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Big plays, big problems Statoil scales back payroll, spending to secure ‘future value creation’; questions about oil sands, Atlantic offshore, Beaufort Gary Park For Petroleum News
Frontier explorers face some of the toughest decisions as they grapple with spending priorities at a time when their industry has seldom faced so much uncertainty.
And few players find themselves in a stickier situation that Norway’s Statoil, whose global portfolio is loaded with rich prospects, but burdened by some of the most daunting risks and costs.
The company, 67 percent owned by the Norwegian government, has been quick to roll out some of its adjustments to lower crude prices by removing 2,300 employees and consultants from its payroll since the end of 2013 and disclosing that another 2,000 are likely to be let go by the end of 2016.
“The improvements are necessary to strengthen Statoil’s competitiveness and secure our future value creation,” Chief Operating Officer Anders Opedal said in mid-June.
Oslo-based DNB Markets estimated that the spinoff toll in Norway alone over the past 18 months now exceeds 20,000 jobs from an industry that provided about 250,000 direct and indirect jobs before the cuts were announced and contributed almost 20 percent of Norway’s Gross Domestic Product.
Statoil estimates the downsizing strategy will yield savings of US$1.7 billion a year starting in 2016.
Norway’s Petroleum and Energy Minister Tord Lien said it is “natural and necessary that Statoil, as the biggest company on the Norwegian shelf and a large international player must adapt to a new cost situation, like the industry as a whole.”
As part of its pullback, the company has reduced its capital spending by 10 percent to US$18 billion this year.
Questions about Canadian plays The ripple effect has spread across the Atlantic, raising questions about Statoil’s interest in three major Canadian frontier plays - the Alberta oil sands, Beaufort Sea and Atlantic Canada offshore - where exploration and development investment running to billions of dollars is possible.
Statoil has quickly established itself as the most adventurous explorer in Newfoundland’s offshore and has built a sturdy partnership with Husky Energy.
Now it seems the Canadian division is awaiting clearer directives from its head office, causing a rift within the Newfoundland government over the future of the Bay du Nord discovery - the world’s largest in 2013 - in the Flemish Pass.
The estimated strike of 600 million barrels of light crude raised hopes that Newfoundland could finally expand beyond its producing Hibernia, Terra Nova, White Rose and, soon, the Hebron fields.
In opening a major oil and gas conference June 16, Newfoundland Premier Paul Davis described Bay du Nord as “the next big project for this province.”
Newfoundland royalties But he surprised many by announcing a new royalty regime is imminent to help accelerate offshore oil development and provide an equity stake in the project for the government.
He said a standardized program will clarify international expectations and speed up negotiations, promising a “term sheet” with Statoil will be the next step in a long development process towards commercial production by about 2021.
Davis said he hoped a tentative deal could be signed before a provincial election on Nov. 30, while giving an assurance that he would not try to score political points on the issue.
Others were frankly baffled, with sources close to the talks between the government and Statoil saying they had been caught off guard, while Statoil had nothing immediate to say.
Energy consultant Rob Strong was among those suggesting Davis should not have made a public commitment before Statoil has time to delineate or drill enough wells to build a comprehensive development plan.
He challenged the premier’s decision to talk about generic royalties, benefits and equity until more is known about what the basin contains, noting that Bay du Nord faces many logistical tests.
Bay du Nord obstacles Jez Averty, Statoil’s senior vice president for exploration in North America, did not hesitate to lay out the obstacles to development of the Flemish Pass.
He noted that if developed Bay du Nord “will be the world’s most remote offshore development, period.”
Currently helicopters can carry only six to eight people to exploration sites in the Flemish Pass and some flights have been limited to three passengers.
In addition, water depths in the basin are 3,300 feet to 8,200 feet, not unusual for offshore Brazil and West Africa, but those regions do not have to contend with large icebergs and strong, conflicting ocean currents.
No clear Alberta strategy A year after Statoil indicated that exploitation of the company’s considerable oil sands holdings could take a back seat to Newfoundland it has yet to lay out a clear strategy for its future in Alberta beyond pointing to shift in corporate thinking.
Earlier in June, its chief economist Eirik Waerness said financial returns from the bitumen deposits could weaken as global efforts to fight climate change start to intensify.
He said high cost projects such as the oil sands and ultra-deepwater resources would struggle to adapt if the industrialized world takes aggressive measures to limit global warming to no more than two degrees Centigrade above pre-industrial levels.
Waerness said the prospect of further demand and price cuts for oil, combined with higher levies on carbon output than are contemplated today would likely marginalize the oil sands where Statoil currently operates its 20,000 barrel per day thermal recovery Leismer project.
Eight years after acquiring North American Oil Sands for C$2.2 billion, Statoil divided its leases, retaining 100 percent of Leismer, it set a production target of about 60,000 bpd for the operation.
Although reporting efficiency improvements had been made to the next phase of Leismer, it has put the expansion on hold for at least three years after finding it was unable to curb the rising cost of labor and materials, while facing constraints on market access because of delays in new pipelines out of Alberta.
NWT discussions Statoil has decided to pull out of drilling in Greenland, but is reportedly showing interest in Canada’s Arctic.
Northwest Territories Industry Minister Dave Ramsay told Petroleum News he held recent discussions with the company.
While unable to provide details of Statoil’s interest he said “they are certainly a world-class company with a tremendous amount of experience in the Arctic setting.”
For now, Ramsay said his government is providing answers to Statoil questions about regulations governing exploration in Canada’s North and how partnerships might work.
“Otherwise we are taking a wait-and-see approach,” he said.
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