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Back to the way Business is

-- FROM THE FULL PICTURE MAGAZINE --

Carl K. Arnet, CEO, BW Offshore
Carl K. Arnet, CEO, BW Offshore.

It could be said that BW Offshore CEO Carl K. Arnet had bad luck when taking over the reins of the FPSO company at the height of the global financial crisis in September 2008. But that's not how he sees it. In fact, Arnet believes that regular business conditions help rid the industry of less serious players and rewards companies like BW Offshore that have their houses in order.

Arnet began his career at Norsk Hydro, and stayed there for a full sixteen years. After starting off working offshore on the startup of various platforms and projects and making his way up to Offshore Installation Manager, he branched out and moved over to international business development. In the end, however, he developed such a taste for business that he decided to carry it out outside of Hydro.

"At Hydro one was really only responsible for one side of the equation – the expense side – and never the profits," Arnet says. He got the chance to weigh in on both sides of the equation, however, when he joined offshore loading and transfer system supplier APL (Advanced Production and Loading) as Managing Director in 1996.

During his time at the helm, APL evolved from a small Arendal, Norway startup to become the leader in turret and mooring technology, with a significant number of ‘world records' in terms of water depth (both deep and shallow), weather capacity and pressure containment, among others. BW Offshore purchased APL in 2007, and Arnet served as Deputy CEO at BW Offshore before taking over the top position in a planned transition the year after.

This took place not only at the height of the global financial crisis, but also at the start of a period (August 2008 – August 2009) that marked the first time since the FPSO market began that the industry had gone through an entire year without a single contract award.

While not all FPSO companies will necessarily show this development on their bottom lines now – given that contracts are set in place years in advance – in general the slowdown has had benefits for the well-established FPSO players. Some new entrants into the field have disappeared from this competitive area. This gives BW Offshore – which has delivered oil FPSOs primarily based on VLCC hulls since 1997 – a great chance of increasing its market share.

In fact, 2009 and 2010 so far have been quite fruitful years for the firm – particularly due to the company's vessels extremely strong operational performance (an uptime of 99.7 percent in 2009) and its multitude of projects in the Gulf of Mexico. One of the highlights here is the BW Cidade de São Vicente FPSO at the giant Tupi oil field off the coast of Brazil. BW offshore had a modified vessel on the field to commence FPSO operations within 335 days from Petrobas awarding the contract – one of the quickest turn-arounds on record. Other projects here include a FPSO conversion for Petrobras and Chevron in the Papa Terra venture in the Campos Basin offshore Brazil, and the BW Pioneer FPSO for the Cascade & Chinook project for Petrobras – the first FPSO in the US portion of the Gulf of Mexico.

In addition to these and other contracts of note, a Letter of Intent for the BW Carmen FPSO in the UK sector of the North Sea, the impending secondary listing of the company on the Singapore Exchange, and other opportunities being pursued in the Asia South Pacific and West Africa mean that BW Offshore is bullish about continued success.

The Full Picture recently sat down with Arnet in BW Offshore's Oslo offices for a one-hour interview, with the conversation running the gamut from the current state of the FPSO sector and the company's success in a difficult climate to the subsupplier market, future prospects in the Gulf of Mexico and beyond…

On the financial crisis, Arnet's ascent to the head of BW Offshore during the crisis, and the FPSO industry clearout

"The focus from 2005–2007 was on growth, and growth at all costs. Everything was peaking at the same time, and everybody was doing the same thing. It was a tremendous period – people were saying that there was no end to the number of FPSOs needed. If you took the plans of all the FPSO players and added them up, you could walk from Oslo to the United States – easily. It was just the times.

"I came in when all of this crashed to Earth. Then things went back to the way that business really is. Business is tough – we have very demanding clients with large and complicated projects. Putting projects together is not supposed to be an industrial happening – it should be a controlled process. And this is where we excel.

"I actually think that we're in a good period now – what we're doing now is a much more sensible business. One by-product of the toneddown market could very well be that a number of the less-serious FPSO players disappear. They will have big problems getting financing – not to mention the trust of their respective clients. Many of them have failed to deliver on time and served up large budget overruns. It serves nobody, really."

On BW Offshore's improved financials in 2009 and so far in 2010

"We're not affected by short-term market swings, as our projects are very long term. Some of the improvement was in the cards – because we had taken on projects, completed and delivered them, and then started to receive revenue – but where we've really made advances is in achieving better control over the operating costs, and more predictability. These areas tend to be pushed in the background during boom times – people are so busy acquiring new work that they forget about ‘mundane' areas like operations."

On being an industry front-runner

"Let's put it this way – we definitely have the capability to stretch what's possible. The mooring system that we've put into place for the BW Pioneer – the deepest oil development in the world – shows that we have the technical capabilities. But we're not going after technical innovation or pushing boundaries just to do it. We're very commercially driven, and are most concerned with profits on our operations and having a sound basis for future growth. We do, however, see that these things go hand in hand. If you have the technical capabiliities, then you place yourself in a less competitive category. You're making your own market, so to speak."

On technology ownership vs. supplier purchases from the market

"We're not interested in technology ownership in a general sense – we're quite happy to purchase it from the market. Take pumps , for example. There's reasonable competition here, so we don't need to own a pump company to get a good deal. "However, if competition is severely restricted to the point where there is no competition, or the technology in question is a very particular part of our product – like loading, offloading, or a mooring system – then it's different. It's a very particular type of technology, and there are very few companies in the world with a track record here. We would only be able to buy it from our competitors – and that's not comfortable. So that's why we own APL."

