Your opinion about the high gas price

Gert-Jan Kramer

Gert-Jan Kramer, President and CEO of the Fugro Group, also serves as chairman of IRO, the Association of Dutch Suppliers in the Oil and Gas Industry. Recently, he spoke to World Oil about the factors that lead him to feel optimistic about the 2002 market.

Q: Please describe IRO current role in the Netherlands upstream industry.

A: There is not much difference from last year. It is helping Dutch companies' export endeavors, keeping the Dutch local market organized so that we can work as efficiently as possible. Political contacts are also maintained.

Q: What are some initiatives or projects that IRO participates in to help Dutch companies worldwide?

A: Trade shows like OTC, Offshore Europe in Aberdeen and ONS in Norway are one thing, obviously. Also, export platforms, where we have a group of companies who work together and assemble a group tender for a project required by an oil or gas company. We also gather information on market developments that individual companies--certainly the smaller ones--can't get (on their own).

Q: What are sonic major projects, either in the North Sea or other regions, that Dutch companies are involved in?

A: In contracting and construction, the Dutch group IHC Caland has a very big market share in FPSOs and FSOs. Then we have, of course, the Hereema Group in lifting and installing platforms. There is also the Allseas Group for laying pipelines. All of these companies operate worldwide, so it doesn't matter whether the work is in the Gulf of Mexico, West Africa or the Philippines. On the consulting side, there is my own company, Fugro, with 7,000 people doing all kinds of soil investigation and survey activities.

I think that if there is any FPSO out for tender, then IHC Caland should be involved. If there is any foundation problem, then Fugro should be involved. If there is a very heavy platform to be installed, then our industry should be involved. None of us has 100% market share, but we are allowed to tender, and we do get a lot of work.

Q: Does any one project stand out as a good example of a major project that Dutch companies are involved in?

A: In the Philippines, Malampaya was quite challenging. All the deepwater work in the Gulf of Mexico, West Africa and the like is another good example of Dutch participation. I cannot mention additional individual projects now, because we must have client approvals before one does that.

Q: Have sonic recent projects focused on important Dutch technology or support developments?

A: Reservoir characterization software is spread widely via Fugro's Jason company in Rotterdam--for reservoir engineering and prediction of future production. It is a pretty unique piece that exists. Another focus is the whole extension to 3,000-in water depths, whether it is FPSOs or just straight soil investigation, as my company does, and looking at the geophysical top layers--this is very important and unique. Also, what can I (attach) to, or build on, a seafloor in 2,000 to 3,000 in of water? These are pretty unique things. As far as I know, we have been doing soil investigations for pipelines, already, at 2,700 m (8,859 ft). That's a hell of a distance down--almost two miles!

Q: Are these capabilities important to new international projects?

A: Yes, they are very important. Oil companies are looking for bigger fields in deep water, because large fields in shallower waters have been identified already. So, these modem technologies are extremely important to help our clients in what they want to do.

Q: How did 2001 stack up for the Netherlands?

A: Actually, it was quite good. But again, the whole economy here was quite good. A lot of companies provide services in oil and gas, but also in non-oil-and-gas-related products. So, it's a mixed share, always. The Dutch territorial waters and the onshore were reasonably active. Gas prices here have not "perceived" the low value that you give it in the States.

I underline "perceived," because it was only two years ago that $2/Mcf for gas was quite a good price, and now it is quite a bad price in the U.S., and one wonders why. The answer is probably that some people got a smell of $6 or $7 gas prices, which was considered totally impossible four years ago. It also has to do with marginal fields that need a higher income, but $2 for gas was not a bad price, not that long ago.

Q: Given your opinion of last year, what do you expect for this year?

A: You have to split the U.S. gas market from the rest of the world. In my personal view, the U.S. gas market should improve in the not-too-distant future. This means that activity should improve--someone has to start drilling for gas eventually. In the rest of the world, the oil and non-U.S. gas sectors seem to be headed for--at least from the plans of oil companies that have been revealed--a higher investment level of up to 10% in 2002 versus 2001. This doesn't surprise me, because these huge deepwater fields cost a lot of money. They get a lot of oil and gas, but they do cost a lot of money. So, I expect to feel positive about 2002--that's assuming we don't get a collapse, which is always possible (although certainly not likely).

Q: Are U.S. military reaction to terrorist activity and the threat of potential terrorism destabilizing to the oil industry, particularly with reference to areas around the Middle East?

A: So far, we haven't seen any signs. The question is not, "Are we caught up in the development of the war against terrorism?" You are much closer to the (U.S.) President physically today than I am, so you are probably in a better position to answer that question. Certainly from Europe, it is more difficult to answer that question than from the States.

However, I must say from our viewpoint, that we haven't seen much of a disturbance; set aside, of course, the initial shock reactions and everything else. At this stage, there is not much of a disturbance visible in the Middle East. And, quite honestly, on this side of the ocean, we hope it stays like that. This assumes, at the same time, that you guys (the US.) continue to help the rest of the world get rid of this horrible terrorism. We may never be over it, but at least we will accept that it can be controlled.

Q: Would a strong industry be an important backup to any energy supply disruptions?

A: That is true--that is definitely true. Just look at Holland--it is much more secure than the gas fields in Qatar. But that doesn't mean that anything will happen in Qatar. But that is more a case of strategic investment considerations than normal oil and gas companies' investment plans. And that's why I'm saying that you are closer to President Bush, so maybe you should ask him.

Q: Your company is involved in many countries. From your perspective, toward which international areas do you think that oil company interest and investment money are moving?

A: Quite honestly, it's pretty widespread. The only place that I don't see money going at the moment is to the earlier-mentioned U.S./Canadian gas market, which is a local gas market. And you will also see, I think, a reasonable, widespread level of activity. Of course, you will see the usual delays in some countries, which also happen now, of course. It takes time to get permits or leases or whatever, or it takes time to put a good structure together if you want to invest a lot of money That, in itself is not unusual.

So, there's not one particular thing that strikes me, whereas a year ago, I would have said that 2000 and 2001 were a bit negative for the North Sea, which is more mature, and that came out to be true. Of course, the North Sea at the moment is reasonably active, which was also expected. There is nothing really very much extraordinary at the moment, except for the earlier mention of the U.S. gas market.

Our company is in about 60 countries serving the industry on a wide range of products--we are small, but we have high, niche market percentages. From my company's perspective, I can't say that there is any area at this moment that sticks out as being extremely popular and any other that is extremely negative.

Q: Any final comments?

A: It's still an extremely challenging market, to supply services to our clients. Especially given the increased water depths, and the market pressures to squeeze production out of existing oil fields, despite increasing depletion rates. I know that the very high depletion factor of various fields is an important element that might give us a surprise one day by being higher than the rate anticipated at the moment.