Archer’s North Sea manager: $60 – $70 a barrel might be the right oil price

Archer is a global oil services provider employing more than 5,000 people at 40 locations in 19 countries. The company provides drilling services, well integrity & intervention, plug & abandonment and decommissioning services.

Offshore Energy Today has interviewed Mr. Kevin Cowieson, Archer’s business development manager for the North Sea region, on the back of Archer winning the contract to provide drilling services on Statoil’s installation in Norway. He speaks about the contract, industry trends, layoffs, growth opportunities, oil prices etc…

OET: Dear Mr. Cowieson, thank you for accepting this interview. Archer recently won a contract with Statoil. Granted, Statoil exercised a previously agreed option, however in these difficult times for the industry it is not rare to see options not exercised by oil majors.

Can you tell us more about the award, what it means for the company, and what Archer did to obtain the extension?

Cowieson: The Statoil award relates to the provision of platform drilling operations and management services. This includes the provision of onshore management teams and offshore drilling and maintenance personnel for eight Norwegian Continental Shelf assets: Njord Sleipner A; Snorre A; Snorre B; Statfjord A – 2012 contract extended; Statfjord B – 2012 contract extended; Statfjord C – 2012 contract extended; Visund.

Throughout the extension discussions we focused on developing future-oriented operating models that provide safe, efficient and cost effective solutions. When combined with the performance level and alternative operational solutions implemented on the Statfjord assets over the past four years, we feel that we have provided Statoil with a degree of confidence, and that Archer will replicate this to other installations.

OET: What will be Archer’s main responsibilities as part of the latest award, and how many jobs will be supported by the latest extension?

Cowieson: Archer will provide drilling and maintenance personnel and onshore management of the drilling facilities located on the contracted assets.

For the operational assets, Archer will provide the core operational drilling personnel to carry out Statoil’s well program activities in a safe and efficient manner, and the dedicated maintenance teams shall ensure that the drilling facilities are maintained in such a manner to deliver strong operational performance.

Where the asset is non-operational, Archer offshore maintenance personnel will preserve and maintain the drilling facility, as defined in the contract terms to ensure that the return to or from operational mode is conducted in a safe and cost efficient manner.

In addition, our onshore management teams will ensure that all assets under Archer’s control deliver safe and efficient operations and that these assets are maintained to a high standard. This includes the management of relevant certification and legislative requirements.

A total of nine assets (including Veslefrikk) will be under Archer’s management. The number of personnel required to support this contract will be dependent upon activity levels at the time of the transition and thereafter. The contract transition is planned for October 1, 2016. Therefore it is, for now, too early to comment on the exact number of employees required.

OET: As the oil companies cut capital expenditure in the wake of low oil prices, this means there is less work, and more oilfield services players competing for the same job. What is Archer’s competitive edge?

Cowieson: We always work closely with our clients to ensure that if they have a challenge, we are part of finding the solution. In addition we have invested significant time, resources and funds in focusing on our core values, Safety, Integrity and Performance. The investment can range from personnel training, competency development programs, systems and technology to make operations safer and ultimately to save time and money for our customers.

OET: The year 2015 was a difficult one for everybody in the industry, including oilfield services providers such as Archer. According to Archer’s annual report, the company saw North Sea revenue fall 30% as compared to 2014. What exactly is the reason for this?

Cowieson: There are a number of factors relating to the drop in revenue for Archer as a global company. The main reason is a significant drop on operational activities due to market conditions.

OET: What did Archer do in 2015 to reduce the impact of low oil prices on the company?

Cowieson: Archer’s difference is while we focused on reducing costs, we also aimed at consistently improving performance. By focusing on our core values regarding Safety, Integrity and Performance, we strive towards continually enhancing the safety and efficiency of our operations to clients and in turn operational costs.

OET: As pretty much everybody in the industry, Archer had to downsize its workforce. What regions were the most affected, and how many workers have been let go since the downturn began in 2014?

Cowieson: Since the downturn in late 2014, Archer has not been exempt from having to reduce our workforce to “right-size“ the company for the projected depressed market conditions.

The provision of platform drilling services is dominated by manpower resources. As our clients’ activity levels have significantly reduced, we have had to take difficult decisions to reduce our workforce to sustain the viability of our business. These reduction decisions are not taken lightly and over the past few years Archer also invested heavily in the training and competency development of our crews. This is an additional loss we have to incur when when we have to let personnel go.

Since 2014 we have reduced our onshore and office workforce by a little over 30%.

OET: How many people does Archer employ today, and do you expect there will be more layoffs?

Cowieson: Archer currently employs over 5,000 personnel globally with 2,400 people dedicated to our North Sea operations. We are continually assessing the forecast activity levels on a monthly basis. We believe that we have streamlined our business in the North Sea to manage current activity levels. Unfortunately, these activity levels are often determined by factors outside our control and any further reductions will be very much dependent on these factors.

OET: Are there any programs in place to help the laid off workers get a job elsewhere, in some other industry? Is there some kind of a promise that would mean re-hiring the same workers once the oil price goes back up?

Cowieson: The oil and gas industry has produced very highly skilled workforce, so hopefully other industries utilize this opportunity to benefit from this available resource pool.

Archer has invested heavily in the training and competence development of our resources and it would be advantageous to re-hire personnel familiar with our ethos, processes and procedures.

Our HR and operational teams monitor this situation closely and where an opportunity presents itself to re-hire previous personnel, this is an avenue we explore as a priority.

OET: There is a widespread belief that the market situation in 2016 will be even worse than in 2015. What will be Archer’s priorities in the current year?

Cowieson: As previously stated, we are not in control of the market activity levels. Therefore, Archer’s priorities for the year are to continue focusing on our core values and on delivering industry recognized performance.

OET: Is there any room for growth in the short to medium term, geographically speaking?

Cowieson: Yes – there are opportunities out there, as many operators are looking to the market to establish what technical and commercial advantages there are. As a company, we are working hard on both a local and global level to seek these out and deliver strong technical and commercial proposals to these prospective clients. We believe the unique combination of the people and technology that Archer offers, combined with the performance of our personnel, gives us every chance of growing the business despite challenging conditions.

OET: An oil major executive recently said that the oil price at $30s was a normal price, and that the period of above a $100 a barrel had been an anomaly. What is your opinion on this?

Cowieson: Opinions will always be mixed. When oil was over $120 a barrel in 2014 the warning signs were already there that this could not be sustained. However, given the level of investment, technology and skilled labor required to extract hydrocarbons from some of the most hostile environments on earth, $30 a barrel is on the low side and not sustainable in the long term. To put this in perspective, today by comparison a barrel of premium branded bottled spring water would cost more than a barrel of oil. $60-$70 a barrel is around the right level for long term market stability.

OET: Understandably, the energy sector has been overwhelmed with negative sentiment and gloomy predictions for the short to mid-term period. However, are there any positives to draw from the current environment? Something you’ve learned?

Cowieson: As history shows boom/bust pricing in this industry is a regular feature in this supply and demand-driven resource market. This will likely continue as such for the forseeable future but the industry will recover. Archer is working hard to sustain our business for the short term, as well as planning for the eventual recovery.

Right now we are in one of the worst, if not the worst, down-turns the industry has experienced. Collectively, the oil and gas industry has to become smarter at planning for future downturns in a more sustainable manner.

Interview prepared by Bartolomej Tomić, Senior Editor at Offshore Energy Today