ourselves

significantly in the coming years.

to be cost-efficient and very innovative engineering partners to the

In 2010, Ramboll published a strategy for its global oil and gas divi-

industry.”

sion, which set the bar high: in 2010, the division employed 500 staff. That number is 1,000 today, with aims to reach 4,000 staff by 2020.

365 DAYS AT THE HELM OF LUNDIN

“In Norway we are betting big on the early phase and conceptual

The Johan Sverdrup oil field was the largest oil discovery in the

studies and Front End Engineering Design (FEED). We have contracts

world in 2011, with reserves estimated at between 1.7 and 3.3 billion

with major operators, including Statoil, ENI, ConocoPhillips, RWE

barrels of recoverable oil. Johan Sverdrup was initially believed to

Dea and Petoro. In the longer term we will also focus on detail design

consist of two fields, four miles apart: Avaldnes, discovered by Lundin

and smaller EPC projects,” explains Gro Baade-Mathiesen, Managing

in 2010, and Aldous, discovered by Statoil in 2011. Further explora-

Director of Ramboll Oil & Gas Norway.

tion activities revealed that they actually constitute one giant field,

SENERGY: EXPANDING ITS REACH “What fascinates me in the service sector is that you have to earn the right to grow. You have to make money today in order to invest in tomorrow,” said Frode Linge, Regional Manager Scandinavia at Senergy. A global organization built around 750 people, the company has a network of locations around Frode Linge, RM the world including the UK, Scandinavia, the Scandinavia, Middle East, Australia, Southeast Asia and Senergy the Americas, and worked on 1,460 projects in 84 countries throughout 2012. Founded in 2005, Senergy delivers services and solutions to all segments of the energy sector. These services span the full project lifecycle of any energy development, from initial evaluation of the opportunity, its associated risks, challenges and outputs, through to full delivery and operation. The organization reinforced its growing Norwegian footprint by opening new business premises in Oslo in 2011. Senergy appointed highly regarded industry figure Frode Linge to strengthen the company’s position in Oslo. Linge has 25 years

of experience with Shell, which took him to work in the Netherlands, Brunei, the UK, Nigeria, United Arab Emirates, Oman and Russia. With his extensive background in the oil and gas industry, having worked in technical, planning, commercial, general management and business development, Linge has an impressive breadth of expertise. “Having worked on both sides of the equation, both E&P and consulting, I felt that I had something to offer,” Linge says. Ranked the UK’s tenth fastest growing international business, Senergy is rapidly expanding its capabilities and service offering in Norway. In August 2013, the consultancy secured its first major business agreement with Statoil for its projects on the NCS. “Although Senergy has operated in Norway successfully for a number of years, the agreement with Statoil, an NOC and the major resource holder in Norway, represents a significant development for us as we seek to internationalize and grow the business,” Linge explains. The company aims to double its Norwegian operations over the next three to four years .


17 BUILDING A NEW SONGA. Drilling costs in Norway are much higher than in other North Sea nations. Øystein Michelson, EVP of Development & Production at Statoil, said recently that the NOC was pushing for a different ownership model of drilling rigs on the NCS and targeting more ‘fit-for-purpose’ rigs to reduce the high cost Bjørnar Iversen, of drilling. CEO, Songa Bjørnar Iversen, Chief Executive Officer of Offshore Songa Offshore, one of the leading mobile drilling players on the NCS, explains that Statoil currently has eight rigs under construction, all of them through suppliers. Out of these eight are four jackup rigs and four semi-submersible rigs. The latter four are Songa’s and in line with Statoil’s strategy, Songa is bringing in assets with higher efficiency and more tailored to the conditions of the NCS. After some turbulent years, Songa has started to implement important steps to streamline the group and restore liquidity, and has strengthened both board and management in

order to achieve this. Iversen was appointed Chief Executive Officer of Songa, effective June 1, 2013. His mission is to build a new Songa. The company currently owns and operates five semi-submersible mid-water rigs. Three rigs are operating in the North Sea on contracts with Statoil, the other two in Southeast Asia. Songa is currently building four identical drilling units that Statoil has developed together with the industry. “This will materialize into operational excellence and substantial synergies on equipment, personnel and logistics which will give us a competitive advantage compared to other companies that have a mixed bag of equipment,” Iversen explains. “Songa’s objective is to become a leading mid-water rig operator in harsh environments. With seven rigs operating in the North Sea on contracts with Statoil, we are in a position to achieve that goal.” Due to its unique relationship with Statoil, Iversen believes that Songa is well placed to become one of the flagship rig companies on the NCS. .

for capital expenditure for the Johan Sverdrup, Edvard Grieg and

which was renamed Johan Sverdrup in 2012.

Luno fields, and the other half for exploration and appraisal wells.

Discussing the progress of the exploration activi-

Full speed ahead!”

ties, Torstein Sanness, Managing Director of Lundin Norway says: “Since 2012, a total of 15 wells have been drilled at the Johan Sverdrup field. During the first quarter of 2013, two wells and one sidetrack were completed and one additional appraisal

ADAPTING STRATEGIES

Torstein Sanness, Managing Director, Lundin Petroleum

Energy is a major part of the makeup of the Oslo Børs exchange: when Statoil, the largest company in Norway by market capitaliza-

well has commenced drilling. We will probably need to drill another

tion, listed in 2001, energy became the dominant sector. However,

two or three additional wells within the license area PL501, where

the Oslo Børs used to be known primarily for listing companies in the

Lundin Norway is the operator with a 40 percent stake.”

maritime industry. Oslo is an important center of maritime knowledge in Europe.

Sanness explains that the Swedish company is looking to gather as much quality data as possible before making a decision on field

Oslo is home to approximately 980 companies and 8,500 employ-

development. “The reserve figure is so large that even a minor

ees within the maritime sector. Shipping companies represent the

change in the recovery factor could have a significant impact, as we

largest segment of the Norwegian maritime industry, and shipping

are looking at half a million barrels a day,” he says.

is Norway’s largest export industry after oil and gas. Traditionally,

Fortunately, Lundin has both the financial muscle and the experi-

Norwegian shipyards have focused on four main areas: offshore ves-

ence to handle such a demanding project. “In 2013, Statoil will drill

sels, small specialist vessels, fishing vessels and passenger ferries.

25 appraisal and exploration wells, while Lundin will drill 18. As a

However, this is changing thanks to global demand for Norwegian

result, Statoil and Lundin will be the two largest explorers on the

vessels in the global oil and gas sector: in 2012, 95 percent of the ves-

NCS,” says Sanness. “After Statoil and ConocoPhillips, Lundin has

sels ordered at Norwegian shipyards were offshore vessels tailored

the largest capital expenditure budget on the NCS. Almost all of the

for supply to oil and gas related companies. In the words of Eivind

company’s budgeted development expenditure for 2013 is focused

Reiten: “the only way a society can benefit from oil and gas income

on development projects in Norway. Half of our budget is allocated

is to bring it into the economy. As a result, Norwegian society as a

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Norway Oil & Gas report part 4 November 2013

Fig. 1: THE ENERGY SECTOR AT OSLO BĂ˜RS

capacity away from commercial shipbuilding to offshore. Industrial group Kvaerner, which

Equipment and services: 32 companies 55%

Drilling: 12 companies 21%

builds heavy offshore equipment including oil platforms, recently warned of fierce competition, particularly from Asian firms. In the last year, Kvaerner lost a significant number of engineering, procurement and construction (EPC) contracts to South East Asian

Integrated oil & gas and E&P: 15 companies 25%

competitors. All of these contracts have been awarded for projects off the coast of

As per July 2013

Norway.

Based on Global Industry Classification StandardsÂŽ GICS

The listing of the new Kvaerner on the Oslo Børs in July 2011 marked a revitalization of an almost 160 year old brand: once part of

whole has benefitted from the oil and gas industry.� With few signs of recovery in the global shipbuilding sector, Chinese and South Korean

the Aker group, the company was once again

yards are also eager to win contracts in the offshore construction markets, including rigs, to

spun off as a separate business with a spe-

compensate for the dip in new ship orders. On the NCS, South Korean shipyards are coop-

cific focus on the delivery of platforms and

erating with Western European engineering companies, and are turning their manufacturing

onshore plants.

Lundin Norway - Ambitious Exploration Â? Â?Â? Â?Â?Â?    Â?Â?Â?Â?Â?  ­€‚ Â?ƒ  Â?Â?Â?„Â?   Â? Â?   ­‚‚…†‚‡‚  Â?Â?Â?ˆÂ?Â? Â? Â?Â?

