Margareth Øvrum, executive vice president of technology, projects and drilling for Statoil ASA (NYSE: STO), believes in setting “impossible targets” that require “radical changes.”
Speaking during the company’s latest earnings and capital markets update Feb. 7, Øvrum highlighted ways in which the company has made the impossible possible during tough times for the industry. Reaching a breakeven of $50 per barrel (bbl) was the benchmark many believed would be difficult to achieve in 2015. Back then, a barrel of oil was trading below $40/bbl by year-end 2015, levels not seen so low since early 2009, according to U.S. Energy Information Administration.
But a year later, the breakeven for Statoil’s portfolio was $41/bbl, she said. Today, the company’s so-called next generation portfolio—which includes projects such as the North Sea’s Johan Sverdrup and Oseberg Vestflanken, Johan Castberg in the Barents Sea, Peregrino II offshore Brazil and Trestakk in the Norwegian Sea with anticipated startups by 2022—has a breakeven of $27/bbl. The figure is down from $70/bbl in 2013.
“This demonstrates we can make the impossible possible, and we will work just as hard in the execution phase to beat these figures,” Øvrum said during the presentation, which was broadcast online. “We see this positive development in all types of projects globally.”
This came as the Norway-based company, which was among the first to cut back spending before oil prices fell near the end of 2014 and deepened into an historic, transformational downturn, reduced its capex by 43% since 2015 while it increased recoverable resources by 12%.
With oil and gas bringing in less revenue, companies worldwide were forced to change traditional ways of doing business. Focus turned to capital discipline, bargaining with suppliers, shedding assets, partnering with peers, halting some projects and focusing more on efficiency and technology.
Like its peers, Statoil initiated cost-saving measures and tackled drilling efficiency, among other areas.
Competitive pricing was behind some of Statoil’s falling production costs, Øvrum said, but she credited simplification, standardization and use of existing infrastructure as well as technology and performance-based contracts to the drop as well.
She used the Johan Castberg oil development in the remote Barents Sea as an example. With proven resources between 450 MMboe and 650 MMboe, according to Statoil, capex for the project has fallen by more than 50% from NOK 100 billion (US$11.9 billion) to between NOK45 billion and 50 billion (US$5.4 billion and $6 billion). The breakeven price has dropped from more than $80/bbl in 2013 to less than $45/bbl in 2016 and down to less than $35/bbl today.
“This is a result of a project team willing to challenge the conventional way of thinking and collaborate closely with suppliers,” Øvrum said. She added Statoil optimized the field layout, reduced the number of wells and reduced seabed intervention costs. “We have challenged the supplier to find new subsea solutions and they have responded.”
The results, she said, are less weight, lower complexity, less documentation and lower costs. The company now has a standard package that can be implemented at other fields in Statoil’s portfolio, she added. Power solutions involve using power turbines on offshore platforms for gas generation, given the high costs associated with powering the subsea development from land.
A final investment decision on Johan Castberg is expected sometime this year. Partners include Eni Norge with a 30% interest and Petoro, with 20%.
Statoil also continues to develop its remotely operated factory, something that Øvrum said will reduce the company’s carbon footprint. Instead of having a standard “big, heavy and complex” platform, she said, “imagine the benefits of having several smaller standardized building blocks that you can combine for better field utilization and optimization.”
She called it the “mix-and-match solution; and everything is operated from shore.”
One component, a subsea gas compression system, is already operating on the Åsgard Field in the Norwegian Sea. The system, which has been operating for more than a year, has increased the recovery rate from Åsgard’s Midgard and Mikkel reservoirs from 67% to 87% and from 59% to 84%, respectively, Statoil said in a September 2016 news release.
Statoil worked with Aker Solutions and MAN Diesel & Turbo to develop the system, and the two companies are currently working to further reduce the size and weight of the system by at least 50%.
Statoil is also making progress on its unmanned wellhead platform at Oseberg Vestflanke 2. The platform is under construction. Other pieces of the factory include an unmanned production platform supported by a host and a standalone unmanned production platform.
“We combine subsea with unmanned topside technology to find the optimal solution for each project. It will improve the robustness of our project portfolio by making even the smaller field developments profitable,” Øvrum said, adding it could reduce capex by $1 billion for some projects. “We see this as a future development solution for several of our fields. It may seem like a science fiction, but we are getting closer.”
Velda Addison can be reached at email@example.com.