From Florence: The forces behind the recent oil price collapse have been widely discussed, but it is not often that important players put their cards on the table and talk straight.

Nizar Al-Adsani, CEO of Kuwait Petroleum Corp, told the GE annual meeting here on Monday, in a panel on sustainability, that his company - and OPEC’s - unwritten strategy is to ‘drive out high cost production’ - by which he meant deepwater anywhere and unconventionals in the US.

Al-Adsani said his company aimed to maintain market share, at the expense of price, and was already building towards boosting oil production by one-third to 4mmb/d.

Another old adage also came to the fore. COO of Petronas downstream Datuk Wan Zulkiflee said ‘it was a very good time to be integrated’ with low-cost feedstock. Like others speaking here, Zulkiflee said he expects the current low price regime to last one to two years.

Another voice, Jacqui Dimpel of Anadarko, said that the service industry ‘needed to be realistic at the current oil price.’

This view was echoed by Neil Duffin of ExxonMobil who said ‘the cost bar is too high’ and added that the industry needed to simplify. He failed to mention who had made things more complex.

Duffin has obviously been around a long time. As a driller 35 years ago, he recalled drilling 13,000ft wells. This has now risen to 13,000m or, more simply, 13km.

It is always interesting to pick up odd bits of information, such as what the market is doing with LNG. Kuwait, for example, is importing LNG for power generation purposes so it can focus on exporting liquids. In Malaysia, LNG is being used as a means of transporting gas from one side of the country to the other rather than building pipelines.

Cost focus

Like all manufacturers, GEOG is trying to find a way to make more money out of what it is already doing. So its ‘new’ deepwater vertical tree - or DVXT - is part of its ‘structured products’ strategy, ie re-use designs, fewer variations, less engineeering. Good luck.

This was said even more explicitly by Neil Saunders, senior veep for subsea. He worried about companies looking for alternatives to subsea which will assuredly drive down cost as will collaboration. Customers are looking to shed 15-25% of capex while at the same time slowing down projects. Tough trading conditions for all.

With 64% of projects facing cost over-runs and 73% running late, BP’s Bernard Looney, in a panel on standardisation, said there needed to be more collaboration - but ‘collaboration with a purpose’ - between operator and supplier to keep costs down.

The COO for production said that ‘the cost structure...was too high at $100/bbl, let alone at $50' and the reality is that revenue has decreased by over 50%. He called for ‘radical change’ in business practices through engaging with suppliers.

Looney said that BP’s 16 deepwater rigs had 600 days downtime in 2012, equivalent to almost two rigs out for an entire year. By teaming up with GE that was brought down to 200 days.

On standardisation, Looney said BP had been working with its suppliers over the past 18 months to reduce specifications on equipment where BP specs went beyond industry standards. Unnecessary complexity is being built into kit, he said.

Michael Utsler of Woodside said his company had gone through a very similar exercise and it was ‘staggering how many examples of incrementalisation’ had been seen.

A Woodside employee refused to accept a critical piece of equipment because it was $1,700 in the catalogue, but with all the add-ons, it was $27,000 supplied.

Utsler said two things stand in the way of standardisation. The first is ‘the lure of technology’, ie ‘if one sensor is good, five must be better.’ The second is risk tolerance.

He said the adversarial relationship between operator and supplier has resulted in a lack of confidence in each other. This has been replaced by multiple levels of third party assurance with each level doing what the supplier should be doing.

Looney also said the industry has ‘lost the plot’ on tendering documents. He said it adds cost with no reward and BP is working to make documents simpler and clearer.

Get local

Dr James Mataragio, director general of the Tanzania Petroleum Development Corp, called on firms to form joint ventures with local businesses to tap into the potential to service oil and gas companies operating in the region.

Tanzania plans to use its natural gas as an alternative source of revenue to improve the economic prosperity of the country’s people. Modern energy will be one of the important pillars of socio economic transformation.

Mataragio said that plans for an onshore LNG plant to develop deep offshore gas were progressing. He said oil and gas players have the opportunity to farm in to existing exploration and production licences, while services associated with a planned giant LNG project would be at a premium.

‘The government is currently looking for the land to buy for the plant. We welcome businesses to come and invest in the petroleum opportunities associated with LNG,’ he added.

Tanzania has discovered gas volumes of 1.5tcm as of December 2014 with a big chunk of the discoveries in the deep offshore. Some 85 wells have been drilled so far in the country of which 12 were offshore fins. One well is currently being drilled.

Offshore