On BW Offshore's relationship with subsuppliers

"We run a big supply chain for all of our projects – they're quite complicated, integrated projects. We typically have two to three professional companies in on our projects. We haven't standardised on one specific control system for example – we actually buy from the market. You could always question whether that's a smart strategy or not. But BW Offshore is very commercially driven, and we are totally dependent on there being a number of good suppliers out there."

On Kongsberg Maritime and Norwegian subsuppliers in general

"The BW Cidade de São Vicente FPSO required an extremely quick turnaround – we executed the project in 11 months – so we're very pleased with the perfomance of the subsuppliers here. Kongsberg Maritime and their control package played a vital role in this process. "If there's one area where Norway is contributing to the world at large, it's in the country's experience in the area of maritime, offshore and oil and gas, and its ability to combine these competencies. This is the strength that Norwegian subsuppliers should continue to emphasise."

On the proposed secondary stock listing in Singapore

"We're the first FPSO company going for a dual listing in Singapore and Oslo, and things are more or less progressing according to plan, but are just taking a bit longer than we had initially thought. The due dilligence carried out in Singapore is rather complex, and since we operate in so many jurisdictions and have permanent setups with tax responsibilities – from the US and Brazil to Nigeria, Mauritania and beyond –then due dilligence means that all of these locations need to be checked. But we should be in place here over the course of the autumn.

On meeting local content requirements for operations in Brazil

"While there isn't a fixed set of rules, Petrobras has high expectations regarding local content for the operation of its offshore Brazil projects. BW Offshore has reached a level of 80% local employees in our projects there, something that we're very proud of.

"It is a challenge regarding the calibre of employees and getting them in place in time, but we were very happy to meet the targets. Most of our training takes place on the job – we come in mainly with an international crew, and then we train people there and replace our international staff over the course of the year. We've done this without any problems regarding health and safety. We're also providing financial support to local cadet programmes in Brazil in order to have a greater number of competent personnel there in a couple of years, which there will be a demand for."

On the fallout from the Deepwater Horizon incident in the Gulf of Mexico

"While it's too early at this time to say if what happened there is due to complancy or technical issues, the incident may significantly impact offshore developments in the region, and will definitely increase the price of these.

"The pre-salt area in Brazil is the same type of formation as in the Gulf of Mexico's US waters, and I don't even think that Mexico has started drilling similar structures. Future developments will definitely be coming from these deepwater oil areas. There's no doubt that the Gulf of Mexico contains huge quantities of oil – the question is how economical it is to develop it. This is always the conundrum that you have to solve – you have to include the investment, development and production costs relative to the price of oil at the expected recovery to see if you have a commercial project.

"The positive thing you can say about the incident in the Gulf is that it will hopefully help bring about an enhanced focus on safety."

On BW Offshore's strategic take on the FPSO market

"We have typically done vessel conversions, as this is a very suitable route for a lot of business cases that we see – but this doesn't mean that we wouldn't do a newbuild. So far they just haven't made sense. Take the Cidade de São Vicente vessel, for example – there's no way that a newbuild would have worked with the time involved. We had a competitive advantage over our competition because we had access to a conversion unit.

"While we're set up to own and operate FPSOs and gain our revenue through lease rates, we're not averse to EPC contracts. In fact, we're doing one right now for the Papa Terra project. We're open to different business models. Right now, being paid on progress is possibly preferable to having to finance projects and be paid over time – not only is it good for the activity level, but it's less demanding on our financial capabilities."

On BW Offshore's continued success

"When you are executing large projects like we do and take on long contracts handling large quantities of flammable and polluting substances, you have to put together a company with a very clear business strategy, very clear objectives and a systematic approach. There's no way you will succeed in production without a very systematic health and safety approach that minimises and mitigates risk. You also have to be careful to find the right mix of short-term and long-term costs for all of your technical solutions. Developing the supply chain – so that you have the right partners and players in order to obtain your project objectives on time and at cost – is extremely important."

BW OFFSHORE

  • One of the world's leading floating production, storage and offloading (FPSO) contractors and a market leader within advanced offshore loading and production systems to the oil and gas industry
  • The company has over 25 years of experience in the industry, and has successfully delivered 15 FPSO projects and 50 turrets and offshore terminals
  • Listed on the Oslo Stock Exchange and likely listed on the Singapore Stock Exchange over the course of 2010
  • Employs approximately 1100 people in business centres across Europe, the Asia Pacific, West Africa and the Americas
  • 2009 operating income of uSD 121.4 million
  • A part of the BW Group, one of the world's largest maritime groups

TECHNOLOGY HIGHLIGHTS

BW Offshore's fully owned technology division, Advanced Production and Loading (APL), delivers cutting-edge turnkey solutions for:

  • Production vessels, storage vessels and tankers in a wide range of field developments
  • The company's BW Pioneer, which is in operation for Petrobras and represents the first FPSO in the uS section of the Gulf of Mexico, is the deepest application for a APL Submerged Turret Production (STP) buoy to date. It features a turret and mooring system at a water depth of 2600 metres
  • Through a fast-track conversion project, BW Offshore delivered the first FPSO – the BW Cidade de São Vicente – to the Tupi field, one of the largest in Brazil, to Petrobras
  • The FPSO Yùum K'ak' Nàab, currently in operation for PEMEX in the KMZ field in the Mexican Gulf of Mexico, is the largest FPSO to date. The vessel has a throughput of up to 600,000 barrels of oil per day.

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