The global oil and gas industry’s faces a ‘frightening cocktail’ of future challenges unless it finds a way to lower costs while transitioning to a lower carbon future, Statoil ASA CEO Elgar Saetre told attendees at the IHS CERAWeek conference Tuesday in Houston.
“Some people say the secret to happiness is good health and a bad memory,” said Seatre, who was named president and CEO earlier this year after the departure of former President and CEO Helge Lund.
“I think there is some truth in that in the industry.”
Having gotten used to $100/bbl oil prices, the industry was hit hard and with surprise by last year’s oil price downturn. The global oil and gas has responded to the downturn with the familiar measures of cutbacks to capital expenditure and exploration spending, staff reductions and suspension of dividend payouts.
“This time, we must do more than just hit the brakes,” Saetre noted.
Instead, industry needs to implement sustainable cost performance measures that will create a lasting impact.
To create sustained change, the industry needs to pursue simplification, standardization and industrialization of field development technology to lower costs. These words have not been associated with the industry, but hold great potential for industry as a whole.
Saetre cited subsea development as an example of cost overruns. Over the past decade, subsea development costs have risen by nearly a factor of three, with nearly every field development project having its own tailor-made solution to address seemingly unique challenges. Standardization could become a game-changer in this area. Saetre said that Statoil is working its suppliers to achieve this ambition.
Statoil is applying this approach to its U.S. onshore unconventional assets. When the company first entered the Eagle Ford play in 2010, it took an average of 52 days for Statoil to drill a well. Last year, Statoil reduced that average to 15 days. But the company is not satisfied with that average, and continues to work with partners and suppliers for new solutions to reduce drilling time.
The complexity of oil and gas projects has built over decades in terms of resources, regulations and specifications, and the industry has sought to fix these problems with even more complex solutions. Achieving simplicity in solutions is difficult, as it requires getting to the core of what is really, really needed.
The oil and gas industry not only needs to simplify its exploration and production solutions, but ensure that it’s making the right cost cuts as well, Saetre added.
Moving towards standardization in technology and field development will require a cultural shift within companies, including Statoil, Saetre said. Statoil has started on the journey towards standardization, particularly on the subsea side. Statoil intends to use the Johan Sverdrup, which Statoil greenlighted earlier this year, as a tool to introduce standardized subsea solutions.
JOHAN SVERDRUP NOT ABOUT TECHNOLOGY, BUT CREATIVE THINKING
Despite lower oil prices, the Norwegian Continental Shelf (NCS) remains a financially attractive place to be, Saetre said. Saetre credited the combination of a gradual accumulation of data and people with ideas and persistence, with discoveries like Johan Sverdrup.
The Johan Sverdrup project is not really about technology, but really about conceptual or third wave exploration, Tim Dodson, executive vice president of exploration at Statoil, told Rigzone on the sidelines of the IHS CERAWeek Conference.
“It’s about dreaming up something you can’t see, but something that you think might be there.”
What’s easy to see has been tested, so the opportunities that Statoil is chasing now are often concepts in people’s minds, rather than clear seismic images. This is made possible by a company culture that gives its workers the freedom and data to put the jigsaw puzzle together. Oftentimes, you need to go through a lot of pieces before understanding what the picture is, Dodson said.
“Where we are now with exploration appeals to the creative side of our geologists and geophysicists,” Dodson commented. “It is as much an art as it is a science and it requires people with a broad set of experience and open mind. The field is located in an unlikely setting, on the wrong side of a structural high than where oil comes from. That was always an issue with Johan Sverdrup. Most companies didn’t believe that the oil could travel to the prospect.”
Efficiency and creativity may not appear compatible, but Statoil strives to do both. The company also continues to invest heavily in technology research and development, including new algorithms and imaging techniques for seismic. Advances in seismic technology are particularly important for the U.S. Gulf of Mexico, Brazil and Angola, which have complex geologies which often involve salt, which can make imaging difficult.
The company’s activity has been impacted by the oil price downturn. Like other oil and gas companies, Statoil has scaled back capital spending from $20 billion to $18 billion, or 10 percent, compared with 2014 due to weak oil prices.
Dodson told Rigzone that the company consciously has not communicated the number of wells in which it will be participating this year. This is due to the uncertainty related to approval of projects worldwide, as many of Statoil’s peers have scaled back activity due to oil prices. Statoil works in joint ventures in most places it operates, and the significant budget cuts being made globally is making it difficult to drill certain wells. In the first quarter of this year, Statoil completed 11 wells, including one discovery each in Tanzania and the U.S. Gulf of Mexico, and three in Norway.
While it has not been particularly successful in the U.S. Gulf, Statoil still continues to pursue opportunities there. The company continues to evaluate results of the recent Statoil-operated Yeti discovery in the U.S. Gulf, and hopes it will mature into a commercial development.
Dodson confirmed to Rigzone that Statoil has explored information made available in data rooms for shallow water prospects offshore Mexico. The acreage is being made available to private and foreign investment in Mexico’s reformed energy sector.
Statoil recently was awarded frontier acreage offshore Indonesia. Statoil sees potential in a possible carbonate play there. The company previously participated in a well drilled by Niko Resources off Indonesia. That well had to be abandoned due to poor downhole conditions, but Statoil saw enough indications that it wanted to pick up more acreage there, Dodson said.
STATOIL EMBRACES NEED TO CLIMATE CHANGE SOLUTIONS
In terms of climate change, Saetre said that Statoil acknowledges the scientific consensus on human induced climate change, and embraces the need to meet the two degree scenario and fully supports efforts by the United Nations and its member states to address climate change. Replacing coal with natural gas is an immediate and high-impact way of cutting emissions. A price on carbon also needed to stimulate the shift towards a lower carbon future.
The industry can and should play a role in addressing climate change; otherwise, it faces the threat of being shut out of exploration and production markets. These efforts call for transparency in operations, engaging in dialogue with stakeholders, and taking responsibility for safety and operations by setting standards itself.
“Despite the oil and gas industry’s technical sophistication and highest health, safety and environmental standards, the industry is still seen as being part of the problem, and not wanting to be part of the solution,” Saetre said. “If you’re credible, engaging, and transparent, it’s possible to get involved and be heard” in the discussion on climate change.
Statoil is playing a role in addressing climate change by pursuing technological innovation to reduce carbon emissions. Statoil and GE have launched the CNG in a Box solution for capturing flared natural gas in the Bakken unconventional play in North Dakota. Saetre said that industry can have an even bigger impact on the global initiative launched last week with the United Nations and World Bank to reduce gas flaring worldwide.