2004      

74

2007

2005

 

  

đ°€ˇđ° ‹đ° ˆđ°€ƒđ°€¨đ° ‡đ° ™đ° „đ° •đ° ‡đ°€ƒđ°€Şđ° •đ° Œđ° ˆđ° Šđ°€ƒđ°?¤đ° ˆđ° ?đ° ‡đ°€ƒđ° ’đ° ‘đ°€ƒđ° –đ° —đ° •đ° ˆđ° „đ° ?đ°€ƒđ°Œ°đ°€ƒ đ°€•đ° ‘đ° ‡đ°€ƒđ° ’đ° “đ° ˆđ° •đ° „đ° —đ° ’đ° •đ° –đ° ‹đ° Œđ° “đ°€ƒđ° ’đ° ‘đ°€ƒđ° –đ° —đ° •đ° ˆđ° „đ° ?đ°€ƒđ°€—đ°€´đ°€ƒđ°€•đ°€“đ°€”

ENERGY.FOC U SREP OR TS.NE T

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NOVEMBER 2013


19 on the other.�

According to Jan Arve Haugan, CEO of Kvaerner, the demerger and establishment of the new Kvaerner

This also applies to Interoil Exploration & Produc-

in 2011 was a response to customers’ requests for

tion, a Norwegian junior with a strategic focus on

more flexible and specialized EPC contractors.

onshore exploration and oil production in Colombia

“More flexible, in the sense that Kvaerner would be able to meet low cost requirements through strategic

Jan Arve Haugan, President and CEO, Kvaerner

Thomas Fjell, CEO Interoil

and Peru. The company went through a period of comprehensive restructuring in 2013; the company

partnerships, and local content requirements through

was on the verge of bankruptcy when Erik Sandøy and Thomas Fjell took

regional partnerships. More specialized, in the sense that increased

over in January 2013 as CFO and CEO respectively. The company is

attention to cost and risk efficiency is a prerequisite for a global EPC

reducing operating expenses by minimizing corporate overheads, termi-

player and requires a dedicated management focus on project execu-

nating related-party consultancy agreements and optimizing the operat-

tion and risk management.�

ing structure of the group.

When asked about where his company sees the biggest demand for

Fjell, today the CEO of Interoil, explains that in order to salvage share-

oil and gas services in Oslo, Christer Tryggestad, Director at McKin-

holder value, Interoil needed to increase production and fund invest-

sey & Company, confirms the trend that companies like Kvaerner have

ments through equity. “In March this year [2013], we completed an

adapted to: “We increasingly help our clients crafting global strategies

equity issue of USD 35 million,� he explains. “This enabled us to fund an

and setting up global organizations: striking the right balance between

expansive drilling program in Colombia of approximately 65 wells. As of

the centralization to benefit from economies of scale, skills, and tech-

today, we are in the process of executing the first phase of this drilling

nologies on the one hand side, and local autonomy and specialization

program and have so far completed seven wells in the first phase.�

10-15 10-15

Johan Johan Sverdrup Sverdrup

2012-2020 2010       Â  Â? 

BÂŻyla Brynhild

35,700

33-38,000

boeod boeod

đ°€ƒ đ°€”đ°€˜

+100% +100%

  

  

2012 2012

2013 2013

2014 2014

exploration exploration wells wells per per year year Other Other contingent contingent resources resources not not included included in in production production forecast forecast

increase increase in in production production

Edvard Grieg +100% +100%

increase increase in in production production

2015 2015

2015 2015

2016 2016

2017 2017 2018 2018

2019 2019

2020 2020

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Norway Oil & Gas report part 4 November 2013

In Peru, the company’s licenses were due to expire in March 2013.

tive and high quality technologies that are growing in demand as oil

However, Interoil was awarded an injunction to continue operating

companies start drilling in deeper and deeper waters. Around the

these licenses due to force majeure caused by El Nino (1998-99

world, the average rate of recovery of oil in place is approximately

and 2002-03) until October 2014 in the case of Block III, and until

35 percent. Statoil however, plans to increase the average oil recov-

March 2016 in the case of Block IV. “We are currently in arbitration

ery rate from its fields on the NCS to 60 percent.

proceedings with licensing agency PeruPetro”, says Fjell, “to deter-

“The North Sea has a wonderful history of innovation, and of the

mine whether Interoil has the right to extend the term of its origi-

innovative use of technology. New and more advanced technology

nal licenses in Peru until October 2014 (Block IV) and March 2016

for improved recovery is no exception. New technology to develop

(Block III).” The work towards a long-term extension will recom-

methods to improve reservoir monitoring and thus improve recov-

mence if the arbitration case is won, unlocking 18 million barrels of

ery has always been high on the agenda in Norway,” says Jarle Tau-

2P reserves.

tra, Managing Director of Eureka Pumps. Eureka Pumps, a market leader among companies servicing oper-

NAVIGATING A HIGH-COST ENVIRONMENT

ators on the NCS, has recently strengthened its presence in Hous-

A report published in 2012 by Swiss bank UBS crowned Oslo as

ton, Texas. Tautra explains that the company is in the process of

the world's most expensive city. Meanwhile, according the study,

expanding its business both internationally and in Norway, in order

workers in Oslo enjoy the fourth highest wages on the planet. While

to build close customer relationships and win customer confidence.

figures confirm that executive pay in Norway is modest, even low,

Eureka Pumps has served customers for more than 100 years, and is

compared to other countries, the average oil worker makes USD

a leading manufacturer of various types of pumping systems for the

180,300 a year, the highest salary anywhere in the world, recruit-

offshore oil and gas industry, including firewater pumps, seawater

ing firm Hays said in a 2012 report: USD 93,000 more than a UK

lift pumps and cargo pumps.

oil worker makes and above the USD 177,000 pay for the average US CEO.

The best solution to deal with Norway’s high-cost environment is efficiency. Statoil leads by example: at the end of 2012, Statoil had

Asked about this high cost operating environment, Jarle Tautra,

only 23,028 employees: a tiny figure for a company characterized

Managing Director of Eureka Pumps responds: “In order to survive

as being among the most profitable and geographically developed

in a high cost country like Norway, you need talented and moti-

in the world. This low employee count has enabled Statoil to have

vated people, state of the art technology, top-notch facilities and

the highest rate of production per employee in the industry, at an

efficient execution. In other words, the fundamentals must be in

average of 78.4 bpd/employee in 2012.

place.” Looking at the company’s progress in recent years, he con-

Providing solutions that offer this type of effi-

tinues: “Over the course of the last year, Eureka Pumps has invested

ciency is key for companies like PG Marine Group.

significant amounts into our people, systems and facilities. Reve-

Roy Norum, CEO of PG, explains that the com-

nues from international new-built pumps last year were around 30%

pany’s aim is to manufacture smart solutions that

of our total business. This is expected to increase to 50% over the

will provide high value and diversification to its

next two to three years. However, as we continue to expand inter-

customers. “Frankly, PG has an impressive track

nationally we have to consider moving our assembly operations to

record in efficiency over the last ten years, and at the same time,

other locations to get closer to customers and cut cost,” he adds.

the majority of PG’s solutions are logic-engineered, object-specific

A decrease in production from North Sea oil fields over the last

Roy Norum, CEO, PG Marine Group

and customized,” he says.

decade has led the government to encourage technological innova-

PG, a technology-focused company specialized in liquid han-

tion as a new means of competing internationally in the oil sector.

dling solutions, established a pump engineering division in order to

Over the years, Norwegian firms have built a reputation for innova-

increase its focus on solutions for customers. The company adjusts

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PG Marine Group PG is a specialized manufacturer / supplier of highly efficient, safe and most intelligent solutions for liquids handling on rigs, ships and subsea PG-MACS - the next generation below deck cargo handling solution - has proven its performance in the toughest environment Drill Cuttings and Rig Slop transported below deck, were triggers for PG-MACSÆ development, but the full flexibility of all bulk material dry- or wet- have proven its performance in the North Sea, and now even in Brasil and other regions. Drill Cutting transportation below deck, athmospheric, flexible tank clusters for

VARD 06 MACS PSV

wet and dry bulk, and extremely high capacities for Recovered Oil are hallmarks of this novel, w.w. patented solution

PG-Hyde Ballast Water Treatment Systems have proven exceptionally well suited for OSVs, during numerous installations Through its modular design, and flexible lay-out options PG-Hyde GUARDIAN BWTS offer competitive solutions in combination with PGs vast experience with maritime

PG-HYDE HG 150 Skid

installations. Among the first IMO Type Approved systems, and based on the most efficient technologies, the Hyde modules have won market shares at high pace in International as well as Domestic markets. More than 100 installations secured, and first fleet agreements signed confirm competitiveness and trust to products and partners Skidded units, or modularized to fit the most space-limited footprints at retrofitting ships

OSV's are supposed to deliver to the rig, the same mud as they receive on shore - this is often challenged PG-Submix 60/80 is the solution, when high yield drilling mud shall be kept in suspension over extended time - typically for deep water fields, far ashore as many of the current, major oil & gas fields are developed. Slow running, high torque, vertical circulation (highest velocity in the bottom of the tank) with typical vaues Primary Pump Flow between 8.000 and 15.000 m3/h Superior to any other agitation method, the Submix hydraulically driven agitators secure the quality of both product delivered to rig, and avoiding settling

PG-Submix 80 Viscoprop 35∞

of weight components in the drilling mud during the long hault voyages and storage onboard

www.pg-marinegroup.com

roy.norum@pergjerdrum.no

+47 66 77 56 00


22

Norway Oil & Gas report part 4 November 2013

existing products and brings new innovations to the table, and has

depends mainly on the daily rate of the drilling

presented many novel, smart solutions to the market over years.

rig, which is around half a million USD per day.

