Statoil has cut its average project cost per barrel from US$70/bbl to around $40/bbl, but the work has just started and the changes need to be permanent, even if prices increase, CEO Eldar Sætre said this morning.
Speaking at the Subsea Valley conference in Oslo, Sætre said the current downturn had exposed the industry’s cost inflation, but was also showing that it was able to turn itself around.
Since 2014, Statoil has renegotiated some 500 contracts, but that was just one part of making the business sustainable for the long-term, Sætre said. The firm had also cut costs by 50% on Johan Castberg, 30-40% on Trestakk and on Peregrino 2 costs had gone from $70/bbl to $45/bbl – and more is expected – in just a year. Sætre said he had ordered a review of every project in Statoil’s portfolio to reduce costs.
But, outlining three priorities for the business, he said more needed to be done around sustainable cost-cutting, making projects meet lower breakeven prices and making sure there would be projects ready to come online when the uptick in oil prices comes.
“This downturn has really, truly exposed the industry, how it has allowed costs, partly driven by complexity, to escalate beyond sustainable levels,” said Sætre. “So we face a challenging market but, equally important, we have a unique opportunity to fundamentally reset our industry and create a sustainable change.”
Saetre believes oil market fundamentals are pointing to a rise in oil prices, but that Statoil is not either waiting for that or looking to rely on a higher oil price.
“Core to our strategy is a fundamental reset of costs and then capture the opportunities, ensuring we are well prepared for whenever it increases again,” he says.
The three priorities for Statoil are:
Faster and deeper cost reductions. “Rather than depending on what we see as the expected oil price will be in future, we want to shape the company so it is profitable and competitive at all times,” Sætre says. This involves targeting the cost base and operational costs, he said, including unplanned losses. Unplanned losses have been reduced by 50%, he said. In 2013, it accounted for 10-12% production losses and that’s now 5% he says – of some 50 MMboe/d production over two years.
Prepare to invest. Last year Saetre charged every project with reducing its breakeven price to below $50/bbl (during 2015, prices were $55/bbl average, before slipping to $30/bbl this year). “Internally, there was a lot of shaking heads,” he said. “Now we are seeing the response. In 2013, the average breakeven price was approximately $70/bbl, including Johan Sverdrup. Today, the same portfolio has been reduced to approximately $40/bbl and meanwhile we have signed several projects with average breakeven of less than $30/bbl. Trestakk saw 30-50% cost reduction. Today, more than 80% of capex [projects] breakeven is below $50/bbl. To get there and to get even further we continue to depend on technology, more technology development, ne solutions, innovative solutions, and engineers with smart ideas.”
On Johan Castberg, the cost was reduced from above $80/bbl to below $45/bbl, and towards $40/bbl, or nearly 50%, by selecting a floating project, combined with efficient subsea system and drainage solutions, he said. “Snorre is now a subsea solution, which allows us to move forward with that project,” says Saetre, and the firm is looking to mature it further. At Oseberg West Flank, costs have been reduced thanks to an “innovative” unmanned platform solution, Sætre continued. “Peregrino 2 in Brazil now has a breakeven price which has been reduced from $70/bbl to less than $45/bbl, in less than one year. I could go on,” said Saetre.
The third priority is capturing the uptick in oil and gas prices when it comes. “Two conditions need to be in place,” he says. “One, efficiency gains must be sustainable this time, when the heat of the industry is turned back on and it will be. We are making changes in our operating model so current changes stick. Two, we must invest. We need to push the FID (final investment decision) button so barrels are in place when we see the uptick come.
“On a wider perspective, we see our industry once again proving the sceptics wrong. Over some years we have allowed the perception of the Norwegian Continental Shelf as an expensive place to operate. There are claims that oil from the Barents Sea is too expensive to develop. Guess what, it can be done. So this is good news for Statoil and for the rest of the industry. Yes, we are negotiating with suppliers to get best possible rates. We have renegotiated about 500 contracts since 2014. But, the buck of improvements are not from shaving suppliers, but from new and improved concepts and ways of working; lean scoping, standardisation, reducing requirements and working more efficiently together. I think the work has just started to unlock the potential.”
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Image: Photo from Statoil/Harold Pettersen.
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