Companies adapt to new price realities

Adapting to current cost conscious market conditions was the recurring theme of the Aker companies'* open day for investors last week (17 March).

Edvard Grieg at Stord yard. Photo from Kvaerner.

It was held at Aker Solutions’ offices in West London, where some of the work is currently being carried out on the company’s recently awarded EPMA (engineering, procurement and management assistance) contract for Statoil’s giant Norwegian sector Johan Sverdrup project.

Aker Solutions CEO, Luis Araujo, said that new cost-savings programs in all business segments and corporate functions were well-underway. These include a goal for the engineering business to reduce engineering and procurement services costs 30% by the end of 2017. The MMO (maintenance modification and operation) area is also on track to lower the cost of modifications 30% by the end of 2016. The subsea segment has set a target to improve operational efficiency 15% annually. This was achieved in 2013 and 2014.

The company’s actions have been taken amid five-year low oil prices, which came on top of an already over-heated, high-cost market, which had been starting to take its toll on many in the North Sea, both offshore Norway and the UK, long before the start of the oil price slide in June last year.

Aker Solutions’ subsea, umbilicals, engineering and MMO areas were spun off in September 2014 to create a new business under the Aker Solutions name. "The split allows us to reduce complexity, build on synergies and bring down costs, which makes us much better equipped to respond to the needs of customers in the 22 countries where we operate," Araujo said.

While Norway is the company's single largest regional market – the firm signed a control with Statoil to deliver a concept study for future phases of the Johan Sverdrup development earlier this month - Aker Solutions is this year set to get 60% of its revenue from outside its home market amid an expansion in Africa, Brazil and Asia Pacific. The share has grown from 50% last year and about 40% in 2013.

Akastor

Akastor, one of the companies to emerge from the Aker Solutions split, also presented at the event. Akastor portfolio drilling systems company, MHWirth, faces a very challenging market with a low activity level resulting in capacity costs and pressure on margins, Akastor CEO, Frank O. Reite, told investors. The company is aiming to reduce personnel by 500-750, resulting in annual cost savings of around NOK 500-600 million.

The top priority for well construction and intervention services company AKOFS Offshore, another Akastor portfolio company, is to find employment for the light well intervention vessel Aker Seafarer. AKOFS Offshore bought the hull of the vessel in February for $122.5 million. It already owned the topsides, and has reduced the opex of the vessel to around $50,000/day.

Kvaerner

The Johan Sverdrup. From Statoil.

Kvaerner, which spun back out of Aker in 2011, is revising its delivery model as part of a cost reduction initiative to enable it to become more competitive, explained Aker president and CEO Jan Arve Haugan. A recent example is the sub-contract to Drydocks World in Dubai earlier in March for the fabrication of pile clusters and floatation tanks including surface protection for the Johan Sverdrup riser platform jacket.

Despite losing out on a major drilling topsides award for Johan Sverdrup in February, EPC contractor Kvaerner’s Kvaerner Stord yard has work. It is due to deliver the Edvard Grieg topsides to Lundin mid April. Kvaerner signed the final contract in January on a riser jacket for the Johan Sverdrup project, and has a letter of intent for a second jacket for the drilling platform, which is expected to be converted into an EPC lump sum contract later this year. The riser jacket will be built at Aker Verdal, and is due for delivery summer 2017.

Det norske oljeskap

Norway-focused Det norske oljeskap also presented at the event. The firm has a strong reserve base of 206 MMboe, following the acquisition of Marathon Norge, Det norske CEO Karl Johnny Hersvik told the meeting. Including Det norske’s stake in the Johan Sverdrup field, this figure becomes about 500 MMboe. Det norske produced 66,600 b/d in 2014.

Ivar Aasen. From Det norske.

Det norske’s assets are concentrated in two areas: Greater Alvheim area, where the Bøyla field came on stream in January, and Utsira High, where the Johan Sverdrup and Ivar Aasen fields, currently under development, are its main assets.

Hersvik said the NOK 27.4 billion (gross) Ivar Aasen development is on track for first oil in Q4 2016. The jacket is ready to sail from Saipem’s Arbatax yard in Sardinia to Norway. Once installed, development drilling will start. Construction of the topsides at SMOE in Singapore is more than 50% completed.

First production from phase 1 Johan Sverdrup is targeted for Q4 2019. Det norske’s exact share in the field is still under review - Det norske has not signed the unitization agreement. The company believes the 11.8933% proposal from the operator does not reflect the underlying value in the various licenses in the Johan Sverdrup field. The other partners have asked the Norwegian ministry of petroleum and energy to conclude on the unitization. The ministry has indicated that it intends to try and resolve the unitization issue as quickly as possible.

*Aker companies in the oil and gas arena include: Akastor, Aker Solutions, Det norske and Kvaerner.