“This makes our products significantly more challenging to copy

For that reason efficiency and quality is critical for

than commodity-oriented products,� he adds.

operators. The service AGR provides is less than

In August 2013, PG inaugurated a new 8,750m2 factory, and a new unit known as PG Fabrication. This is a brand new, tailor-made

Age Landro, CEO, AGR Group

5% of total project costs. This does not make a significant difference for our client. What does

facility will present the PG Group with unprecedented possibilities

make a substantial difference is the access to our experienced

for future business, including subsea-pump tests pits with up to

team.� The day-to-day work in other sectors has changed as a result of

1.4MW fixed power capacity. Norum has taken PG to a new level in international markets,

Norway’s oil expansion. Consultancy firms such as Boston Con-

bringing its annual export turnover from USD 13.5 million to more

sulting Group and McKinsey & Company have set up their global

than USD 108 million in 2013: more than 70 percent of the com-

centers of competence in Oslo. McKinsey & Company’s oil and

pany’s current revenues. “Today, we see demand for our products

gas group in Oslo is one of three global clusters, together with

in Korea, China and Singapore, but also North and South America:

Houston and Amsterdam. Christer Tryggestad, Director at McKin-

we have had a significant market share since 2000 in Brazil, a critical

sey, acknowledges that Norwegian companies are seen as techni-

market for the oil and gas industry,� he says.

cally highly competent. “My impression is that their competence is

Discussing the high-cost environment related to offshore operations, Ă…ge Landro, Group CEO at AGR, stresses: “The cost of a well

sought after internationally. Many of our clients are in the midst of significant global expansion.�

                                                                               Â                  Â?              

        

              Â   Â?            


23

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24

Interview with: Per Gunnar Ølstad, Senior Adviser of Oslo Stock Exchange

Per Gunnar Ølstad, Senior Adviser of Oslo Stock Exchange Focus Reports: Would you start by giving us an idea of the importance of oil and gas for the Oslo Stock Exchange? PER GUNNAR ØLSTAD: Both the Oslo Børs and the Oslo Axcess are heavily weighted towards the energy sector in Norway. Indeed the energy sector represents around 40-50 percent of the market capitalization and within the energy sector, we have identified three main segments: drilling, equipment and services and the traditional E&P sector. Today we have major representatives from all three sub-sectors. Energy has been a major feature of the Oslo Stock Exchange for many years, although we used to be known primarily for the maritime industry. Ever since Statoil, which is our largest company by market capitalization, listed in 2001, energy became the dominant group within the exchange. In recent years, there has also been a large growth of newcomer E&P companies entering this market. Norway also has a very large oil service sector, present on the exchange. Our success is based on choosing to focus our attention on key sectors. Therefore although the energy sector is already a very large portion of the business today, we will still be looking to further expand in this area. We eventually hope to be a preferred exchange for the energy market.

FR: How good is access to capital for energy companies listed on the Oslo Exchange? PER GUNNAR ØLSTAD: Good companies will always attract capital, however in 2012 the equity markets were challenging in Norway and worldwide. Over this period, Oslo was a

Per Gunnar Ølstad, SENIOR ADVISER OF OSLO STOCK EXCHANGE

better place than most to raise equity capital for the energy industry or through bond funding. This is also because Norway has some strong investment banks within the energy sectors, though a very large portion of investment actually comes from non-Norwegian investors. More than two thirds of trading is non-Norwegian investors, so this is a truly international exchange. We have also introduced new fast-track listing processes, which are more efficient, allowing companies to list faster. We feel that this could be especially interesting for newcomers to the Norwegian market. The listing process now only takes four weeks on the fast-track scheme and our normal listing process is only six weeks, making it much faster than global averages. Another strong attribute to the Norwegian exchange is the strong tradition of doing private placements. A typical transaction in the Norwegian is to announce an IPO at the close of the market in the afternoon and raise the funds throughout the evening and night and then announce the private placement the following morning. This is a very fast way to raise equity capital.

FR: To what extent is the energy sector sucking up most of the interest on the exchange relative to fishing or maritime industries? PER GUNNAR ØLSTAD: I do not believe that there is a general preference for one sector over another. The three sectors on which the Oslo Exchange focuses its attention are all performing well in attracting interest. Moreover the attention that one sector gains on the


25

exchange positively affects the interest in other parts of the exchange. All companies listed in Oslo therefore benefit from the highlevel visibility of the oil and gas industry on this exchange. I would also mention that of the four IPOs launched since the start of 2013, only one has been an energy company.

FR: Hans Christian Kjelsrud of Nordea highlighted the growth of the bond market in Norway. How significant is this trend towards bond financing? PER GUNNAR ØLSTAD: The bond market has indeed become a major aspect of Norwegian financing. Interest in bond financing is primarily generated as a result of the stringent financial requirements with respect to Basel III regulations. The global effect of these regulations is to shrink the balance sheet of banks and this pushes players seeking to access capital into the bond market. We are seeing many new companies entering the bond market that have never taken this option before. The oil and gas industry is extremely capital intensive and the bond market provides a useful alternative to traditional bank debt financing. We see that companies are increasing supporting their operations on three legs: equity funding, bank funding and bond financing. The Norwegian bond market has attracted many internationally recognizable companies over the last year. We even see companies with shares listed on the London AIM market seeking to raise debt capital on the Norwegian bond market. Investors increasingly want the bonds that they are investing in to be listed as this guarantees transparency of trading.

FR: Why did Norway emerge as a champion of the bond market? PER GUNNAR ØLSTAD: I think that there are three reasons. First, there are some very strong Norwegian investment banks in the three

focus sectors for the Oslo Stock Exchange and many of the companies that have utilized the bond market are in the three sectors that we have highlighted. Second, there are strong analysts that are dedicated to these three sectors and they provide valuable insights on the Norwegian market. Third we also have efficient documentation packages in relation to bond issuing in Norway. These attributes allow us to generate a heavy international interest in the Oslo Exchange’s bond market.

FR: How do you see the Oslo Stock Exchange’s role in raising capital over the coming years? PER GUNNAR ØLSTAD: We currently hold an important role and given the new finds on the Norwegian Continental Shelf, new investments are flowing into Norway. This enhances the need for raising equity and debt capital and given the position that we already hold, we believe strongly that we will play an integral role in the development of the energy industry in Norway. The traditional oil service and equipment sector is our largest in the energy portfolio and this sector will benefit a lot our work. We want to be a preferred listing destination for international companies. We have no ambitions to rival the New York Stock exchange, but in our focus areas we expect to take a global leadership position. Increasingly we are seeing international companies choosing to establish themselves in Oslo and recent ratings now show that Oslo is the strongest financial market in the Nordic region. Oslo is gathering greater international attention and it is respected for the quality and good regulation of the equity market. It should be noted that we also run the Oslo ABM market, which is actually more popular than the traditional markets with around 1,000 listings at the moment. It is well regulated like the main markets but there is no requirement for a prospectus or IFRS reporting.


26

Interview with: Eivind Reiten, former CEO Norsk Hydro, current Chairman Norske Skog

Eivind Reiten, former CEO Norsk Hydro, current Chairman Norske Skog Focus Reports: Mr Reiten, you are well known throughout the industry as the former Chief Executive Officer of Norsk Hydro. The company had a significant presence in the oil and gas industry until October 2007 when the oil business merged with Statoil. Prime Minister Stoltenberg said at the time: “the merger is the start of a new era”. To which extent does the reality today stroke with the vision you had at the time of the merger? EIVIND REITEN: The most obvious reason to merge was that both parties realized that we had been successful in developing the Norwegian Continental Shelf for the last 30 years. Hence, the focus of the next 30 years would be more towards expanding internationally and managing a more mature Norwegian Shell in a productive and efficient way. Norsk Hydro and Statoil found their selves increasingly competing for international assets. Naturally it was not by accident that we ended up competing for similar assets as we came out with equal competences and legacy. As a result both companies fell in love with assets in places such as Brazil, Angola and the Gulf of Mexico where we could deliver most value. On behalf of our shareholders and Norwegian society as a whole it became clear to take advantage of these unique competences and join forces instead of fighting each other internationally. In that respect the merger has worked out very well—Statoil is internationally very successful with operations in more than 30 countries.

Eivind Reiten, FORMER CEO NORSK HYDRO, CURRENT CHAIRMAN NORSKE SKOG

What we did not see at that time are the fortunate findings on the Norwegian Shelf over the last years. This has come to a positive surprise to all of us. Nevertheless, the new discoveries do not change the fact that the Norwegian Shelf is being emptied in a pretty high speed when it comes to oil. There is a steep decline in production.

