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Silvija Seres: Hello. Welcome to a podcast by Lørn and ONS Energy Talks. I am Silvija Seres. Our topic is energy and my guest today is Karl Hersvik, CEO of Aker BP. Welcome.

Karl Johnny Hersvik: Thank you.

Silvija: It's fun to have you here because I have interview a couple of your employees and everybody talks about Karl Johnny or Kalle with huge respect as a transformative leader. So we will talk about that.

Karl: Probably exaggerated, but ok.

Silvija: Before we talk about what Aker BP does really well, I'd like to talk a little bit about you. Could you tell us who you are and what you do?

Karl: Sure. Karl Hersvik, most people say Kalle. I am the head of Aker BP or CEO as some say. My background is as a mathematician.

Silvija: What kind of mathematician?

Karl: I started out in doing industrial mathematics, where you do numerical analysis, but also programming and trying to apply it too industrial problems. And then it kind of turned into to more of applied mathematics, but still with a very heavy application side and programming side. So, that's where I started out. I started out a couple of IT companies back in 97/98.

Silvija: Doing what?

Karl: So one of them was actually doing frontence, web based frontence on databases. And the other one was to optimize runtimes on supercomputers. Both was probably good ideas, but the first time we didn't really have an idea of how to make a business plan. So it was very good technical exercise, operating a company. The next time around it was actually quite good. Back in 98, it really wasn't that easy, and I ended up in in Norsk Hydro at the time. I worked in a number of roles in Norsk Hydro, including subsurface lead, project lead, business finance, business development, technology, international, particularly in the Middle East. And then the merger came of course, between Norsk Hydro and Statoil. And so I was a part of that murger group. Then I did quite a lot of different stuff in Statoil. And ended up as head of research and development before I left Equinor to join the Norske, which is now Aker BP.

Silvija: Tell us a little bit about that journey from the Norske to Aker BP.

Karl: It's quite interesting when you're in the middle of it, you don't reflect a lot over it. It was April 2014 when I joined.. At that point in time, we in the Norske had 378 employees ,1200 barrels of production, Morefield collete, which is now decommissioned. But we were kind of starting a strategy where the next big project was typed out, which is now called the Boston and we also a partner on Johan Sverdrup, which was quite a big thing. And then, if you just fast forward, today we produced 166,000 barrels, we were about 1900 employees, 500 consultants and contractors. And we're probably one of the biggest independents in Europe. So, that's four years. In many way I used to say that we're not a gas company, but behaving and growing like a tech company.

Silvija: So, independence, meaning?

Karl: Yeah, so independence, kind of group of the only gas companies and majors which is the shells and the BP’s in the Equinor's of this world.

Silvija: Always nationally owned or not?

Karl: Not.

Silvija: ExxonMobil is not?

Karl: Both Exxon Mobil shell or they're all publicly traded, right? And then you got the national switches decide around cause and these kinds of companies. And then on the level below you've got the independence which is usually publicly traded and they usually independent from the resource owner, etc. It's a quite an interesting space.

Silvija: But then, there is also this international aspect where you had a very Norwegian company that merged with a British company. Tell us a little bit about the joys and the sorrows.

Karl: That's quite an interesting story. Before we merged with BP, we've done quite a bit of acquisitions in Norway. Because we merged with marathon or quiet marathon in Norway back in June 2014. At that point in time, the price was 104. And the sky was blue, and everybody was optimistic. But of course, in the autumn of 2014, the World Press problems had begun. I think that we timed the bottom, so we had a first couple market day in the Norske, ever, in January 2015. And the old price was starting at 28. Ideal. So, we've done quite a bit of mergers and acquisition. From a process perspective, I think we're actually quite good at joining companies.

Silvija: You also mean taking the best from the two different cultures?

