Cost trend breached, efficiency improvements still much needed

SDFI interim accounts, first half-year
“We see now that the cost trend has been breached for operations on several fields in our portfolio,” says Grethe Moen, president and CEO of Petoro. “But continued efficiency gains are needed to help boost earnings and improve profitability for future projects. We haven’t seen so far that the restructuring has led to proposals for more new projects in the licences.”
In her comments on the company’s interim results for the first half, Moen notes that field costs in Petoro’s portfolio were reduced by 13 per cent from the same period of 2014. Also where drilling is concerned, substantial cuts in well costs were achieved on certain installations. Moen reports that these gains have largely been achieved so far through simplification, reduced activity and lower prices for services.
 
“Cutting activity increases cash flow, but we must avoid halt to work needed to ensure future earnings,” she says. “Distinguishing between reductions which reduce value and genuine efficiency improvements is a challenge.”
 
Petoro has long pointed out that efficiency gains are required to achieve a significantly lower level of costs. “Supplier prices will be challenged as part of efforts to achieve cost reductions, but enhanced efficiency derives most often from changing working methods rather than simply putting one-sided pressure on margins,” says Moen. “The crucial requirement for achieving such changes is for the oil companies to work openly and in a trusting manner with their suppliers.”
 
She is very satisfied that the partners in the Gullfaks licence have submitted a supplement to the plan for development and operation (PDO) which will permit the recovery of reserves from the Shetland and Lista formations. Other important milestones were the installation of modules for subsea compression on Åsgard and Gullfaks – both good examples of the early application of new technology.
 
Net cash flow from the State’s Direct Financial Interest (SDFI) in oil and gas operations came to NOK 55 billion in the first half, down 14 per cent from the same period of 2014. High production offset the effect of lower oil and gas prices. Gas revenues were on a par with the first half of last year, while oil income fell by 23 per cent. Investment amounted to NOK 15 billion, a decline of 21 per cent from the first half of last year.
 
Read more about Petoro’s results in the directors’ report for the second quarter of 2015 here.
 
Contact person in Petoro:
Sveinung Sletten
Head of communications
+47 950 75 554
+47 51 50 20 24
sveinung.sletten@petoro.no

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