FR: Earlier this year you gave a presentation at RWE Dea where you said that: “Rapidly increasing costs associated with drilling could, despite recent new discoveries, have significant and negative consequences for the industry as a whole”. Do you believe that the “Dutch disease” might become a treat to Norway? EIVIND REITEN: Costs that come with offshore operations have significantly increased compared to 2005 in West Africa, Golf of Mexico and even more so in Norway. My concern is that the industry has not sufficiently fought the cost side of their operations. The Norwegian oil industry is sort of living in a bubble regarding its cost level, salary level and working conditions. However these costs are not affordable for other parts of the Norwegian society. The oil industry is creating a tremendous challenge for itself because costs to drill a standard production well to increase or maintain production are becoming almost too expensive. We run the risk of leaving too many resources undeveloped. Cost pressures have already begun to have serious consequences for the entire industry,


27

which will undermine profitability. As a result of these booming costs we simply cannot afford to drill sufficiently to maintain production. That is today a serious problem because so many of the big oil fields of the North Sea are coming to a life end.

FR: Drilling costs in Norway have been doubled between 2000 and 2010 and are about 40 to 45 percent higher than in the U.K., how do you explain this? EIVIND REITEN: In fact, enhanced oil recovery was the main theme of an expert committee appointed by the Minister of Petroleum and Energy. In the report from the committee presented in 2010, one of the key recommendations was to establish an expert committee to review how to increase drilling and well activities. This committee, which I chaired, was established by the Norwegian government at the end of 2011 with the mandate to identify possible obstacles that may reduce the capacity for drilling and well operations on the Norwegian continental shelf and to recommend measures that may minimize or even eliminate these obstacles. The government must consider regulations on working hours for offshore personnel. Under current rules, oil service workers in Norway can legally work 1,582 hours a year before overtime, compared with 2,160 in the U.K. The pay each receives per hour, the salary level as such is not that much higher than in the U.K. but if we include the 2/4 (2 weeks on, 4 weeks off) arrangement and overtime the salary cost level is about 60% to 70% above the U.K. salary level. Frankly, we did not deliver any great news from our analysis as we basically confirmed what we already knew. Nevertheless, the report was received very well by those who are concerned by the cost level. I wrote an article in the Norwegian financial newspaper elaborating on the outcome of the report. The CEO of Statoil was happy about the analysis as the outcome goes hand in hand with his view.

However politically it is not easy because we need to start discuss issues that have been negotiated between employer and trade organizations. This is not only to blame the workers association but also the industry that has gradually given in on those things—it is a shared responsibility. My main concern on behalf of the next generation is that we leave too much oil and gas undeveloped. It is not about the sexy new finds. Prospects will eventually be drilled, either tomorrow or in ten years but if the oil is there it is there. However if we do not take out the last millions barrels in mature fields, it will never be taken out and we will lose them forever. This is really a loss of value!

FR: Naturally Norway is fortunate with its resources. However on the other side we see ordinary businesses suffering from rising costs in the oil and gas industry and increasing wages in the public sector. Where is the end? EIVIND REITEN: It is not something that is starting to hurt—it has been affecting our economy since the mid-eighties. At that time I was in the government where we discussed the successful development of the oil and gas industry without squeezing out the traditional industries. The government has always been conscious about the situation but has been unsuccessful in preventing other industries to be squeezed out. Looking at the statistics you will see that the numbers of workers and activity in traditional industries – except for fish farming – has declined since the eighties. That being said, the only way a society can benefit from oil and gas income is to bring it into the economy. As a result the society as a whole has benefitted from the oil and gas industry. For that reason, we should not be sorry about a certain level of squeeze out—it is a result of macroeconomics.


28

Interview with: Jan Arve Haugan, CEO - Kvaerner

Jan Arve Haugan, CEO Kvaerner Focus Reports: 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? JAN ARVE HAUGAN: 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 years 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. 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 Jan Arve Haugan, CEO - KVAERNER

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


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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.

FR: What have been Kvaerner’s main growth drivers? JAN ARVE HAUGAN: 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 billion1). 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.

FR: As a final question, could you give our readers two reasons why they should by shares of Kvaerner? JAN ARVE HAUGAN: 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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Interview with: Jon Edvard Sundnes, CEO - Tschudi Shipping

Jon Edvard Sundnes, CEO – Tschudi Shipping Focus Reports: Mr Sundness, could you start by giving an introduction to Tschudi Shipping? JON EDVARD SUNDNES: Tschudi Shipping Company AS’s history dates back to 1883 when the shipping company Tschudi & Eitzen AS was established. The founders of Tschudi & Eitzen AS were both Captains on board the world’s first sailing tankers. Tschudi Shipping Company AS was established on its own in 2003 when Tschudi & Eitzen AS was demerged and the company is now owned by the fourth generation of the Tschudi family. What put Tschudi stronger on the map in Norway as well as Russia was the purchase of Norwegian mining company Sydvaranger AS located in Kirkenes in 2006. We saw this opportunity and grabbed it within a short timeframe. We believed this basis located in the far north of Norway to be a vital potential for future activities in the Barents Sea Naturally Tschudi is not a mining company but we acquired Sydvanger in order to obtain good access to the port. At the time we had no concrete plans for reopening the mine but we evaluated the possibility and in 2009 it was reopened. For this we needed external investors and the mine was listed in Australia. More than NOK 2 billion has been invested. The quays and industrial areas that also can be used for new business are still owned by Tschudi through the company Tschudi Kirkenes AS. In 2010 Russia and Norway ended a dispute over their maritime borders and

Jon Edvard Sundnes, CEO - TSCHUDI SHIPPING

signed a treaty that will allow for new oil and gas exploration in the Arctic region. This development is a confirmation that we are on the right track. It is fair to say that Tschudi Group has been focussing on logistics in the Northern seas between Norway and Russia—east west movement of cargo’s. The Tschudi Group subsidiary, Tschudi Arctic Transit AS, develops and implements transport and transhipment solutions for oil products to and from Russia using Kirkenes and Honningsvåg as deep water and ice-free transit ports. Due to the shallow waters and ice conditions in many Russian ports, it is more economical to tranship oil cargoes to conventional vessels in ice free, deep waters for further transportation. The Tschudi Group currently owns a fleet of multipurpose container vessels, tugs and offshore vessels in addition to operating container lines between northern European ports in the Baltic and North Sea. In fact we operate the biggest door to door container carrier into the Oslo area. Globally we are operating through Tschudi Offshore & Towage—this has been in fact always been one of our core activities. Tschudi Offshore & Towage was previously called ITC. ITC was started in 1973 and since 2003, has been a wholly owned subsidiary in the Tschudi Group.

FR: Arctic Bulk AG, a venture between Prominvest SA and Tschudi Arctic Transit AS, promotes and facilitates Northern Sea Route shipments. How important has this direction been for the


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growth of the company over the last years and will be for the years to come? JON EDVARD SUNDNES: Frankly, the Northern Sea Route has not been that important with regards to volumes yet. The opening has so far not represented any large cargo transports, but it is getting increasing interest. We seized the initiative in 2008 when, in collaboration with the Norwegian Ship Owners Association and supported by the Norwegian Ministry of Foreign Affairs, we established the international and independent non-profit Centre for High North Logistics as the preferred knowledge network for creating efficient and sustainable logistical solutions in the High North through research projects between business, academic institutions, organisations and public authorities. What was unique was that in 2010 due to a strong partnership between Tschudi Shipping, Nordic Bulk Carriers, Prominvest, Sydvaranger Gruve and Rosatomflot we initiated the first truly international transit shipment through the Northern Sea Route – a non-Russian cargo carried on a non-Russian flag ship between two nonRussian ports. This proved that the NSR was a commercially viable alternative available to the whole shipping community. The Northern Sea Route from Europe to Asia shortens the distance of traditional shipping links through the Suez Canal significantly depending on destination.

FR: What does the oil and gas industry represents within your portfolio? JON EDVARD SUNDNES: Tschudi Offshore & Towage based in the Netherlands has a strong presence in the offshore support vessel industry. Moreover we have logistics activities related to oil and gas, much of this is done through Tschudi Project Transports AS. More important is that we are well posi-

tioned for the oil and gas development in the Northern region. With energy and mineral resource development now accelerating, this is an area where transportation and logistical solutions will be of increasing importance. We see for example an increasing demand for oil export solutions within Russia and through our subsidiary Tschudi Arctic Transit we are in the advantageous position to offer Russian clients a wider range of competitive services for ship to ship transfers.

FR: What for you is the main project you would like to launch over the next few years? JON EDVARD SUNDNES: Personally, I would like to see Kirkenes offering a fully integrated logistic base area. At the moment we have an area covering 1 million square meters and could potentially grow to the biggest port in Norway. It is situated close to the Russian/Norwegian border and offers good deep water quays, sheltered location, efficient customs handling and predictability and will also offer good indoor and outdoor storage possibilities when completed. The development of this area is something we can either do on our own or together with users or partners, Further ahead it is also interesting to see that the Finnish authorities now look towards the North for the country’s rapidly developing, and increasingly landlocked, mining industry. There is currently a discussion in Finland about the possibility to construct a railway line to the Arctic coast. If built, the new railway line would connect the Barents Sea and Kirkenes with the Northern part of Finland. This could become an important gateway for Finnish export and for import of energy. There will most likely be much “stranded gas” in the high North in the future. Finland is a potential user.


