Photo: Emile Ashley
... is the slogan for the ONS 2014 oil show in Stavanger. And political conditions, the financial sector and energy markets are characterised today by changes and instability – both globally and in Europe.
This is nothing new. Nevertheless, we constantly seem to be taken by surprise at the consequences of trends which have been negative for a long time but which we have managed to handle in one way or another through minor adjustments. Such “creep��� occurs so gradually that we fail to understand the scale of the consequences or to take adequate countermeasures before it is too late.
Global environmental and climate developments are one example of creeping changes which politicians, organisations and business are trying to find ways of tackling before they progress too far. On the other hand, the US revolution in shale gas and oil exemplifies a sudden change where few have understood the global impact. Nor was it easy to predict that gas, which we perceive as a clean energy source, would be out-competed by coal in European power generation – or that political conditions in Russia would once again challenge the perception of gas as a reliable energy source for Europe.
But there it is. Change sometimes happens suddenly and must be dealt with accordingly. The oil industry is accustomed to being in such a position and can tackle it. And the Norwegian continental shelf (NCS) also has a long history of changes and corrective measures, whether in the form of slumping oil prices, health, safety and the environmental concerns, or a need for new technological solutions.
In addition to the environment and sustainability, the biggest drivers of change today are perhaps the maturing of the NCS and the shift in oil company priorities from volume to value and cash flow.
The NCS still holds substantial resources which can be developed in existing fields, a few new large discoveries and a number of small finds. But the combination of more or less stable oil prices since 2010 and costs which rise steadily year by year has significantly reduced cash flow for the oil companies. The result is further restrictions on capital, requirements for increased profitability and stricter prioritisation of projects. This could limit further development of the NCS.
A common feature of offshore oil and gas resources is the heavy spending – not least on production wells – needed to develop them. Petoro invested NOK 16 billion in such wells last year, representing almost half og our investment. Drilling and well activities are a major and important part of activities on the NCS. Our figures show that costs per well have risen threefold-fourfold over the past decade, and the number of new wells per year has declined by a third on six of our most important fields.
After lengthy efforts to understand the consequences of this, we have concluded that costs per well need to be halved and the number of producers drilled from fixed installations doubled in order to secure the wells needed to recover reserves in existing fields. This is also necessary to ensure the profitability of new developments, since half the registered discoveries are unprofitable at today’s drilling costs.
That explains why we are so concerned with drilling costs. Their development also typifies cost trends for many other input factors. The “creeping inefficiency” in drilling wells since the 1990s primarily reflects constant new requirements, procedures and detailed descriptions of work processes.
This development is not unique to the oil industry, but dramatic changes must nevertheless be made to enhance the efficiency of its operations – without increasing HSE risk. Attractive exploration acreage and operating parameters are not enough if the NCS is to be competitive in the future. The industry must also reduce its level of costs to secure capital and profitability for future projects.
The petroleum sector once again faces the need to make major changes. Efficiency must be enhanced as a basis for cost reductions and increased profitability through an open and constructive collaboration – between oil companies and suppliers, between specialists across disciplines, and between industry, government and unions.
When we have accomplished that, the NCS will continue to be an engine for industrial and expertise development and a financial foundation for further development of Norwegian prosperity for many decades to come.
Grethe K Moen
CEO, Petoro AS