Karl: Yes. We have a little bit of a background when it came to doing these kinds of merges. It wasn't the first one. And then when we had the opportunity to join forces with BP, that was basically on the back of a long relationship. From BP and Aker from oil services perspective. So though, it wasn't like there was a new relationship, there was a lot of trust built up on both sides. That, of course eased the whole transition. And then we signed the agreement in June 2016. And we merged the company's effective as of second of December 2016. In a short period of time. So, that's lesson number one, don't drag these things out, do it with speed, just make sure that you have flow and just carry out. Second in that period of time, we did a lot of analysis of what we wanted the company to be. Right. We didn't basically say okay, from every single point, we'll just take the best. We had a certain direction

Silvija: What was that?

Karl: We wanted to be lean, we wanted to be independent, we wanted to be fast moving. And we wanted to have a profile where we maximized value from a shareholder perspective on everything we do. So, that was basically the foundation.

Silvija: Maximize long term or short term value. Is it just efficiency?

Karl: No, it's both. So, that, to me, that's a constructed dilemma. I mean, when you look upon this as you ask the question; " is this short term or long term?", usually companies that are really good long term value creation, are also good at short-term value creation. And the reason is just the test waste.

Silvija: I agree, but I think the opposite is not the case.

Karl: No, not necessarily. So, you could be very focused on short term and forget the long term. We didn't do that. We're an oil and gas company. We have a long-term horizon in pretty much everything we do. But we're very focused on getting this balance together. Right. That's why we said our strategy is basically execute, improve and grow. It's not execute or grow. It's built for.

Silvija: So, when you say you were building this company, as it was a technology company, is that what you mean? Or what do you mean?

Karl: Our app came a bit later actually, that kind of thinking. What we had was a very clear strategy, a very clear direction. And then we built the company around that. We selected the leaders that we thought could contribute to it. We selected business management system components that we thought would contribute to that kind of structure. And then of course, we deselected others. But we were quite stringent in that origination of these ideas did not matter. So whether they came from the x BP or the x Norsk or the x marathon, we really didn't care that much.

Silvija: You make it sound very simple.

Karl: It was.

Silvija: Well no. I know that building these teams that you described, you know, we just selected the best people we wanted to have on the team and they came. How did you make them come?

Karl: Well, there's a sudden, I mean, it actually was kind of simple. It's not a lot of magic to it, but it is quite a bit of hard work. So, the thing we did correctly was that we created a lot of engagement around that journey. What we were trying to do and what we wanted to do, and that's always done on the back of a very simple story. So, if the story is very complicated, it's hard to teach. If the story is very simple, it's much simpler to teach. So, that's why we said okay, the foundations were very simple. We wanted to be the leading independent. We had a very simple value proposition. We had a very simple value driver, and our thinking around value driver.

Silvija: Tell us those two things. What was your value proposition and what was the value driver?

Karl: So, if we start with value drivers. I think a lot of people in the oil and gas industry under invest in data acquisition. So, our understanding was always that you had to invest in the fundamentals. And that had to stop the data acquisition. So, that means we always started thinking about this from the bottom up. We started thinking about what kind of seismic do we need? What kind of wells do we need? How much do we actually have to invest in the subsurface to create enough ideas that could flow through the value chain and ultimately create production? So, that's kind of the starting point. And if you have that kind of mentality into everything you do, whether that is capital structure, seismic analysis, pilot wells, data acquisition, data strategy, then the story becomes very simple. So, the story becomes; "how do we actually maximize value? How do we make sure that we put input factors, which generates the maximum return?". And of course, then you end up in the discussions around risk as well. But we'll come back to that later, I guess. And then it's about creating a simple framework for people to work in. So, we wanted a flat organization, we wanted decisions to be taken at the sharp end, where possible, so that people were felt that they were empowered to execute on the strategic goals that were given to them. And we had created a very simple value framework and leadership expectation framework. So, try to keep it simple, but make sure that it's based on a, I wouldn't call it the philosophy that's taking it too far. But based on a framework that are easy for people to communicate and understand. And then on top of that framework, you can make it intensely complicated, right? You can start building structures, but you always have to go back to that framework and see what is driving the value and what we really are looking for in this company. And if you put that down, very early in that kind of process, it also leads and guides who you choose as leaders, who is feeling engaged in this process and who's not necessarily feeling engaged. Do you want to refresh an old career or a leadership career. All these kinds of discussions and decisions that you have to take down the line. And if you couple that with speed. We put the leadership team, my leadership team, together in four weeks after we have signed the SBA or their agreement with BP. You're starting to get momentum. And momentum is fundamental when you're driving these kinds of processes.

