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CERAWeek:The challenge is to reduce costs in the oil industry - Statoil/Petrobras


Pedro Parente, president of Brazil's state-controlled Petrobras, noted "Now is the time to change how we run this industry," he said.

HOUSTON
Petroleumworld.com 03 07 2017

Oilfield costs that are set to rise in the energy industry are a test for upstream company managers as they seek to remain profitable at crude prices that persist at relatively low levels, chief executives of two top international oil companies said Monday.

The start of recovery from a recent two-year industry downturn offers a "unique opportunity" for companies to transform and reset the cost base, Statoil CEO Eldar Saetre said during a panel discussion with the president of Petrobras on the first day of IHS CERAWeek. Statoil has brought down its breakeven price of what it calls its next-generation portfolio of emerging and current projects, which hold more than 3 billion barrels of oil equivalent, from around $70/b-plus to well below $30/b, Saetre told the annual gathering.

"It turns out that we are capable of [shaving off] costs when we have to," he said.

In addition, Pedro Parente, president of Brazil's state-controlled Petrobras, noted his company has undertaken a plan to reduce what was the oil industry's biggest debt load of $123 billion by selling about $15 billion of assets in 2015-16.

The company also expects to accelerate its return to a better balance sheet by cutting net debt to 2.5 times EBITDA by 2018. In 2015, net debt was 5.3 times EBITDA.

On top of the downturn where lower oil prices cut sharply into oil company profits, Petrobras was grappling with an internal corruption scandal involving kickbacks on building and other contracts.

But Parente said the work that new management has done to revitalize the company and get it into better fiscal shape "has been recognized and acknowledged" by the market.

The result, he said, was that the company "moved from the scandal page to the business page."

For international oil companies, the current investment climate of an oil price that, while nowhere near what it was before mid-2014 when prices began to drop from more than $100/b, is still high enough to turn a solid profit thanks to major cost-cutting during the downturn, Saetre said.

"Now is the time to change how we run this industry," he said.

Some techniques it can employ include lean manufacturing technologies, standardization and industrialization that can strengthen long-term competitiveness in an increasingly complex energy space, he added.

STANDARDIZATION HAS 'HUGE POTENTIAL' FOR INDUSTRY


The idea is to "unwind complexity," which had been creeping up over many years in subtle ways and brought costs up along with it, Saetre said.

He said designing new installations such as production facilities to a minimal level and challenging everything on top of that is the new reality for upstream producers. In addition, oil companies can do more with standardization, which Saetre called a "huge potential for industry."

"We have a lot to learn from that -- even on wells," he said. "I thought each well was unique, but there are standardized components and you can use what you have done before."

When oil dropped to the $40s/b to the $50s/b in early 2015, producers quickly petitioned their oilfield service and equipment suppliers for cost relief to enable them to continue operating at low oil prices. Many operators obtained cost concessions of 10% to 25% or more.

At the same time, operators kept whacking away at their internal costs, scrutinizing every tool and crane used and arranging their supply chains and logistics to squeeze out every dollar of costs possible.

They also learned how to produce better by drilling wells with longer horizontal legs to extract more oil per foot and perfected their technique of landing in the absolute "sweet spot" of each reservoir, yielding more hydrocarbons.

QUESTION AROUND OIL SERVICE COST RISES

But now that oil prices have stabilized around the low-to-mid-$50s/b, the question is how much of the price concessions oil services providers granted more than two years ago will be taken back. Many operators have said recently they believe they can offset the expected 15% to 20% cost increases by wringing out still more efficiencies from their own operations.

Saetre said Statoil has taken down costs for offshore conventional projects by about 50%, and believes 80% to 85% of that is structural -- that is, permanent.

The bulk of internal cost savings came from "redesigning how we work with suppliers," he said, while only 15% has come from oilfield service company cost concessions.

"I can't guarantee that [total costs] will stay the same," Saetre said. "I think there will be a little higher cost, but we can improve. ... A tight environment will really push costs" as the industry ramps up and competition for labor and hydraulic fracturing crews heats up.

Petrobras' goal is also to reduce its costs 18% in five years, Parente said, as well as potential capital budget reductions by 25% from $100 billion over five years to $75 billion while increasing the productivity and production of the company.

"These are very challenging targets, but we feel confident we can do it," he said.




Story by Starr Spencer, starr.spencer@spglobal.com; Edited by Jason Lindquist, jason.lindquist@spglobal.com from Platts.

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CERAWeek 2017

MAR 6-10, 2017
HOUSTON, TX

 

 

 

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