Aker BP’s Mathematician CEO Says His Tech Company Just Happens To Produce Oil
In the global oil and gas space, Aker BP (OSL:AKERBP) is a plucky independent outfit operating solely in the Norwegian Continental Shelf. However, its heavily optimized operations often pique interest well beyond its scope of operations.
Established as recently as 2014, and a successor outfit arising out of the merger of Det Norske Oljeselskap (DETNOR) and BP Norge (then oil giant BP’s Norwegian Unit), in its current corporate avatar Aker BP insists the company’s advanced technology laden oil and gas exploration projects enjoy a break-even oil price of $35 per barrel oil or less, a strategy vociferously propagated by its mathematician boss.
Meet Karl Johnny Hersvik, industrial mathematician and Chief Executive Officer of Aker BP. Speaking exclusively to Forbes, Hersvik says, “Digital technology and process optimization are so integral to our approach, that I would say we are a technology company that just happens to produce oil! Our growth strategy, the structures, the way we think, our work processes, the speed of operations – are more ‘tech like’ than ‘oil and gas like’. Our unique stakeholder base would not have it any other way.”
That stakeholder base consists of Aker, a Norwegian industrials investor with a 40% holding, BP with 30%, and the rest being a free float on the Oslo Stock Exchange. Aker BP’s industrial profile is underpinned by sizable tier one reserves of 683 million barrels barrels of oil equivalent (boe) representing 12 years of projected 2019 production at ~158,000 boe per day.
Plucky independent with a healthy break-even
“We aren’t an oil major in the production stakes but the key metric for team Aker BP is our low cost per barrel. We have been focused on a strategy to reduce cost per barrel dramatically, and by that we mean – both of the cost of barrels in production as well as the cost per barrel of as yet to be produced barrels.
“We are clear to stakeholders that we simply do not sanction projects we think won’t have a projected break-even at $35 or less. That means that even with the current oil market volatility, our business is really robust. Last year we generated $2 billion of cash-flow even though the oil price was quite bumpy.”
In achieving efficiency objectives, Hersvik says his default position is to never shy away from industry-leading digital solutions. From drones to automation, advanced analytics to artificial intelligence, Aker BP has “deployed them all.”
“What we are doing is the linear approximation of non-linear behavior and improving our conventional work processes via the power of digitization. We are also unique in the sense that we operate 97% of all our assets. And in the not too distant future you will be able to see fully autonomous oil and drilling operations.”
That is a bold statement from an industry leader with a challenging set of projects, albeit concentrated in one regional drilling prospect. The company is tipped to get a significant fillip from Johan Sverdrup field, with first oil expected in November 2019, running up to the period through 2023, when it will reach plateau production state (76,000 boe per day net to Aker BP).
The start-up of its Skogul, Valhall Flank West and Ærfugl projects – sanctioned by Hersvik’s team in late 2017 – will also likely mitigate the decline rate of its more mature producing assets such as Alvheim, Valhall and Skarv prospects over the near to medium term.
Always the tech evangelist, Hersvik says the word mature doesn’t mean technology can’t help maximize them too. “Quite the contrary, it because of deployable technology we feel we will optimize and maximize the fields underpinned by Industry 4.0 techniques, and reach magnitudes of recovery not deemed possible as recently as 10 years ago.”
Behind it all is a well drilled operation of gathering and interpreting copious amounts of data across operations, in particular, its advanced analytics solutions conjured up with Cognite. “We work with various software and hardware vendors, but via advanced analytics we have developed with Cognite, Aker BP might well be in a position to save more than $100 million (~15-18% of its operational spending) in 2020 on an annualized basis over 2019.”
Around 35% of the expected savings are likely to come from improved maintenance, ~15% from giving oil workers digital tools and the rest via a headline output uptick. Some call it tech evangelism but Hersvik calls it “prompt, early adoption” in sync with low operating costs.
The operating philosophy would be “unrelentingly” followed with Aker BP’s pipeline of projects, including expansions at existing fields and new field developments. Although yet to be sanctioned, many of these projects are likely to allow the company to bring production close to a level of around 250,000 boe per day by 2022-2023.
“We believe that 90% of these resources can again be developed through projects enjoying a break-even oil price of $35/boe or less. When I started at Aker BP, we had 1,200 boe of production. Now five years later we have 160,000 boe of production, and as production goes up so does our faith in improvement of process technologies.”
Tech evangelist does the math
Tech savvy Aker BP might be, but as a young company is it an advantage to be not bogged down by legacy estate and size issues? “Size and scale has its own advantage, but being independent brings its own challenges and thrills, and you can be a market leader in your own right.
“The fact that we are only 1,681 employees allows us to reach out to all of them a lot faster than the chief executive of a big oil company possibly can, and be a lot more specific with them, rather if it were a company of 40,000 personnel. However, the age of company and its legacy estate does not matter – the willpower to make changes does.”
Hersvik says the changeability Aker BP displays via its digital leadership is down to that factor alone. “You have to grit your teeth to take on one-off costs for competitive advantage, shake-up linear processes and extract commitments from the board and chairman. I believe we have that set-up. In a game of competitive numbers, it’s a battle for hearts and minds, and changing competencies and because the digital revolution is fundamentally changing the industry.”
But where there is competition, there is also collaboration. Aker BP is cooperating with its peers and competitors too when it comes to big data solutions. Prominent examples include its stakeholder BP, Central European integrated oil and gas company OMV, and others.
“At the end of the day you are competing on very specific elements, for example, the ability to turn raw field data into information. None of it is competing about our ability to deliver goods to offshore installation as quickly as possible. So by collaborating, we reduce development costs for the industry, drive more sophisticated standardized solutions thereby improving cost structure for everyone while still competing on the core business.
“This is why digitization is so linked to all of this. If you don’t have a very well funded, well thought of digitization strategy, you can easily be led down a path that the data you hold gives you a competitive advantage which would in my opinion be an erroneous conclusion. It’s not about holding large volumes of data, but what you do with it.”
Ditto applies to the low carbon debate, and Hersvik insists both Aker BP and the industry can be serious and collaborative on reducing the global carbon footprint, without fiddling with its DNA.
“What I do as CEO is remove as much waste as possible from the value chains that are operating. Then plough that gain to the government through taxes or to my stakeholders via dividends and allow them invest to in renewables, or whatever they may choose as an accelerator to a low carbon pathway. But I am never going to be a renewable company, just for the sake of it, simply because I do not know that business.”
Quite by chance
For an executive so keen on numbers and metrics, and being in the know, Hervik says he went into the oil and gas sector “quite by chance.”
“When I post-graduated in Industrial Mathematics from the University of Bergen, there was not an awful lot work for people with my specific skill set in Norway. So I joined the country’s dominant oil and gas sector almost by chance via a couple of startups. Such moves were followed by Norse Hydro – a fantastic training ground – for a young academic like me.
“I said yes to practically every new project there that came my way, getting exposure to the Middle East and Russia. I then went back to my roots in academia at Statoil (now Equinor) as Head of Research. Following that, in my search for a new challenge to steer a company on the cusp of change, came DNO which soon became Aker BP.”
Where from here for the mathematician, five years year later with several multiples of improvement in Aker BP’s production? “Expect more of the same, perhaps even more optimized,” Hersvik concludes.