Silvija: So, if we go back to the risks. How do you time them? How do you manage them? I mean, you're trying to build a leading independent oil company in the world, which is not a small task? 

Karl: No.

Silvija: You say you want to maximize shareholder value, which means you have to be super efficient, but also have some sort of a very stable long term growth. I imagine these licenses are not that easy to get. I imagine that getting to new efficiencies in the oil sector. Maybe there was more space for that at the time than there is today.

Karl: No, I don't think that's changed a lot.

Silvija: So, what did you do in order to get to be one of the leading independence?

Karl: I will say this. This journey started back in 2014. We had a plan.

Silvija: It's only four years ago.

Karl: We had a vision of something we wanted to create. And that's probably number one. You must have the plan in the back of your mind all the time. And that was formulated between us in the management, but also with a very active participation of the owners at that point in time, particularly Aker group. And then, when the price dropped, we, just as everybody else, was a bit shocked. I would say we probably recovered quicker than our peers. Back in 2015, when the autocrats basically went back up again a little bit. Then we were back out in the capital market, we refinance the company, we set up new capital structures, we ensured that we had sufficient liquidity to live through volatility. We basically took a lot of pain to reset that company, and then that enabled us to acquire other companies when they were struggling. So, in 2014 and 2015, m&a was not really at the forefront of a lot of independence strategy’s, but the efficiency, exploration and production was basically everything we fought about. So we did a lot of transactions in that period of time. Whether or not, it was a lot of competition. And then it's fairly easy to do acquisitions. Then you start thinking about risk in another way. I mean, how do you actually place technology? How do you think about execution of projects? Not only as companies are typically, conservative, technological creation takes a long time, etc. But what we wanted was to have a more forward leaning approach to this. And I came from, without highlighting my role and to hide the gray, but I came from the technology side of things. And I always thought that we had two stretch and processes, and we basically used the same kind of process that we use for extremely ...

Silvija: Predictable?

Karl: Yeah, but I mean, you can take Åsgard subsea compression and the technology qualification around that, that's like covering the size of a football field. But if you have the same kind of methodical approach to a new digital tool, which have a completely different risk, but you follow the same technology readiness levels. Then I actually think you're slowing down the easy stuff and you're probably creating a little bit of risk in the difficult stuff. The thinking we had was; "do we actually believe this is going to work? Yes or no? And what is the fallback if it doesn't work?". If you can answer those two basic questions, then the question was much easier. How can we actually quantify this risk? And if we thought it was defendable, we would go out and do it in the field, because that will accelerate learning, and will accelerate our ability to capture value from these technologies. But more importantly, it creates triteness and proudness and pride among the people that are actually executing it. And it connects the technology development communities with operational communities. Because suddenly, they must collaborate to solve a task. It's not like I hate this world. Technology is implemented in an organization because that basically says, I don't need this as a customer, I don't really want it, but somebody is going to implement it. It's like going out and saying to the customers in the street, that I don't know what I'm going to sell you, but I'm going to implement this iPhone. Nobody would want that. So, the product needs to be so good that the customer wants to work with the technology and technology risk, and that they're feeling strongly empowered to drive that into their own businesses. And then sometimes it works out and sometimes it's fails, but from an overall perspective, I think we've actually gained a lot more than we've lost.

Silvija: I think the interesting thing here is that people, whether they originally come from technology, or have acquired skills later on, have these necessary optimisms to understand that there is also a very big risk related to not doing the necessary things. Sometimes the biggest risk is not taking any risk at all. The way that we measure leadership. The way that we measure some of these big incumbent companies in oil or in other sectors is so that you should prove that you've minimized absolutely every source of knowable risk, and then I think you disincentive people to take the necessarily new investments, and new risks, in order to figure out what's going to be the most efficient solution a year or two from now.