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Interview with: Knut Brundtland, CEO – ABG Sundal Collier

Knut Brundtland, CEO – ABG Sundal Collier Focus Reports: ABG Sundal Collier (ABGSC) is the result of the merger between ABG Securities and Sundal Collier & Co in 2001. The company has become an important force in the Nordic investment banking sector. Can you start by giving a brief introduction to the company and why the company is interesting for the market? KNUT BRUNDTLAND: We are a true Nordic based investment bank focusing on three main areas: research, sales and distribution and corporate finance. ABGSC has a strong footprint in Norway, Sweden, and Denmark, providing a wide range of investment banking services. We provide superior distribution of Nordic securities to local and international investors. The combination of global reach, top ranked research and high quality corporate finance advisory services has established us as a preferred supplier in the markets where we compete. Our slogan is: Nordic companies, global money. Additionally, we serve the international investment community with top ranked equity research, sales and seamless execution. As an example, ABGSC has been voted “Best Nordic broker” in the annual Thomson Reuters Extel survey, in which both local and international investors participate. ABGSC has won three out of the four ‘grand slam’ titles; Best Sales team, Best Sales Trading team and Best Nordic research team.

FR: What have been the key drivers for ABGSC’s growth? Knut Brundtland, CEO – ABG SUNDAL COLLIER

KNUT BRUNDTLAND: ABGSC has upheld and even strengthened the quality of its services in a tough business environment. Quality is a value that is deeply rooted in our company`s culture and we have managed to ensure quality of our services all the way through the value chain in all sectors. Being an independent Investment Bank makes us depend and rely on the quality and network of our staff. Relative to the larger integrated banks, we cannot depend on the balance sheet doing any work on our behalf, and we must at any time put in all efforts and hard work required to ensure successful transactions. We focus on market transactions and advisory backed by strong research. ABGSC is well known for its extensive and consistent track record of market capital transactions such as IPO’s. To illustrate our strengths with an example: if a large oil company has the desire to sell one of its branches on the stock exchange we will advise the client from our corporate finance team and execute through our sales and sales trading – all backed by independent research. Subsequently we will follow the client for our investors through regular research updates, road shows and other events. We provide the full range of services: the presentation to the market, the executional transaction and the follow up of the transaction. It is here where ABGSC’s strengths are obvious.

FR: You were appointed Chief Executive


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Officer in 2010. What made you the right person to take over the reins of the company? KNUT BRUNDTLAND: I believe it is my background, which is a combination of a business man and a lawyer. As a lawyer I advised on M&A’s transactions and IPO’s thus having a great deal of experience with the products that ABGSC offers to its clients. This allows me to make quick judgments and not to involve many external parties or follow long procedures. I have managed and overseen many kind of business which is helpful when accessing opportunities on the market. Moreover, it has been tough times for the industry looking at low trading volumes and pressure from the regulators on best practice. We are cautious regarding costs and have taken down costs significantly. It is my task to protect the business and to protect the brand in the shareholders, partners and employees best interests.

FR: Looking at your client portfolio, how is the balance between international and domestic companies? KNUT BRUNDTLAND: On the investor side 80% of our clients are non-Norwegian in terms of volumes as well as revenues. That is because we serve the international markets with a presence in: Oslo, Stockholm, Gothenburg, Copenhagen, Frankfurt, London and New York. On the corporate side it is the other way around with a majority of Norwegian clients. UK listed IGas Energy plc recently announced the arrangement of a five year, USD 165 million senior secured bond issue listed on the Oslo stock exchange. ABGSC acted as sole arranger and bookrunner for the bond issue. Furthermore, ABGSC has over years become a significant player in the convert-

ABGSC has been voted “Best Nordic broker” in the annual Thomson Reuters Extel survey, in which both local and international investors participate. ible bonds market, acting as a book runner for several major convertible bond offerings in the Nordic market but also in Canada.

FR: ABGSC has an impressive brand name and leading market position regarding placing Nordic companies on the international stage. Could you illustrate this with an example that you are most proud of? KNUT BRUNDTLAND: We are proud of our leading position as a lead manager for IPO’s and our unique position within convertible bonds. Last year only ABGSC has been sole lead manager for two IPO’s in Oslo: one company active in the chemical industry and the other a real estate developer. These transactions in combination with last year’s USD 400m Petrominerales convertible bond all illustrates the strength of our distribution platform and the importance of a global reach. Furthermore, it illustrates that we can compete across instrument classes, sectors and borders. We are recognized as a leading distributor of Nordic securities to Nordic and international investors. Our global relationships, coupled with our unique understanding of the Nordic region’s economy, industries and culture, help us to consistently deliver unique local insight, investor views and market intelligence. We have a strong presence in the major financial centres such as London, New York and Frankfurt. This broad international presence differentiates us from most domestic competitors.


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Interview with: Paul Bellamy and Amund B. Tørum, Schjødt

Paul Bellamy: Managing Director, Amund B. Tørum: Partner Focus Reports: Can you start by giving a brief introduction to the firm and explain why Schjødt is interesting for the market? PAUL BELLAMY: Schjødt has an extremely long and successful history. The firm was established in 1936 and developed to be one of the leading law firms in the country, at first renowned for their leading position in litigation. This was quite unique as the other major firms primarily focused on corporate matters. Over the years we have aggressively built up our corporate practice, which has become the largest in the country. We have advised on more M&A transactions than any other Norwegian firm in recent years and we have an unparalleled track record in litigation and arbitration.

FR: Mr. Tørum, you are a co-author of the standard textbook on Norwegian petroleum law. In your view, how has the Norwegian legal system changed over the course of Norway’s petroleum history? AMUND B. TØRUM: The Norwegian oil and gas era started in the 1960s. After years of exploration the first large discovery was made in the 1969 (Ekofisk, that time being the largest oil field offshore in the world). In contrast to many other oil countries, Norway implemented a strong concession system—the state took control of the resources from the very beginning. As Norway did not have any experience from offshore development projects, the Norwegian Government the first years had to rely heavily upon the experience and financial strength of international oil majors. From

Paul Bellamy and Amund B. Tørum, SCHJØDT

the middle of the eighties the Norwegian governmental oil company, Statoil, was capable of being operator of major offshore development projects. The Norwegian oil era has also contributed to the development of a number of world leading oil service companies. The Norwegian petroleum model has been very successful and contributed to the fact that Norway has been able to extract, export and benefit so much from our oil and gas reserves. Norway has been able to capture a lot of income, even from certain minor/marginal fields. Norway’s oil industry has been a huge success in generating per capita wealth. An interesting dimension is that Norway’s concession system has been a model for other countries. As an example several countries in Africa have implemented elements of our system to ensure that their petroleum resources benefit the society as a whole. The Norwegian Agency for Development Cooperation (Norad), a specialised directorate under the Ministry of Foreign Affairs, has launched a program to support developing countries in managing petroleum resources in a sustainable way. I would add that Norwegian petroleum law has from the very beginning been a very stable and predictable system. Despite relatively heavy taxes it has been very attractive to invest in the oil and gas industry since the beginning. The last years the fiscal system has been changed to facilitate exploration activities.

FR: How would you describe Schjødt’s presence and positioning in the Oil and Gas sector in Norway today?


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AMUND B. TØRUM: We have unquestionably a leading position within dispute resolution and transactions in the oil & gas industry. Among the Norwegian “magic circle” of firms in Norway, we are the only firm with an office in Stavanger. Our Stavanger office provides advice daily on regulatory issues and transactions. Dispute resolutions and other financial issues are mainly handled from our Oslo office. Schjødt has managed to recruit excellent and talented lawyers for its Oslo as well as its Stavanger office. In contrast to our main competitors we have been a leading provider of legal advice within the oil and gas sector from the very start of the Norwegian oil adventure in the 1970’s.

FR: Would you agree that newcomers in the oil and gas industry rather establish in the Oslo area? AMUND B. TØRUM: We do see a trend here. The most obvious explanation is availability of human resources, which is rather challenging in the booming Stavanger. The heritage of Statoil derives from the three major Norwegian petroleum companies Statoil, Norsk Hydro and Saga Petroleum that were all based in the Oslo area. After the merger between these companies, a number of excellent people in Oslo became available. This explains the little boom of small to medium sized oil companies establishing in Oslo. As a result of the merger, former Statoil, Saga and Hydro people are dominating many of these newly established companies.

FR: How has the transaction market been shaping up in Norway the first half of 2013? PAUL BELLAMY: In general it has been a little slower. We have seen few listings and that, of course, influences the market. There is certainly not a downturn, because Norway

is still doing quite well compared to surrounding countries. The private equity market remains strong. AMUND B. TØRUM: However, for the oil and gas sector, it is very good. One of the reasons is Statoil, whose divestments have triggered quite some movement. The purchase of producing assets in Norway is considered to be extremely attractive. For that reason many newcomers, such as Centrica and Wintershall, have come to Norway and purchased producing assets. In order to ensure predictability and simplify the process for being qualified to be a player on the Norwegian Continental Shelf, a system for prequalification of oil companies was introduced in 2000. This system has attracted many new players to the NCS over the past thirteen years, subsequently triggering M&A activity on the NCS.

