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The cost challenge on the NCS The Young Energy Conference 2014, Stavanger - 20.11.2014 Grethe Moen, CEO, Petoro AS History of SDFI and Petoro A short lesson in 1 minute Statoil is established Statoil too big, SDFI takes over half of the assets 1972 2 The cost challenge on the NCS 1985 Statoil lists on the stock exchange, Petoro is established 1985-2001 Petoro manages the SDFI 2001 Statoil Hydro merger, a milestone 2007 SDFI – large values at stake for the state Turning Pet(roleum) into Oro Exploration New field developments Oil and gas infrastructure Share in 34 producing fields Share in 179 licenses per 31.12.13 CAPEX NOK 33 bn OPEX NOK 40 bn Others International oil companies| 20 bn boe remaining reserves The cost challenge on the NCS Revenue Net Cash Flow NOK 197 Bn NOK 125 Bn A new oil crisis? Danger 4 The cost challenge on the NCS Opportunity From volume to value, the need for higher efficiency emphasized • Stronger prioritization of capital – directed by need to improve profitability • Cutting activity reduces value creation opportunities ? • Need for increased efficiency in the value chain • An opportunity! 5 The cost challenge on the NCS Doubling CAPEX is not delivering production growth FORECAST Sum budget per field Mill NOK (nominal) Production (kboed) ACTUAL Production oil, NGL, cond Production gas Concept studies Field developments OPEX Production drilling Source: Petoro 6 The cost challenge on the NCS Dramatic increase in well costs 7 The cost challenge on the NCS • Well costs on fixed installations doubled since 2009 • Well costs on floating units doubled since 2006, levelling off? • Cost prognosis does not reflect history Percent increase in time from 1992-95 to 2008-13 Better before - Drilling tasks takes twice as long Analysis: Same fields – same wells 1992-95 versus 2008- 13 Drilling from surface to top reservoir Selected, representative routine operations Source: Petoro 8 The cost challenge on the NCS Radical approach is required to meet the reserve ambitions on mature fields: 6 fields – 10 fixed installations 9 The cost challenge on the NCS Radical approach is required to meet the reserve ambitions on mature fields: 6 fields – 10 fixed installations 10 The cost challenge on the NCS Future fields are dominated by smaller reserves – well costs critical for profitability Example: Field X (oil, one template w/ 4 wells) Cost split, subsea development Discoveries (per February 2014) in addition to: Boring og kompl. Drilling and completion 5% Johan Sverdrup (315 million Sm³ o.e) + Johan Castberg (86 million Sm³) 9% Recoverable reserves, million Sm³ o.e Subsea systems Havbunnssystem Pipeline and marine Rørledning og marine operations operasjoner Topside modifications Topside mod 21 % Project management Prosjektledelse Source: Petoro Source: OD/ Strategikonferansen 2014, Petoro Oil 11 49 % 16 % The cost challenge on the NCS Gas Approx. 3 mill Sm3 oil: smallest profitable development w/ four well template Only long term focus and radical initiatives will deliver radical improvement – «several more stones to turn»… New areas/ presently less focus: • Contract incentives to drive efficiency • One team – operator and supplier equal partners • New technology to drive efficiency • Faster technology deployment Technology Work processes 12 The cost challenge on the NCS Organization Seize the opportunity and involve yourself • Deliver quality, every time - will build trust • Be proactive – not reactive Danger Opportunity • Dare to challenge the established thinking and to make mistakes • You and your new ideas are an important part of the solution 13 The cost challenge on the NCS Change through co-operation – a long history on NCS 14 The cost challenge on the NCS • HSE • Business driven technology development and fast implementation • Industry appointed committees and initiatives – NORSOK • Government appointed committees and initiatives white papers • Field specific change processes on the NCS