Karl: It could be right, but from an Aker BP perspective, we've basically said that we want to maximize value. We don't really think about it from a technology perspective, we think about it from a value perspective. We don't really think about it from a cost perspective, either. We think about it from a unit cost perspective, which is a completely different thing. Because if you've just focus on one part of the equation, and you don't look at the other part of the equation, you can actually make very important decisions. And I think that there's a lot to learn, from the way the incumbents, whether they're in oil and gas or in technology, actually has fought about technology. And sometimes they become too risk adverse, but other times, they're actually really forward leaning. So, from my perspective, it's just about finding the right process that fits with the current problem we're trying to solve. And I used to say this all the time; "This is more about that I have a problem. I need a solution", as a kind of an innovation challenge. Too many times I've seen the lacker one, and it doesn't work.

Silvija: People fall in love with some sort of a solution and force it.

Karl: You fall in love with a solution. You fall in love with technology. I've done that myself, so I know exactly how that feels. And you can't find the right application.

Silvija: So tell us about what you think are the two most interesting technology applications that are game changers for your company.

Karl: I think that if you want to talk about game changers the way I think about it. The most obvious one is the whole digital space. And particularly as it relates to how we harvest, utilize and analyze data on an industrial scale. So, from an oil and gas perspective, data has always been a very fundamental part of our business, whether that is seismic or well logs, or you name it. An oil and gas company has always spent an enormous number of funds acquiring this data. From the very early days when you had trawlers out and you were throwing dynamite into the water to create waves. I mean, we were gathering data all the time. There's nothing wrong with that experience and gathering data. But we really haven't been sufficiently fluid in liberating these data so that they're available across systems and across platforms.

Silvija: Connected and meaningful.

Karl: Yeah. So whether that connectedness means that they're ingested, or contextualized in a meaningful way, where they're actually utilized. Most of the data that the non gas company creates today is not utilized. My guess is that if you pick around a gas company, five to 8% of the data is actually lost. The rest is stored, but not necessarily utilized

Silvija: To be used later perhaps.

Karl: Perhaps. There isn't processes or technologies in place to utilize that data. And when you start thinking about this. We started thinking about this from a user perspective initially. So, we worried about the apps, we were worried about the user interfaces, etc. But as we grow to understand the problem or we change that perception. So now we started thinking about this from a data and data ingestion perspective. And we developed this was John Markus Lervik, who is my head of improvement, also heading up the digital efforts in Aker BP, used to be head of Aker Solutions in Norway and yours truly. We spent about six months traveling around, visiting everybody that had anything meaningful to say about industrial applications of data. We discovered that the most important thing is actually getting access to the data itself. Because they're stored in many different silos, many different systems, these systems don't communicate, sometimes they don't communicate with them self, and they definitely don't communicate with other systems. So, we had all these silos. Sometimes as many as 150 different systems, gathering data across that kind of pieces of parts of the value chain. So data and data structure became number one. And then we understood that a lot of people were actually working on very hard problems high up in predictive analysis, but they had no way of doing simple visualization of data. So cross plots, trends, trending analysis ...

Silvija: Made data useful.

Karl: Yes. Number one, make it available, liberated in a way. Top of that again you started thinking about the analysis, whether that's machine learning, or statistical analysis, or some sort of predictive analysis. And then on top of that, you have the user interfaces again. But that's also the order of complexity. That's what really struck us. The hard problem was to get these data liberated. When you get them liberated, there are a lot of interesting platforms out there that can help you visualize them. Then there are quite a few commercially available machine learning algorithms, so other algorithms that can help you analyzing. Then when you're done with the visualization, the analysis and deliberation to create the small apps that allows the users to put it on his iPhone or whatever. That's the simple bot. So, when we made that kind of realization, we understood that we couldn't just go to a window. We had to create something ourselves. That's when cognate was kind of born. And now we're a year in. All data in Aker BP is now flowing through a platform. That means that they're available to anybody in the company. Funny things are happening so suddenly, people are getting interested in our piece on drilling rigs, vibration data and compressors. But they're all available. Everything from how PSV moves in the North Sea. We can now track how much cargo it has, sailing time, sailing route in real time. We couldn't do that before.