FR: Schjødt has been one the leading firms in Norway. It won the award for best law firm in the Nordic Region in 2012. What is your strategy to maintain this position in the coming five years? PAUL BELLAMY: As far as going forward is concerned, recruitment and specialization is essential. Over the past three years we have grown 67%. This growth will continue; however, beyond a certain stage, such strong growth is not necessarily advisable if we want to ensure continued focus on specialist skills and quality client services. What differentiates us as well is our 24/7 attitude. Availability and response time is absolutely key. AMUND B. TØRUM: We must simply continue to recruit the most talented lawyers and further develop our performance culture.


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Interview with: Torstein Sanness, Managing Director – Lundin Norway

Torstein Sanness, Managing Director – Lundin Norway Focus Reports: When we met you last year you stated that 2012 would be the final proof that Johan Sverdrup is as large as you hoped. This would become apparent over the next five wells drilled over the next six months. One year later where do we stand? TORSTEIN SANNESS: We are still within the ban that we set two years ago. A total of 15 wells have now been drilled on the Johan Sverdrup field. During the first quarter of 2013 two wells and one side track were completed and one additional appraisal well has commenced drilling. We will probably need to drill another two or three additional wells within the license area PL501 were Lundin Norway is the operator with a 40 percent interest. All parties in license areas PL501 and PL265 (Statoil is operator) have agreed a timetable for the Johan Sverdrup field with development concept selection to be made by the fourth quarter of 2013, a plan of development is scheduled to be submitted by the fourth quarter of 2014. The current forecast remains for Johan Sverdrup first oil by the end of 2018 with full production in 2019 or 2020. Currently we are looking to set the data as good as possible before making a decision on field development. That being said, the reserve figure will to such an extent that a minor change in the recovery factor could have a significant impact as we are looking at half a million barrels a day. FR: 2013 has begun with positive news: Torstein Sanness, MANAGING DIRECTOR – LUNDIN NORWAY

Lundin has been awarded seven exploration license interests in the 2012 Norwegian Licensing Round. Can you elaborate on the key targets and expected results? TORSTEIN SANNESS: It is fair to say that we are happy with the result of the 2012 licensing round. In fact since we started our operations in 2004, Lundin Norway has been content with all licenses we have participated in. In 2013, Statoil will drill 25 appraisal and explorations wells and we will drill 18. That being said, Statoil and Lundin are definitely the two largest explorers on the NCS. Moreover we have the third largest – after Statoil and ConocoPhillips – capital expenditure budget on the NCS. Substantially all of the 2013 budgeted development expenditure relates to ongoing development projects in Norway. Half of our budget is allocated for capital expenditure for the Johan Sverdrup, Edvard Grieg and Luno fields and the other half for exploration and appraisal wells. Full speed ahead!

FR: To prepare itself for activity in the Barents Sea Lundin has taken its own rig up North and opened an office in Harstad. In June Lundin has won one license during the 22nd licensing round in the South Eastern Barents Sea. Is the outcome in line with your expectations? TORSTEIN SANNESS: Frankly we are not happy with getting merely one block. If we are going to sustain the amount of


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drilling we require more than one license when applying for a licensing round. Therefore we definitely take up the opportunity to discuss the outcome with the Norwegian Petroleum Directorate and the Ministry of Petroleum & Energy. In line with our discussions we conduct with aforementioned parties we will prepare ourselves for the upcoming licensing round.

FR: As discussed Lundin has won 7 licenses in mature areas while being one licence awarded in the Barents Sea where the potential for petroleum is less explored and where fewer infrastructures are built. What does this mean in terms of investment and technology? TORSTEIN SANNESS: We have put together a good acreage block before the discovery of oil in the Barents Sea at Skrugard and Havis, now renamed Johan Castberg. Lundin has a significant part of the neighbouring acreage towards the East of those discoveries. That area will be drilled over the next coming years. Our aim is to drill two wells annually as an operator in the Barents Sea. In 2013 we will drill two exploration wells on the Gohta and Langlitinden prospects. In fact the drilling of one exploration well has commenced in July. The well will target the Gohta prospect, which is located some 150 km northwest of the Norwegian coast and 65 km south of the Johan Castberg discovery. The well will be drilled using the drilling rig Transocean Arctic.

FR: Lundin has its operations on the NCS, however its HQ is based in Oslo. In your opinion, what role does Oslo play in the Norwegian Oil and Gas industry?

In 2013, Statoil will drill 25 appraisal and explorations wells and we will drill 18. That being said, Statoil and Lundin are definitely the two largest explorers on the NCS. TORSTEIN SANNESS: Lundin has made the decision to stay in Oslo and not to divide the company. There is ample competence in Oslo. People have been on the train back and forth and finally there was a company that moved to Oslo. In fact, Statoil has quite a few people in Oslo too. But again, that we remained in Oslo was something new. We have been lucky being able to attract the right people. Actually in Oslo we take advantage of a wider screen of people. We have seen quite a few companies wanting to participate on the NCS subsequently setting up their tents in Stavanger. As a result these companies are facing challenges as people are staying two years and leave. For that reason players are moving from Stavanger to Oslo. Naturally if you change out your crew every two years there is no continuity, it is expensive and unable to establish a company culture.

FR: Do you still consider Lundin Norway to be a junior? TORSTEIN SANNESS: Naturally we are a young company as we started in 2004. However the average age of our employees is 51 years. Our crew has the experience and that is way we have been able to grow significantly over a relatively short period of time. It is the experience of our people that counts.


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Interview with: Wenche Nistad, Chief Executive Officer - GIEK

Wenche Nistad, Chief Executive Officer - GIEK Focus Reports: Norwegian Guarantee Institute for Export Credits (GIEK) is a Norwegian government agency that has been established in 1960? What was the rationale behind establishing GIEK and how have the services evolved over time? WENCHE NISTAD: GIEK is the export credit agency of Norway. We are there to help all Norwegian exporters reaching out for new markets. By providing guarantees on behalf of the Norwegian government, we make it simpler for a company to obtain sound funding and secure key export agreements. What is special about Norway is that equipment for the oil and gas industry and offshore services has grown to be a very important business in the country. For that reason the oil and gas and maritime sectors dominate our portfolio. In fact, approximately a 100 billion NOK or 85% of our portfolio is represented by oil and gas and 5,5 billion NOK or 5% by maritime. By providing guarantees on behalf of the Norwegian government to foreign buyers, we make it simpler for Norwegian companies to obtain sound financing and secure export contracts. This is how we help enable Norwegian companies to compete for contracts with foreign buyers in other markets and countries. In this way GIEK creates growth for Norwegian companies, their employees and communities in Norway. GIEK’s activities have contributed to historic growth for Norwegian export industries, which has created growth for Norwegian companies, their employees and local communities in Norway. In 2000 it was decided to establish GIEK

Wenche Nistad, CHIEF EXECUTIVE OFFICER - GIEK

Kredittforsikring AS as a separate subsidiary, in order to look after the needs of SMBs and ensure the provision of credit insurance. The company’s capital came from its own funds and from the repayment of capital that in previous years was used to pay compensation for long-term credit facilities. This company supports short term business such as the export of fish. Between 2004 and 2012 our operations have grown significantly. On April 30th this year GIEK has a 117 billion NOK in total guarantees. 82 billion NOK in guarantees and 35 billion NOK in offers (promise of guarantee). This represents an overall increase of 13 billion NOK from year-end. In addition 10 billion NOK in new applications, 59 billion NOK in total applications per April 30th. The key factors of our growth have been a challenging financial market, the offshore boom, the Euro crisis and as a result the higher capital requirements of banks.

FR: What is a typical profile of a company that knocks on your door? WENCHE NISTAD: It is shipowners, Norwegian shipyards, or drilling companies that need drilling equipment when they construct a drilling vessel for example. Or any other company that is active in the offshore service. It is the large companies such as Petrobras, PMX, Reliance but also drilling companies such as Seadrill and other offshore companies that are operating internationally.

FR: What influence does Norwegian flagship player Statoil have on suppliers moving abroad? WENCHE NISTAD: Important in Norway is that


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we have a demanding environment. The North Sea is demanding and challenging but Norwegian companies have worked there for decades. This has given us experience and has stimulated a healthy technological development. In this way we have found new solutions and Norway is considered in the forefront from a technological point of view. Naturally companies like Statoil have been important in that respect but I believe that also other international oil companies have been important for our industry.

FR: To what extent is your financial agenda linked to a more political agenda?

WENCHE NISTAD: GIEK operates on a commercial basis—Norway’s politicians do not get involved in our operations. GIEK even have an independent board of Directors, appointed by the ministry of trade and finance. We conduct our business with a commercial evaluation. If Norwegian exporters aim to export to Brazil for example we will support them when we find the risk good enough.

FR: Earlier this year an agreement between Kexim, a Korean Export-Import Bank, and GIEK was concluded for expansion of the co-operation regarding financing and export guarantees. How would you define Norway’s relationship with Korea?

