McDermott, CB&I to merge


Offshore staff

HOUSTON and THE WOODLANDS, Texas – McDermott International Inc. and CB&I have agreed to combine in an all-stock transaction to create a vertically integrated onshore-offshore company, with an engineering, procurement, construction, and installation (EPCI) service offering and technology portfolio.

Upon completion of the transaction, McDermott shareholders will own about 53% of the combined company on a fully diluted basis and CB&I shareholders will own 47%.

The estimated enterprise value of the transaction is approximately $6 billion, based on the closing share price of McDermott on Dec. 15, 2017. The transaction includes CB&I’s Technology business and former Engineered Products business.

The transaction has been approved by the boards of both companies and is expected to be completed in 2Q 2018. It remains subject to regulatory antitrust approvals, approval by McDermott’s and CB&I’s shareholders and other customary closing conditions.

Following completion of the transaction, the combined company will be headquartered in the Houston area.

David Dickson, current president and CEO of McDermott, will be president and CEO of the combined company, and Stuart Spence, current executive vice president and CFO of McDermott, will be executive vice president and CFO of the combined company. Patrick Mullen, president and CEO of CB&I, will remain with the combined company for a transition period. Operational leadership will include representatives from both companies.

The board of directors will be comprised of 11 members, including 10 independent directors and David Dickson. Five of the independent directors will come from McDermott and five will come from CB&I. Gary P. Luquette, non-executive chair of the McDermott board, will serve as the combined company’s non-executive chairman.

The Asset Evaluation Process in Upstream Oil and Gas—Technical, Financial, and Geopolitical Considerations

06 December 2017

Harshad Dixit, Halliburton; Gaurav Dixit, ONGC; Stephen Forrester, NOV

Exploration and production (E&P) companies often invest in assets outside their home country; in fact, many of these companies have groups specifically dedicated to evaluating overseas investment opportunities. For example, ONGC Videsh, which is the overseas arm of Indian national oil company Oil and Natural Gas Corp. (ONGC), owns participating interests in 38 oil and gas assets in 17 countries. The sole business of ONCG Videsh is to prospect for oil and gas acreages outside of India for exploration, development, and production. Another example comes from Mexico, where the recently concluded shallow-water bid round saw 20 individual companies and 16 consortia from 15 countries bid on 15 shallow-water blocks in the Gulf of Mexico.

The reasons for investment diversification across political borders vary from seeking the highest-quality assets, increasing energy security for the home country, or transferring relevant technologies and skills to hedging geopolitical risks or engaging in diplomacy. The technocommercial evaluation of these assets by investors provides for an exciting work experience for E&P industry professionals. The process is not purely technical or limited to the evaluation of the asset’s production performance. Careful consideration is also given to the business environment, fiscal policy stability, and political stability of the country, among other factors.

Oil and gas companies maintain a balanced portfolio of exploration, development, and production assets, and the proportion of these assets is governed by the company’s overall strategy. Risk-averse companies may prefer to farm into a producing asset and acquire a stake as a nonoperating partner. Companies with exploration experience and risk appetite may bid on government auctions for exploration blocks or farm into exploration assets.

Some companies focus on successful exploration and prefer to make a profitable exit by selling their stake before the development of the asset begins. E&P companies, in general, seek out investments in assets based on their corporate risk profile and production and/or reserve booking and replenishment targets.

Most companies have an asset-screening process for new investments. This is designed to reduce the opportunities to be evaluated to a manageable and practical number. The screening criteria may be a combination of:

  1. Technical considerations—based on asset quality and the company’s expertise and experience
  2. Financial considerations—based on the amount of investment, expected post-tax returns, cash flow constraints
  3. Geopolitical considerations—based on political stability of the region, fiscal regimes, safety considerations

Technical Considerations

The essential technical questions in their simplest form are:

  • How much hydrocarbon is present?
  • How much hydrocarbon can be economically recovered?

