Costs ‘simply too high’Statoil trims $5B from 3-year capex while maintaining strong growth prospects Mike Ellerd Petroleum News Bakken
The oil and gas industry is facing some demanding challenges according to Statoil Oil and Gas, and the global giant is facing those challenges by making important changes to its strategy for growth and creating value.
In launching what Chief Executive Officer and President Helge Lund calls “a comprehensive program to deal with efficiency,” the Norwegian-based integrated multinational energy company is looking at a 3 percent compound annual growth rate, CAGR, over the next three years while at the same time revising downward its estimated 2014-2016 global capital expenditure, capex, by $5 billion or approximately 8 percent. Statoil is also backing four years away from its previously announced production guidance of reaching a total global daily production of 2.5 million barrels of oil equivalent per day by 2020. In the fourth quarter, Statoil’s total global production averaged 1.940 million boepd, which was 56 percent liquids.
“We expect around 3 percent CAGR in the period between 2013 and 2016, and we have good growth prospects towards 2020 and beyond, backed by a very strong resource position,” Lund said in a Feb. 7 earnings press conference with analysts in London. “But we will grow with less spend.”
Lund said Statoil has “scrutinized” every part of its portfolio in an effort to improve project profitability, and he definitely sees room for improvement. “On the project side, despite delivering major projects on time and on budget, I’m not happy. I’m not satisfied because the cost in the industry is simply too high,” Lund told analysts. “We therefore need to redouble our effort in this important area. And attacking this basic industrial challenge gives the opportunity to set new standards, both when it comes to profitability and return.”
With the $5 billion capex cut, Statoil is now planning to spend approximately $20 billion per year over the next three years for a total 2014-2016 capex of $60 billion. However, Lund said approximately 40 percent of that total capex will be going into projects that won’t begin production until after 2016, which he said underlines the importance of building long-term growth for Statoil.
Fourth quarter production Torgrim Reitan, Statoil’s chief financial officer, said the company’s fourth quarter output was a decrease of 4 percent over the fourth quarter 2012, which was expected. In the quarter, Retain said, Statoil continued to start up new fields and ramp up production in others, but those production increases were more than offset by divestitures, redeterminations, lower gas offtake from the company’s Norwegian Continental Shelf operations, and expected natural decline.
However, Statoil’s “international” production, i.e., outside of Norway, was increased in the fourth quarter to 740,000 boepd, up from the 728,000 boepd output in the third quarter. The fourth quarter output was 70 percent liquids.
In addition, Reitan said the company is ramping up production in the U.S. onshore as well as in Angola and Brazil, although earnings from those business segments was down in the quarter due primarily to higher gas share in the output, lower realized prices and high depreciation in the North American business segment. However, for the full year, Statoil’s “international” earnings were up by 1 percent.
“Around one-third of our production now comes from outside Norway,” Reitan said. “And the cash flow per barrel for our international production is on par with our Norwegian production. So we are growing internationally and it is a profitable growth.”
North America and the Bakken In North America, Statoil is active in both the U.S. and Canada, although most of the company’s North American production comes from three U.S. plays, including the Bakken. In the fourth quarter, Statoil’s North American output averaged 237,800 boepd, of which 83 percent or 197,900 boepd came from the Marcellus, Bakken and Eagle Ford plays. In the Marcellus, Statoil’s fourth quarter output was 116,300 boepd, although that output was 95 percent gas. In the Bakken, Statoil averaged 49,900 boepd in the quarter, with 87 percent being liquids. Statoil’s Eagle Ford production averaged 31,700 boepd in the quarter, which was 66 percent liquids.
At 87 percent liquids, the Bakken has the highest liquids content of Statoil’s North American plays, followed by the Eagle Ford at 66 percent liquids. Of the total fourth quarter North American production of 237,800 boepd, 46 percent was liquids, and of that 46 percent liquids, the Bakken accounted for 40 percent.
Statoil’s fourth quarter North American production was a 23 percent increase over the 193,500 boepd output in the same quarter of 2012. The company’s Bakken production was up nearly 7 percent over the 46,700 boepd production in fourth quarter 2012.
At the same time that Statoil’s U.S. production is up, the company’s U.S. well costs are down. Margareth Ovrum, Statoil’s executive vice president of technology, projects and drilling, told analysts in the London press conference that the company has seen significant improvements in well efficiencies in the three primary U.S. assets with average drilling time reductions of 30 to 50 percent per well and average well cost reductions ranging from 25 to 50 percent. In addition, Ovrum said there is potential for an additional 15 percent reduction in average well cost by 2016, and that with new technology development, there could be even further upside.
“The main reason for these savings is what we refer to as our perfect well approach, which is a systematic deconstruction of best practices within all segments of the well construction and subsequent drive towards improvement and simplification on each segment,” Ovrum said. “We expect to continue these improvements, and we aim for another 15 percent reduction on the total well cost by 2016. And there may be some further upside from new technology development.”
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