WENCHE NISTAD: Historically, Norway and Korea have been doing a lot together. Drilling rigs and vessels manufactured in Korea are full of Norwegian equipment. Norway and Korea work together on a significant amount of projects not only drilling units but also many other rigs built in Korea. For many years, GIEK has been co-operating with Kexim, in the same way GIEK has co-operated with other Export Credit Agencies. The co-operation, which is now being strengthened through the agreement, deals with the exchange of information, experience and competence related to the financing of large projects where Korean and Norwegian suppliers are involved.

Furthermore, there are always several banks involved covering risks. Norwegian DNB is one of the banks often contributing to financing. Hence, DNB was hosting the signing of the agreement between Kexim and GIEK. We are trying to do the same with The Brazilian Development Bank (BNDES). We have not conducted a first transaction yet but aim to do so this year.

FR: What is a project that you are most proud of and represents GIEK at his best? WENCHE NISTAD: This question is too hard to answer. We have participated in many projects. We are particularly proud of how we have been able to promote and assist the Norwegian offshore oil- and gas related shipping industry through our financial guarantee schemes. Norwegian shipyards have succeeded in being at forefront of the highly demanding international offshore service industry. In addition a wide range of subcontractors have expanded their business through technological innovation and development. We are proud to play our part in financial issues, adding to our exporters’ competitiveness. The cost of a PSV is typically 300-400 million NOK, where GIEK’s guarantee covers 70 % of the total loan of the shipowner). I should certainly mention the industry around drilling and rig equipment for the oil and gas industry, which has grown considerably over the last years. We are there for them as well, and all together most of our portfolio is related to the various parts of offshore oil and gas related activities. An exception to be proud is the renewable energy sector, where we have paid particular attention for a couple of years now. Scatec Solar will supply and take partly ownership of solar power plants Dreunberg (75 MW) and Linde (40 MW) in South Africa. The company has developed solar power plants with a total of 270 MW, first in Europe and now in South Africa. According to the company, guarantees from GIEK are crucial for securing financing and implementation of projects.


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Interview with: Thomas Fjell and Erik Sandøy, InterOil

Thomas Fjell and Erik Sandøy, InterOil Focus Reports: Looking at a subsidiary level in Peru and Colombia, could you elaborate on your current portfolio? THOMAS FJELL: The challenge for Interoil was that due to its high overhead cost and highly leveraged financial structure, the company had very little left for CAPEX. The main reason for this was that in 2010 the company obtained USD 90 million through bank facilities in Colombia and Peru and a USD 50 million bond in Norway. Due to the licence situation in Peru, which is about to expire shortly, the banks required steep amortization profiles and the bond had a very high interest rate of 15%. This caused a severe drain on cash and the company did not have sufficient funds to mitigate the natural declination of our fields. As a consequence production decreased from 10,000 to 4,000 barrels of oil per day. As a consequence the company’s cash flows became so low in January 2013 that the company was unable to meet its commitments. We realized that in order to salvage some of the shareholder values we needed to increase production and that the investments that this required would have to be funded through equity. So in March this year we completed an equity issue of USD 35 million. This enabled us to fund an expansive drilling program in Colombia of approximately 65 wells. As of today we are in the process of executing the first phase of this drilling program and have so far completed 7 of the first phase. The main objective of these wells was to increase cash flows, and therefore we careThomas Fjell and Erik Sandøy, INTEROIL

fully selected low risk well locations that would commercial. We note with satisfaction that so far all wells have been in line with our expectations. The next phase of the drilling program will be initiated in December / January. This will consist of approximately 20 wells. In addition to securing cash flows the main objective of this phase is to acquire new data on reservoir distribution, quality and productivity in the vicinity of existing producers and new areas. The results of this drilling campaign will be crucial to the value of our Puli-C license in Colombia. Interoil also has an exploration license in Colombia – LLA-47, which we believe can contribute substantially to our shareholder value. However, in line with what we have communicated to the market we are aiming to reduce the operational risk in Interoil and we are therefore seeking to farm out a portion of this license. We expect to initiate this farm down process once we have the results from the 3D seismic In Peru Interoil operates two production licenses. According to the initial term our license expired in March this year. However, Interoil was awarded an injunction to continue operating the licenses in Peru due to force majeure caused by El Nino (1998-99 and 2002-03) until October 2014 in the case of Block III and until March 2016 in the case of Block IV. We are currently in arbitration proceedings with licensing agency PeruPetro to determine whether Interoil has the right to extend


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the term of its original licenses in Peru until October 2014 (Block IV) and March 2016 (Block III). A final decision on these proceedings is expected within the first half of 2014. We feel quite comfortable with our case so will continue to operate these licenses until the aforementioned periods. Given the uncertainty of the license situation, all investments carried out will have a short payback time. We are seeking for long term extension for our licenses as we believe that these have a significant upside potential—18 million barrels of 2P reserves that can be developed. We have already developed a Field Development Program for this field and according to this we would be able to increase production to 7000 barrels of oil per day by 2015. Our new shareholders have clearly stated that they are willing to contribute in funding this development program. It is also clear that Interoil is the only company that would be able to increase production rapidly on blocks III and IV as other operators would need to qualify and obtain the required permits which will take a significant amount of time.

FR: For the investors who like to take risk, is this not the right time to buy shares of Interoil? THOMAS FJELL: Definitely it is. I do like to stress that a license extension will be a significant value contributor to Interoil. Hence, we are working very hard on different routes to obtain that extension, and we are getting positive feedback from senior officers within Peruvian governmental agencies related to this issue, although there is still work to be done in order to achieve said extension. The fundament that is value creating in Peru is the organization we have there. That represents a significant value to the company and its shareholders. The prob-

lem in Peru is perhaps not that there is a lack of licenses but not enough competencies within the oil and services industry. Interoil has the strength that many other companies do not have and we intend to utilize that strength by acquiring additional acreage and growing the asset portfolio.

FR: Could you each give one good reason to buy shares of Interoil? ERIK SANDĂ˜Y: Unlike large E&P companies, where significant events often have little impact on their share price, Interoil offers many more triggers and volatility in its share price. This makes it a more risky share but is more based on company specific issues rather than macroeconomics. Interoil has a troubled background but has changed significantly with a clear strategy going forward. Colombia in itself is a strong value case and little value is attributed to Peru. We will have to demonstrate success before the market recognizes this, but if we can deliver what we say, the Interoil share could perform well. THOMAS FJELL: I do not believe that the stock market has fully recognized all the changes we have made yet. Our strategy going forward is low cost, production oriented and therefore represents a low risk. It is all about continuing producing on the assets we have in Colombia. The opportunity we have by being in Peru is quite unique. Interoil has a good local organization and has been there for many years. Many opportunities are opening up in the country. I view the oil and gas industry in Peru to be where Colombia was 10 to 20 years ago. The companies that were in Colombia and acquired attractive acreage at that time have created significant value for their shareholders.


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Interview with: Roy Norum, Chief Executive Officer -PG Marine Group

Roy Norum, Chief Executive Officer -PG Marine Group PG Marine Group - Ing Per Gjerdrum ASWhat were the priorities you set when you took over the reins at PG Marine Group? ROY NORUM: PG has historically been a technology-focused company; our engineers have set the parameters for development. The company established a pump engineering division in order to increase its focus on solutions for customers. We adjust existing products but are always excited to bring new innovations to the table, and have presented many novel, smart solutions to the market over years. Today, clients are looking for fewer suppliers that take more responsibility and offer larger packages, all through a single point of contact. The advantage we have in this industry is that we have been working closely with offshore infrastructure for many years, and have seen many pumpingfunctions migrate from rigs to vessels, and now to the seafloor. Our understanding of the market is what we have based the business on, and this has reaped rewards for us. Under my leadership, we have taken PG to a new level in international markets: from 4 percent to in excess of 70 percent of our revenues coming from the export market, bringing our annual export turnover from €10 million to more than €80 million in 2013. Today, we see demand for our products in Korea, China and Singapore, but also North- and South America: we have a significant market share since 2000 in Brazil, a critical market for the oil and gas industry. Roy Norum, CHIEF EXECUTIVE OFFICER -PG MARINE GROUP

PG’s philosophy is based on insourcing rather than outsourcing, as we build inhouse competence and capacity. PG maintains partnership agreements around the world with leading maritime product providers for local sales and distribution. However when markets become saturated it is harder to obtain capacity and quality. For that reason we established business units such as PG Automation, which builds control and automation systems in-house. This strategy enabled us to increase the depth of both our competence and our capacity. Now, we can sign broader contracts with bigger customers. Ultra-deepwater developments and the move away from platforms have also changed the way clients are selecting equipment. Our research and experience has placed us at the forefront of developing new solutions for this evolving market. One of these is the PG-MACS (Multi Application Cargo Solution), which was developed in 2006-2007. PG-MACS is a flexible under-deck cargo handling system for liquid and dry bulk offshore cargo – including drill cuttings and rig slop, available for both vessels and rigs, which can significantly enhance the vessels cargo facilities – not least flexibility of cargo carried Another example is PG-MAPS, a compact, lightweight and cost-effective pumping system for a range of subsea and topside applications, including subsea mud and drill cuttings handling for managed pressure drilling, tophole drilling, subsea or topside high pressure injection of water or chemicals, subsea liquid boosting, and


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well intervention and fracking. PG-MAPS boasts several technical and cost-efficient advantages, including improved energy efficiency. Both the PG-MACS cargo solutions and PG-MAPS subsea pumps are products that were developed, manufactured and patented in-house by PG. Together with our Ballast Water Treatment systems for the offshore service vessels segment, these ground breaking solutions will be the main drivers of PG’s future expected very strong organic growth.

