Pinsent Masons Fintech Meet Up
Out-Law News | 04 Feb 2016 | 9:14 am | 4 min. read
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Yours is a global business with operations around the world. Has the decline in oil price led to more pronounced issues in some markets than others?
We have felt the downturn across every market. I would say, however, that in Norway it started even before the oil price started falling, because of cut backs in the maintenance modifications area. That started in 2014 as a consequence of the oil companies’ cost level challenges, sometime before the oil price started to fall. These cost reductions and the oil price decline have had a compound effect on the market.
We see opportunities, but we also see a lot of postponements and delays, which sometimes results in cancellations of projects. That is often worse than just straight-forward cancellations, because you are carrying tender costs and then you don’t get the work in the end. Right now I don’t think we see major differences between the geographical areas, it is challenging all over.
What kind of technology and efficiencies do oilfield services companies with North Sea expertise have to offer to offshore operations elsewhere in the world?
The harsh, deep water environment has been one of our selling points. I would say the North Sea environment has maybe had a high-tech dimension compared to, for example, shallow water wellhead platforms or onshore drilling. Working with our customer Statoil we recently completed the Asgard Subsea Compression Project which is a type of technology that we believe will be useful elsewhere. Staying competitive and focusing on core offerings is important going forward, and so is development that might drive costs and risk down.
What type of efficiencies have you put in place to deal with the down cycle?
We were lucky enough to have a healthy order book, especially on the subsea side, where we have had some large contract awards in Africa, and engineering with some major contracts in the North Sea. However, we are refocusing the company, as I think is the case for most of the players in the industry. We're driving LEAN initiatives across the company. There are several programmes for addressing costs on the supply chain side and renegotiations with clients too.
The results from our survey show 96% of respondents are confident about a UKCS recovery. Many of them saying it will happen within the next five years. Do you find that surprising and do you agree with the 96% of the respondents?
It depends on what you mean by a 'recovery' because I think UKCS is very mature when it comes to greenfield opportunities. So in terms of recovery to production levels and even upwards, I'm maybe a little hesitant to say. However strong offerings in the service segment, life of field extensions and decommissioning will bring opportunities. I am not sure that it will rebound to the levels that we saw in 2012-2014.
There are many ways to understand recovery. I think you'll see a recovery in the oil price, you'll see a recovery just in profitability, or you'll see a recovery in profitability because demand will come back which - combined with efficiencies in the industry – will mean a recovery in profitability.
Are you looking to enter new geographical areas through M&A or JVs and if so, where, which type of companies and why?
We continuously evaluate M&A opportunities. I wouldn’t describe us as aggressive in that area. We do JVs as a part of our entry into new markets where we have already found a lead for business there. We don’t normally enter through a JV. We find opportunities, we follow leads and clients to new countries and then we set up JVs or acquire companies as we need to.
When you made acquisitions in the past, what sort of challenges have you encountered in integrating them?
I think with a few acquisitions we've made, the challenge is that they’ve been run as smaller with a sense of independence and ways of operating and a desire to keep doing it that way. The question is whether integration will destroy value by changing the culture and changing the ways of operation I think that we've had a few acquisitions with strong founders, regional start-ups and it’s been difficult to integrate them fully.
You need to pay attention and you need to dedicate resources and management attention to the whole thing, which is easy to say but it’s harder to actually do. It takes a lot more time and energy than one might expect, and having a really dedicated management to ensure integration.
In 2015, many perceived sellers' high price expectations to be a deterrent to doing deals, do you agree with this analysis and do you think sellers will lower their expectations over the coming months as a low for longer consensus settles in?
Yes to both. We have experienced a strong increase in M&A opportunities being pitched to us, especially from a lot of the smaller companies and family-owned companies that need a safe harbour at this time. The lack of strategic fit has been the main reason for not chasing most of them to date. But as with any downturn, I think that that there is still a gap between sellers' and buyers' expectations. I think sellers will simply have to lower their expectations. We've seen sellers in the market more willing to do that, and I think we'll see a lot of sellers who have no choice but to sell going forward. That will definitely drive prices and expectations down.
What are currently the most pressing regulatory challenges in doing cross border M&A and how can those be overcome?
We haven’t done a lot of M&A in less developed countries, however we have JVs in certain areas where the host countries have low levels of regulatory development, and cumbersome and bureaucratic processes.
Why do so many market participants believe M&A will increase significantly in 2016, and in your view, where is the oilfield services sector heading in 2016?
I also believe that to be the case. I think it will be driven by the market going forward. We have obviously seen a lot of big plays already. Consolidation will be necessary moving forward
Axel R. Gustavsen is senior vice president and chief legal counsel at Oslo-based Aker Solutions ASA. Aker provides oilfield products, systems and services worldwide for customers in the oil and gas industry. The company, founded in 1841, now has bases in more than 20 countries around the world and operations globally.
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Pinsent Masons Fintech Meet Up