Lower break-even price boosts profitability
“Petoro’s net cash flow is on par with the peak years,” says CEO Grethe Moen. “The most significant difference is that the sector’s efficiency measures have contributed to reduced costs. This reinforces the competitiveness of our portfolio and makes us better equipped to handle major price fluctuations,” says Moen and refers to Oseberg Vestflanken 2 as a good example. The project was delivered for NOK 6.5 billion, which is about 20 per cent lower than the cost estimate in the Plan for Development and Operation. The break-even price has been reduced from 34 to less than 20 dollars per barrel, a fact that enhances an already very profitable development.
However, there are signs that certain costs could be on the rise. This is reason for concern. There is a considerable need for continued streamlining and adjustment to contribute to realising new business opportunities. Changing work processes to exploit new digital tools is a key element. There is no lack of digital tools, but they must be put to use. At the same time, failure to share basic data between operators, suppliers and partners at all levels presents a challenge. “We all rely on digital management information in order to exploit efficiency gains,” says Moen. “This is an area Petoro will focus on heavily in the future. Petoro wants to make sure that all players receive the digital information they need in their roles. For Petoro, this means data that contributes to greater efficiency, better insight and improved quality in the information we use to make decisions. This applies to all parties, and overall, it represents huge commercial value.
Wells for the future
At the same time, we must increase the pace of drilling. We are entirely dependent on new discoveries and improved recovery from mature fields to ensure future competitiveness. “As we have pointed out on several occasions, more wells must be drilled,” Moen confirms. “We are therefore very pleased with Equinor’s updated strategy for rejuvenating the Norwegian Shelf, including a very ambitious drilling programme extending past 2030. However, she adds, realising all recoverable resources requires a commitment from all operators.
To underline the importance of this, the Johan Sverdrup development alone is estimated to contribute more than 150,000 full-time equivalents in Norway in the period 2015-2025 (Agenda Kaupang).
“Jobs are fundamental for creating the society we want, and for me personally, it is important that Petoro works both directly and indirectly to reinforce and secure jobs linked to the petroleum industry,” says Moen.
Clear leadership needed
Petoro continuously monitors HSE results on our fields. As regards safety, we see that results in recent years are holding steady at the same level, and we have not managed to achieve the desired improvement. The number of serious incidents in the third quarter was lower than in the two previous quarters, but the serious incident frequency is still too high in the SDFI portfolio. Here we need strong leaders who take clear positions when it comes to safety work.
As regards climate, one of the most positive news stories in the third quarter is that Petoro and the other partners on Snorre and Gullfaks have decided to study the possibility of supplying the fields with power from floating offshore wind turbines. This project can yield more than 200,000 tonnes in reduced CO2 emissions per year, which is equivalent to emissions from 100,000 private cars.
“We currently deliver 60 per cent gas from our portfolio. This percentage will continue to grow. According to DNV-GL’s report "Energy Transition Outlook 2018", demand for natural gas will increase up to 2030. “We see that gas makes a significant contribution towards reducing CO2
emissions in Europe when it replaces coal power,” Moen explains.
The result from the SDFI portfolio so far this year is characterised by a high cash flow as a result of high oil and gas prices. The average oil price in Norwegian kroner was NOK 580 per barrel, compared with NOK 431 in the same period last year. Gas prices averaged NOK 2.07 per Sm3
compared with NOK 1.64 last year. Gas sales through the 2nd
quarter have been at record high levels compared with the summer months in previous years.
Total oil and gas production amounted to 1.080 million barrels of oil equivalents per day, 2 per cent lower than the same period last year as a consequence of natural production decline and planned shutdowns in the 2nd quarter.