Silvija: But listen.

Karl: It has changed a lot. It's going to change the business models. Fundamentally change the business model. And that's just about to happen.

Silvija: So this is what I wanted to ask you about. You and I are running out of time, but it's to much fun to stop. You talked about visualization of data, but then there is also this algorithm based optimization of processes. And the reorganization of the value chain, as you mentioned. Say two sentences about it.

Karl: The reorganization of the value chain?

Silvija: Yeah.

Karl: So, the way we think about reorganization of the value chain is that we came to a realization during the Ivar Aasen project, which was our first field development project. The realization was that there was an enormous amount of wastes in the way this value chain was being organized. Quite obvious things. All these companies that are involved, they have the same kind of organization. They have a project lead, they have a safety lead, they have a quality, etc. So, you had a lot of duplication. Second, there wasn’t a really good way of collaborating, but that means that there was an enormous amount.

Silvija: Too many?

Karl: Yes. Flowing around. The library had an excess of 12,000 documents, and most of them were interfaced documents, not really documentation in terms of document that will happen, they were controlling interfaces. And the last one, we felt that didn't have a sufficient amount of accountability. Decisions were not necessarily being taken at that part in the value chain, or the highest degree of competence. So, you ended up with such as yours truly, having to make decisions on which I had no real competence. Rather than having the individual who was the most competent in the entire value chain making the decision. Autonomy or empowerment became a huge issue. And then I would say the last one basically was the transactional mechanisms. So, we came to the conclusion that the lotteries were actually set up in such a way that they weren't naturally incentivizing, removal in efficiencies. Quite the opposite. Sometimes they had set up contractual structure that would drive inefficiencies. The way we felt about this was very simple, we needed to change three things, we needed to change the authorization, how things are being done, where they said, what kind of authority they have, etc. We needed to change the organization. We couldn't have lots of different organizations collaborating through a document, we needed one organization, which is not what we now call an alliance. Then we needed that transactional mechanism that would drive an efficiency, and drive these companies and organizations and individuals together. But that meant that we needed to put a lot of value on efficiency, and some disincentives on waste. So. we created this most likely cost scenario, where the alliance themselves actually set the target. And then they had a significant benefit if they underscored and a little bit of pain if they over scored. Again, it's not science, and we haven't invented it, we basically discovered that was the way that the auto industry in the East had set off their value chains. We basically took the basic principles and implemented them. And we did it in a classical Aker BP way, which is that fought about it for a little while. And then we tested it in one alliance, which was the subsea alliance. And when we saw that it kind had developed in the way we hoped, we rolled it out across and now we have seven alliances. About 95% of our cost picture into this alliance structures. So again, we don't really invent stuff, we have a tendency of ...

Silvija: Copying with pride.

Karl: Copying and implementing.

Silvija: Implementing well is often three quarters of the innovation. Would you like to leave people with some sort of an energy tech quote?

Karl: I think this is an interesting one. Most people have a little bit of an intellectual war. But my favorite quote, which I think came out of a discussion in another forum, is from John Markus Lervik, who says that the date has to be like error, immediately available. And it sounds a bit silly, but when you start to think about what it really means to have all data immediately available. It's actually a pretty profound observation. I use that a lot when I tried to explain what data availability and data liberation mean. And I actually think it's growing on me because the complexity and problem of immediately available data in your entire value chain and your entire company is a pretty daunting task.

Silvija: What would you like people to remember from our conversation if there is one thing they can take with them?

Karl: That's a good question. Maybe that you sometimes must have a very clear long term picture. And you must dare to set up pretty hairy targets, and then go for them when the opportunity arises.

Silvija: Karl Johnny, or just Karl Hersvik, CEO of Aker BP. Thank you so much for coming here and inspiring us techies and non-techies about aggressive, but also very directed use of technology in the field of energy.

Karl: Thank you.

Silvija: And thank you for listening.

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