Exploration assets require extensive analysis by geologists, petrophysicists, and geophysicists, with an emphasis on seismic data availability, data quality, and information availability from nearby analogue fields. Development or producing assets are more production-oriented—for these fields, reservoir performance analysis, reservoir modeling, and field development planning are usually more important than seismic interpretation. As the number of wells increases and production histories grow longer, confidence in earth models (geocellular or static models) and reservoir simulation models (dynamic models) increases.

Typically, the seller provides a data package, which can be purchased at a nominal price by interested investors to perform their own analysis. For exploratory blocks the data package generally includes available seismic data, geology reports, well logs, and core reports. For producing assets the data package may contain information on production history, well designs, complete asset models (including both earth and dynamic models), surface facility designs, and evacuation options.

In addition to the expected hydrocarbon volumes, production rates, and drilling schedules, there is also the element of development costs. Estimation of capital expenditure (drilling costs and facilities costs) and operating expenditure influences asset profitability. There are multiple software tools available that use historical, regional cost databases to provide estimates of capital and operating expenditures based on the development plan. It is interesting to note that depending on the phase of the development, these cost estimates can vary by as much as ±40%. During the tendering and procurement stage, for example, the cost estimates are well-defined and stay within a ±5% range. Relevant health, safety, and environment considerations, such as the age and condition of existing infrastructure and the history of safe operations, are also accounted for.

Financial Considerations

Oil and gas assets in the exploration and appraisal stage usually require large investments with a long gestation period, but development assets or producing assets may offer a quicker payout. The investing company must align the magnitude of the investments and the cash flow schedule with its corporate cash flow planning.

Companies often elect to bid as a consortium, with each partner having a varied stake and the largest stakeholder usually operating the assets. Depending on its technical capabilities and presence (or lack thereof) in the region, a company may choose to opt for an operating stake or a nonoperating stake in the consortium.

The project’s profitability is calculated based on the revenue and cost estimates and compared using standard measures such as net present value, internal rate of return, return on investment, and payback period. Due to fluctuations in the price of oil and uncertainty in production profiles, the ability of revenue streams to hit certain predetermined targets is not always guaranteed; depending upon the lease or concession duration, these forecasts may have to be prepared for 10 to 40 years. A longer concession period implies higher uncertainty in revenue and costs. The economic calculations must always be weighed against all technical, financial, and geopolitical risks. (For more details refer to Economic Evaluation of Oil and Gas Projects.)

Geopolitical Considerations

Some regions may have unstable governments, safety risks for employees, risks of pilferage and/or theft, and supply disruptions. The threat may even be political in nature. An abrupt change in fiscal and monetary policy, for example, could change tax rates and impact profitability. Independent rating agencies, including the Global Peace Index, Political Stability Index, and Ease of Doing Business Index, among others, prepare yearly rankings of countries that are useful as screening tools for investors to avoid assets that come with high geopolitical risk.

Countries with higher risk will often, however, offer a better reward; as such, many companies continue investing in high-risk areas to chase high returns. Additionally, a review of the legal structure and tax regime in the country of operation is needed to accurately calculate post-tax profits and other bidding parameters.

Asset evaluation studies are multifaceted and time-bound, with sellers often having fixed disinvestment timelines and government auctions of blocks always having deadlines. Sometimes the first-mover advantage comes into play when there is no structured bidding timeline defined by the seller. A team of experienced, multidisciplinary experts performs these evaluations rapidly, sometimes in timeframes of weeks rather than months. Specialized software tools and information databases are available for these studies, with some companies outsourcing them to technical, financial, and legal consultants to expedite completion. High-value investments require the best quality of due diligence. Predicting the profitability of multibillion-dollar investments in oil and gas assets, after all, is no easy task.

