2015 was a wake-up call and 2016 is probably going to be our most challenging year, this morning’s Subsea Expo was warned.
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Subsea UK CEO Neil Gordon. Image from Subsea UK Twitter. |
And the future isn’t looking much easier, with challenges to the business including, and not least, climate change policy.
Subsea Expo, being held over three days in Aberdeen this week, comes as oil remains around US30/bbl, after peaking around $100/bbl in 2014. Despite early predictions prices would slump to just $60/bbl, the industry has had to deal with prices which have dropped below $30/bbl.
Subsea UK CEO Neil Gordon told the event’s plenary session: “We are looking at a much longer period of low oil prices. 2015 was a realization, a wake-up call; how we are going to make fundamental changes to survive.
“[In the UK] We have the largest concentration of subsea capability. The challenge is to stay at the top and compete globally. 2015 was about smart simple solutions for complex issues. 2016 and beyond we are looking at behavioral change. Rather than squeezing suppliers, squeeze reservoirs. The industry must be open to new techniques and technologies.”
Chris Bird, managing director MOL Energy UK, says there are multiple threats to the industry, from basic oversupply crude oil to climate change policy. He says the industry needs to get used to $40/bbl oil prices. That oil is finite is a myth, he says. “As far as practical concerns today, we can’t use all the oil in the ground because of climate change [policy]…” he says, citing recent UN and G7 goals. The 20th century was the century of oil and easy money, he said. “The 21st century will be the century of renewables and sustainability. Oil money is going to be hard to get.”
Speaking specifically of the North Sea, he said: “At the moment it’s not an investible basin going forward. We can’t rely on the oil price going up for us to continue doing business.”
The industry has got into this position for a number of reasons, the plenary session heard, including high project cost inflation encouraged by high oil prices and staff poaching, higher project complexity, higher unit cost per barrel as production rates have fallen, higher complexity around operator relationship dynamics, etc. Behaviors needed to change and one panelist cited a permafrost in the industry.
But Bird said: “If there is a problem with middle management it is because of lack of leadership. The question is, do we really have effective leadership who can lead in the 21st century and do they have the skills for behavioral change. Our industry is a zero risk tolerance industry. The problem with that is we are increasing our risk in terms of competitiveness on a global basis.”
However, Gunther Newcombe, the Oil and Gas Authority’s exploration and production director, said there was a permafrost and that it took time to change habits. “I have seen it at an MD level. I see people realize they need to change, but when people have been working for many years it is hard to change behaviors. It would be great if they [the industry] could do it [change behaviors] themselves but the reality is that right now it doesn’t happen on its own. The OGA is trying its best to facilitate [change]. But we don’t have many powers. We will have some, but we wish it [change] would come more naturally. It has to be invoked right now.”
Matt Corbin, Aker Solutions head of product management, subsea, said: “I think we have got to start acting like $20-30/bbl will be around for the long-term and that will give us that incentive for transformational change.”
However, Newcombe said that while the industry had been going in the wrong direction things were changing. “At end of 2014, exploration was at an all-time low and all time low discoveries. To end of 2014, production was going south. There was a doubling in cost since 2010 on per barrel basis compared to other regions in the world.
“But we are fighting back. In 2015, we discovered more than Norwegian sector for the first time in 15 years. Still, only 14 wells were drilled. This year will be about the same, but we need to push harder and harder. [In terms of] Production, we saw a 9.7% increase in production. Production efficiency was at an all-time low of 60% in 2012. It is now about 70%. There’s been a lot of work in that area. In 2013, cost per barrel was $30. It was $21 at the end of last year and we are working towards $16./bbl. There have been huge efforts in all these areas.”
Matt Nicol, director of production and non-operated assets at Centrica Energy, said: “There’s no cavalry, it’s down to us.” Howard Woodcock, chief executive, Bibby Offshore, put it a little more bluntly: “Screw the permafrost. It’s in our power to change this and make the basin more sustainable.”
Meanwhile, Subsea Expo’s exhibition hall has been busy, with companies announcing investment and speaking about interest in their products and services.
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