Norway’s state-controlled oil and gas company Statoil has been very creative in how it describes one of the most important issues in the industry. Its chief executive Eldar Saetre used an erotic romance novel reference last year, talking about 50 shades of sub-sea yellow. This time, Statoil top executives opted for computer terminology to make their point.
“Copy-paste is good for us,” Statoil’s executive vice president for technology, projects and drilling, Margareth Ovrum, told investors in London on 7 February. She was not talking about copy-pasting a block of text from a document to another, but listing Statoil’s achievements in the area of standardisation.
Since oil prices started falling in the middle of 2014, oil and gas firms have focused almost solely on bringing their costs and investments down in order to weather the downturn. A huge chunk of those efforts has been about increasing the efficiency of operations and planning. And standardisation — i.e. using standardised solutions on similar projects and installations — constitutes a significant part of those efficiency drives.
It’s what Norway’s state-owned holding company Petoro’s chief executive, Grethe Moen, called “reducing costs one step at a time using familiar solutions, interfaces and work processes”.
The lower oil price environment still bites, as Statoil demonstrated with its fourth-quarter $2.8bn loss. But many industry analysts looked beyond the negative number, focusing on the company’s positive outlook, which largely stems from Statoil’s cost-cutting and optimisation efforts. Bank UBS highlighted the firm’s “very impressive operational progress”.
Statoil has in its bag one of the most iconic oil developments in the world right now — Johan Sverdrup offshore Norway. The firm operates this project with a stake of over 40pc. Johan Sverdrup, which has capacity of 660,000 b/d and will account for a quarter of all Norwegian petroleum production at its peak, will be developed in two phases, with phase 1 starting up at the end of 2019.
“Sverdrup has always been a very profitable project. Still, we keep up the intensity and continue to hunt for ways to reduce costs and increase value,” Ovrum said. Since the project was given the green light in 2015, Statoil and its partners have managed to reduce planned investment in its two phases by 25-35pc — not least by ensuring that 40pc of equipment for phase 2 can be “copied” from phase 1, Ovrum said.
Oil produced in phase 1 is now expected to make profit for the stakeholders even if oil prices dip below $20/bl — a level the world has not seen for 15 years. And with phase 2 currently expected to break even at below $30/bl, the whole development will be profitable at oil prices under $25/bl — still a very impressive figure.
And Statoil’s efforts to bring down investment in its future project in the frontier Barents Sea — the 450mn-600mn bl of oil equivalent Johan Castberg — have resulted in collaborating with suppliers in finding new sub-sea system solutions. These solutions can now be implemented — copy-pasted — across the whole portfolio, saving Statoil about 40mn Norwegian kroner ($5mn) per well, Ovrum said.
“Within all areas… we have to work closely with our suppliers to succeed. We do not fill the shopping cart with goods and argue the price when we are at the cashier. We collaborate to bring the price down before we get to the cashier,” she said.