Statoil Plans Leaner, $6-Billion Arctic Project

Matt Zborowski, Technology Writer | 

Statoil has submitted a plan for development and operation to Norwegian authorities for its Johan Castberg project—the northernmost development on the Norwegian Continental Shelf—after cutting its expected capital expenditure and break-even cost by at least half. Oil production is expected to start in the fourth quarter of 2022 and last 30 years.

Located in the Barents Sea 240 km northwest of Hammerfest and 100 km north of Snohvit field, the Johan Castberg development will utilize a floating production, storage, and offloading (FPSO) facility and a subsea production system consisting of 30 wells with vertical subsea trees, wellheads, control systems, 10 templates and manifolds, two satellite structures, and tooling. The $6-billion project’s estimated recoverable resources range from 450 million to 650 million BOE, mostly oil. Operating costs for the field are estimated at about $140 million/year.

Aker Solutions will supply the subsea system and design the topside for the FPSO, which the services firm said “will be the largest-ever of its kind offshore Norway.” The two contracts are together valued at $480 million. Aker has already provided concept studies and front-end engineering design for the project.

Work on the subsea system begins this month with initial deliveries expected in second quarter 2019 and final delivery expected in first half 2023. Detailed design on the topside is under way and expected to be completed in 2019. Sembcorp Marine is slated to construct the FPSO’s hull and integrated living quarters. The field will have a supply and helicopter base in Hammerfest and an operations organization in Harstad, and the possibility of an oil terminal is being explored at Veidnes.

The road to submission of the plan for development and operation was a long, winding one that “brought challenges,” noted Margareth Ovrum, Statoil’s executive vice president for technology, projects, and drilling. Issues with high costs were further complicated by plunging oil prices in 2014–15, leading to delays. The project previously “was not commercially viable” at $12 billion in capital expenditure and a break-even price of $80/bbl but now will be profitable at less than $35/bbl, she said.

The Norwegian operator said it was able to shed costs by eliminating unnecessary equipment such as a backup generator for oil production and water injection after determining that production could continue for a period of time absent water injection. That move saved about $50 million. Statoil also replaced fire-protection cladding on oil installations with a system that drains combustible material. That saved about $20 million.

Johan Castberg comprises three oil discoveries made on PL 532 in Lower-to-Middle Jurassic sandstone: Skrugard in 2011, Havis in 2012, and Drivis in 2014. They lie in 360–390 m of water. Partners in the project are Statoil, the operator, with a 50% stake, Eni 30%, and Petoro 20%. Last summer’s Kayak oil discovery near Johan Castberg also is being considered for tie-in.

“Johan Castberg will be the sixth project to come on stream in Northern Norway,” said Arne Sigve Nylund, Statoil’s executive vice president for development and production in Norway. “The field will be a backbone of the further development of the oil and gas industry in the North. Infrastructure will also be built in a new area on the Norwegian Continental Shelf. We know from experience that this will create new development opportunities.”

Statoil separately has signed a letter of intent with FMC Kongsberg Subsea for a subsea system for its operated Snorre Expansion Project on the Snorre license in the southern Norwegian Sea. The contract would be worth $240 million and cover six subsea templates and subsea production equipment for 24 wells. That project also had been delayed in recent years because of high development costs.

Elsewhere, Statoil was among 11 companies to apply for stakes in production licenses in the 24th licensing round on the Norwegian Continental Shelf. That total is down from the 26 firms that applied in the 23rd round in 2015. The most recent round, which consists of 102 blocks or parts of blocks mostly in the Barents Sea, received applications from AkerBP, Centrica, DEA, Idemitsu, Kufpec, Lundin, OMV, RN Nordic Oil, Shell, and Wintershall. Norway hopes to award the licenses before next summer.

The Crucial Thing Missing From The Work-Life Balance Debate

Forbes Leadership Forum, News, Commentary, and Advice About Leadership

This article is by John Coleman, the coauthor of Passion & Purpose: Stories from the Best and Brightest Young Business Leaders and a chief administrative officer at a large Atlanta-based financial institution. 