As a company focused on innovation, how difficult is it to convince your clients to accept new technologies, in an industry that is considered to be extremely conservative? ROY NORUM: Our products are generally well received by the industry, but as you mention, the oil and gas industry remains a conservative business. For an innovative company like PG this is quite a challenge because everybody loves our new ideas and novel products, but people are always waiting for someone else to go first. This leads to a ‘chicken and egg’ situation. We have to find that one company that is open to pioneer with us. But once you are recognized as a trusted partner, it is possible to have a very favorable position in the market chain. In fact, last week (August 2013), PG inaugurated a new 8,750m2 factory, and a new unit known as PG Fabrication. This is a brand new, tailormade facility that will present the PG Group with unprecedented possibilities for future business, including subsea-pump tests pits with up to 1,4MW fixed power capacity. How is PG dealing with challenges in Norway’s high-cost environment?  ROY NORUM: There are only two solutions to this challenge: either move operations

Under my leadership, we have taken PG to a new level in international markets: from 4 percent to in excess of 70 percent of our revenues coming from the export market, bringing our annual export turnover from €10 million to more than €80 million in 2013 abroad, or be extremely efficient. I’ll give you an example: At the end of 2012, Statoil had only 23,028 employees – a tiny figure for a company characterized as being among the most profitable and geographically developed in the world. This low employee count has enabled Statoil to have the highest rate of production to employees in the industry, at an average of 78.4 bpd/employee in 2012. This type of efficiency is also the key for PG. Our aim is to manufacture smart solutions that will provide high value, and diversification to our customers. Frankly, PG has an impressive track record in efficiency over the last ten years, and at the same time, the majority of PG’s solutions are logic-engineered, object-specific and customized, which makes our products significantly more challenging to copy than commodity-oriented products. PG holds and builds competencies within the company but occasionally buys capacity from external sources, for example by purchasing simple steel structures in countries such as Lithuania, Vietnam or Poland. In addition we have a partnership with a well-known Indian company that provides us with high capacity of skilled engineers if necessary.


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Interview with: Leonid M. Surguchev, Managing Director of LUKOIL Overseas North Shelf AS

Leonid M. Surguchev, Managing Director of LUKOIL Overseas North Shelf AS Focus Reports: How do you translate LUKOIL expertise gained in Russia to the Barents Sea? LEONID M. SURGUCHEV: LUKOIL has several decades of exploration and production experience in Russia and abroad. In Timan Pechora and in the Caspian region LUKOIL has been producing fractured carbonate and low permeable heterogeneous reservoirs with new well and IOR technologies. This experience of our geoscientists and reservoir engineers can be useful for exploring and developing Permian formations in the Barents Sea. We will also use LUKOIL Overseas deep water exploration drilling experience from the West Africa projects. FR: LUKOIL Overseas North Shelf builds its business platform as an active license partner, when will we see the transformation into operatorship?

State owned companies ROSNEFT and GAZPROM may develop offshore ďŹ elds. How do the latest developments in Norway fit within LUKOIL’s strategy to move towards the Russian Arctic? LUKOIL Overseas Company in Norway is focused on the Norwegian Continental Shelf. Recently new offshore licenses in Russia have been awarded to ROSNEFT and GAZPROM, some of them in cooperation with foreign companies. Last year the Russian government also invited Russian private companies to consider possible cooperation with the State companies on the terms similar to their cooperation with foreign companies. I think, taking into the account the size and resources of the Russian Continental Shelf, such cooperation between State and Russian private companies in the Arctic will take place in the future.

LEONID M. SURGUCHEV: In our first license round in Norway our main goal was to obtain participation in the prospective licenses and enter in the joint ventures with our partners. The long term objective in Norway is to become a full cycle upstream company having projects in different stages: exploration, development and production. Over the years we aim to have LUKOIL activities on the level comparable with major international oil companies operating in Norway. In Russia legislation reserves the right to operate offshore fields to companies owned at least 50 percent by the state and having at a minimum five years of offshore experience. These limitations mean that only the

FR: The Barents Sea is a very sensitive region from an HSE and environmental perspective. Would you tell us a little about the work LUKOIL is doing on environmental protection and HSE? LEONID M. SURGUCHEV: LUKOIL understands the importance of preserving fragile marine environment in the Northern Seas in Norway. The company is paying significant attention to environmental protection in all its projects complying with national requirements and regulations. LUKOIL budget for environmental measures is exceeding 750 million USD per year. As an example LUKOIL has been closely monitoring its environmental footprint in the Caspian since it began

Leonid M. Surguchev, MANAGING DIRECTOR OF LUKOIL OVERSEAS NORTH SHELF AS


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exploring the area in the mid-1990s. LUKOIL offshore policy is following a zero harmful discharge program ensuring no waste discharge to the sea. In the Baltic Sea LUKOIL is conducting continuous satellite environmental monitoring program for its offshore operations. The Northern Caspian area, where LUKOIL is producing Y.Korchagin field and now developing V.Filanovsky field, is especially environmentally sensitive due to shallow waters and unique ecosystem. In the same time winter periods in the Northern Caspian can be compared to Arctic harsh weather regions due to strong winds and very low continental temperatures plummeting below -30째C. In Norway LUKOIL will use environmental protection experience from the Baltic and Caspian Seas and from deep water West Africa operations. LUKOIL Overseas QHSE responsible manager in Oslo is a very experienced person with long term major oil company international experience.

FR: To be successful in the Barents Sea high quality staff is key. How do you attract and retain the best talent? LEONID M. SURGUCHEV: Finding talent is quite hard these days in Norway as well as internationally. LUKOIL and LUKOIL Overseas have secured funding programs with leading Russian universities, such as Gubkin in Moscow and University in Tyumen and many others. Also a special management and expert training program is lunched by LUKOIL at Skolkovo Science and Innovation City in Moscow. Gubkin University and Arkhangelsk Pomor University over several years have been cooperating with universities in Stavanger and Tromso and have joint Master programs. Graduates from these Russian-Norwegian education programs are now working in Russian and foreign companies all over the world. In Oslo we see also

strong G&G expertise among geoscientists graduated from Oslo University and experts working with many service, engineering and seismic companies. During the preparation for the 22nd licensing round we have actively involved experts from LUKOIL Engineering, where many of our G&G colleagues have been working previously for many years with the Russian Barents Sea and Pechora Sea regions in Murmansk and Komi republic in Russia. We also plan to involve them in our active preparation now for the 23rd license round in Norway together with our geoscientists in LUKOIL Overseas corporate centre and geoscience centre in London.

FR: In addition to being the Managing Director of LUKOIL Overseas North Shelf AS you are also a Member of the Norwegian-Russian Chamber of Commerce. How would you describe the relations between Russia and Norway? LEONID M. SURGUCHEV: In my opinion the relations between our two countries and between our people are very good. One example - the tombs of Soviet soldiers and prisoners of the World War II are always covered with fresh flowers, preserved and taken good care of by local Norwegian communes in many cities in the country. It shows the attitude, good feelings and respect to the Soviet soldiers who were fighting against Nazi invasion and died on the Norwegian soil. Important historical fact is that our two counties with common border in Europe have not been in war against each other for more than one thousand years! Regarding the Norwegian-Russian Chamber of Commerce I think the work it is performing is professional, done with enthusiasm and brings positive results. According to the representatives from the Russian side the work of this Chamber in promoting cooperation between our two countries can be an example for other countries in Europe.


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PAST REPORTS


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Company index Ministry of Finance...........................................................................1

Ramboll Oil & Gas..............................................................................5

McKinsey & Company..................................................... 1, 8, 11

ENI...................................................................................................................5

Pareto Group............................................................................................2

ConocoPhilips.........................................................................................5

Lundin Petroleum...............................................................2, 3, 4, 6 RWE DEA...................................................................................................5 Statoil.........................................................................................2, 3, 5, 10 Det Norske Oljeselkap.....................................................................2 Technip.........................................................................................................3

Petoro.............................................................................................................5 Senergy.........................................................................................................7

Schjødt..........................................................................................................3

Oslo Børs............................................................................................... 7, 8

Nordea Bank.............................................................................................3

Kvaerner.......................................................................................................8

DNB Bank..................................................................................................3 GIEK.......................................................................................................... 3, 4

Interoil Exploration & Production ................................. 8, 9 Songa Offshore......................................................................................9

Petrobras......................................................................................................4 Eureka Pumps......................................................................................10 ABG Sundal Collier.............................................................................4 LUKOIL Overseas North Shelf................................................4

PG Marine Group ...................................................................10, 11

North Energy .........................................................................................4

AGR Group.............................................................................................11

Repsol....................................................................................................... 4, 5

Boston Consulting Group..........................................................11


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Norway Oil & Gas report part 4 November 2013


Oil and Gas Norway report 2013 Part 4