I’m often frustrated by the prevailing conversation around work-life balance, which tends toward unhelpful or misleading oversimplifications. In the prototypical discussion, “work”—a person’s professional pursuits—is something to be held at bay lest it consume “life”—a person’s family time and personal pursuits.

The unwritten assumption here is that people naturally prioritize the professional over the personal, and that the “things that really matter” are those outside a person’s career pursuits. It also assumes everyone’s life follows a similar model—a career crafted primarily for professional and financial gain and a family at home requiring care and attention.

But what is the result of striking this balance? Articles on work-life balance almost never ask what we’re striving to balance for— what is the goal of the exercise. They assume that a certain number of hours sprinkled at work, at home, at the gym or with friends will yield a good life. But these articles rarely articulate what this good life looks life. And they rarely contemplate those who take alternative paths with their personal or professional lives—people whose work is at home raising children or those who never enter a long-term romantic relationship and instead focus on their careers (which can of course offer great purpose) or their friends.

Consequently, we’ve been conceiving of the topic of work-life balance all wrong. And I’d posit a new way in which to explore the issue by fundamentally redefining the terms. Starting with the end in mind, the goal most of us are striving for is fulfillment and human flourishing—both others’ and ours. This might be something like the old Aristotelian concept of eudaemonia. It is not just a happy or balanced life—though it may be happy—but a good life, one lived for worthy purposes and, in a way, uplifting to others.

A new framework for flourishing

If this is the goal, then I’d suggest we re-conceive of the two fundamental terms of the work-life debate. Rather than thinking of “work” as “things we do at an office” or our professional pursuits, I’d term work anything we have to do. And I’d term “life” anything we want to do. Perhaps you could think of it in a matrix like this:

In this construct, all of our meaningful activities, personal and professional, have elements of both work and life. At home, for example, I have a number of responsibilities—things I have to do—that I consider work: Changing diapers, doing loads of laundry, hanging curtains. If my personal life were made up of only these things I’d never want to go home. They’re not fun, and they’re the price I pay for the responsibilities I assume as a husband and father—fulfilling because they are purposeful. But there are a lot of fun activities, too—things I want to do: Jumping on the trampoline with my kids, going to concerts with my wife, having dinner discussions with good friends. These things are joyful.

Similarly, at work, we all have responsibilities—certain committee meetings, difficult conversations with colleagues, lengthy PowerPoint presentations, and so on. These are the necessary evils we take on as part of our purposeful commitment to our workplaces and our colleagues. And then there are the fun parts—lively problem-solving sessions, innovation, synthesizing new concepts or ideas in writing. We accept the sacrifices because they must be done for our own good or the good of others. And we embrace the activities that bring us joy because they energize us.

Have you ever felt that your life—at work and at home—was all “work”? At the office you may feel like you’re stuck only doing things you must do, rather than anything you enjoy. At home, you’re caught running errands, doing housework r dealing with problems rather than enjoying friends, family or hobbies. This is drudgery—it may have purpose—but it’s joyless and draining.

On the other hand, imagine a life with no responsibilities. It might sound wonderful. But flitting from interest to interest without really sacrificing anything or taking on the burdens of others would end up being hollow and superficial—an easy but shallow and purposeless existence.

Worst of all would be to live without joy or purpose—rudderless and unhappy all at once.

Best, of course, is to live a life that combines purposeful commitment to self (things like character-building and self-improvement) and to others, enriched by the joy of friends, fulfilling hobbies and professional pursuits, and meaningful time with loved ones. This kind of life is flourishing and fulfilling.

Restoring balance, finding fulfillment

This framework allows us to approach to topic of work-life balance differently.

First, it is flexible enough to accommodate varying life choices and stages of life—accounting for single people, marrieds, grandparents, office workers, entrepreneurs, those who stay home to take care of kids, and everyone in between—while assuring that no matter our chosen recipe for life, the ingredients are measured to leave us nourished and fulfilled.

Second, this frame forces us to monitor each sphere of life for the balance of purpose and enjoyment, acknowledging we need both in everything we do. Am I investing in and sacrificing for others—colleagues, family members and friends? Or am I living happily but superficially for myself? Am I providing for those I care for but finding life joyless? Knowing this balance, we can address it—shedding responsibilities when we need to, adding joyful activities where they’re called for, and finding ways to discover the joy even in life’s difficult or routine activities.

Finally, seeking this kind of fulfilling balance would force us to shift focus from the process of work-life balance (“Am I spending enough time doing x, y, or z?”) and turn to the goal of life itself: personal and professional flourishing. The questions then become: What does flourishing and fulfillment look like for me? Where do I find meaning? What makes me happy—at work or at home? And what matters enough—whether children or a professional cause—that I am willing to sacrifice for it? Asking these questions assures that any conversation about balance actually centers us on something fulfilling.

How do you think about “work” and “life”? Is your balance a good mix of things you have to do and those you want to do? And is it oriented towards flourishing? Taking a fresh look at balance can leave us purposeful, joyful and fulfilled.

Hebron Field Begins Producing 37 Years After Discovery

Stephen Rassenfoss, JPT Emerging Technology Senior Editor | 

The Hebron field has finally begun production 37 years after it was discovered 200 miles off the east coast of Canada.  Production is expected to peak at 150,000 B/D and is ultimately expected to yield about 700 million bbl of oil over its life.  Hebron is one of a cluster of discoveries made between 1979 and 1985 in the outer banks area of Newfoundland and Labrador, which includes the Hibernia and Terra Nova fields.

Hebron’s story is testimony to the persistence of operator ExxonMobil and its partners, which include Chevron, Suncor Energy, Statoil, and Nalcor Energy.  The results of the discovery well and the three that followed were summarized in the project history with the comment, “the hydrocarbon that was discovered in this first round of drilling was deemed uneconomic, for the time, due to the poor reservoir quality.”

Exploration stopped after 1985. By then oil prices had collapsed as did exploration, and drilling there did not resume until the late 1990s.

Hebron started looking more like a commercial possibility in early 1999 when a well encountered over 1 billion bbl of oil in place and better quality reservoir rock. Further drilling revealed more oil higher up plus a gas cap and offered a clearer picture of the multiple productive zones in these faulted blocks.

After that there was another break in the history during a period of protracted negotiations over royalties and fees, a global financial meltdown, and time spent studying technical challenges, such as the structural specifications required to survive iceberg strikes.

Hebron was finally sanctioned and front engineering and design began in 2010. The plan called for a budget of $14 billion and production starting in late 2017.

Construction work began in earnest in 2013 at the Bull Arm site established by the builder, a partnership of Kiewit and Kvaerner/Aker called KKC. At its peak, 7,500 people were employed building the 680,000 ton structure. Developers created a huge dry dock by isolating an inlet with barriers that held back water and kept fish out of the area that was drained to allow cement to be poured to build the hollow concrete caisson.

When the hollow structure had grown too large for the dry dock, water was let back into the inlet and the structure was floated out to deeper water nearby where it was completed and the topside joined to it before it was floated out to the field and hooked up in 2016.

Its multistory topside unit has accommodations for 220 people, and can handle up to 350,000 B/D of water production and up to 300,000 mcf/d of gas.

The water will be reinjected, and the produced oil will flow out to tankers via a subsea line. A summary of the project plans show that natural gas will be used for gas lift—injected gas deep into the well will make it easier to lift the heavy crude.

“The successful startup of the Hebron project demonstrates ExxonMobil’s disciplined project management expertise and highlights its ability to execute large-scale energy developments safely and responsibly in challenging operating conditions,” said Liam Mallon, president of ExxonMobil Development Company.