The tide is turning

Yet another year with strict capital discipline and cash flow focus will soon come to an end. And what a year it was!

It started off with an outlook for yet another tough, troublesome year ahead, but instead it finished off with a growing sense of optimism for the future. For sure, it has been fueled by steadily growing oil and gas prices. But first and foremost, it’s been a year where the effects of all the steps that we have taken over the last few years are now gradually becoming visible; activity levels seem to stabilize, and we slowly start to see the tide turning again.

The cure has been tough and brutal, yet immensely successful. Collectively, our industry has realized massive cost cuts. Yes, we still postpone investments and push some of the more complex and risky projects ahead of us. Nevertheless, the general picture for all the projects and operations we do prioritize today are that costs have been reduced significantly, compared to just a few years back in time. Simultaneously, production levels are being maintained. This is possible, because we really do things smarter and more efficiently; we now build standard technical solutions that can be used not only once, but for many different field development projects, allowing for faster, cheaper production and assembly of equipment practically by the conveyor belt principles. We even operate entire offshore production facilities from shore. 

In short, we truly live by the lean and mean principles, and the result is cost-cutting beyond imagination with more value for the money, transforming our industry yet again into the sustainable comfort zone. As an example, Statoil and its partners and suppliers have practically cut their average field development break-even price in half over the last few years, now down to $41/bbl.

Future focus. However, going forward, we cannot allow ourselves to rely on past success. Therefore, we must continue to focus on strict capital discipline and healthy risk profiles, to avoid another detrimental cost spiral. The efficiency gains will still need to be improved further. We must continue to explore, and we still must fund necessary R&D work to develop the answers and solutions for handling the technical challenges of tomorrow. No doubt, during the next few years, concepts such as digitalization and Big Data will emerge and form the way that we work in the future. 

Combined with the exponential increase in computer-based digital data handling capacity that we see today, this potential is enormous. But the biggest test really comes when, sometime into the future, there is a sudden and sharp rise in oil prices, and whether we refrain from starting yet again to design and implement those grand, all-inclusive technical solutions of the past—and whether we still maintain a healthy, balanced approach toward high-risk, high-reward opportunities.

This also has been the year where words have truly been followed by actions to transform the traditional oil and gas industry into broader energy companies capable of providing a full suite of energy mixes for various needs on local and global scales. Thus, the future energy mix can be better-balanced and optimized to minimize environmental effects. This will lead to reduced greenhouse gas emissions and an important contribution toward a greener planet with stabilized global warming, while simultaneously providing the energy that a world in continued growth will need.

Already, an increasing number of different renewable energy projects are being launched, including both offshore and onshore wind power, wave power, solar power, thermal energy sources, and so on. Simultaneously, many different low-carbon initiatives are being evaluated and started, ranging from massive CO₂ capture-and-storage projects to numerous modification efforts to reduce greenhouse gas emissions from current oil and gas production operations.

Specific efforts offshore Norway. Looking behind the scenes of perhaps the most widely used drainage strategy on the Norwegian Continental Shelf, pressure support by water injection, the total energy consumed by all the required injection turbine facilities constitutes more than 80% of the overall CO₂ emissions from Norwegian petroleum operations, alone. Clearly, this rocks the very foundation of traditional drainage strategies in offshore oil fields, which normally involves cycling large volumes of water. 

As such, a new approach toward optimizing drainage strategies and recovery, in light of energy consumption, is required. It may involve finding other, smarter ways to maintain reservoir pressure, or simply ways to reduce water production, hence reduced water injection needs (i.e. reduced turbine energy consumption), such as more actively monitoring and diverting, or even shutting off completely, the high water cut zones. It also may involve more capturing of CO₂ and using it intelligently for EOR injection, before it is stored permanently. 

Statoil, as an energy company committed to long-term value creation in a low-carbon future, has taken the opportunity, and introduced new investment criteria and targets for future projects. These now also include greenhouse gas emission levels alongside the standard requirements for net present values, break-even prices, cost levels and risks. This may be a bold contribution to the transformation of our traditional oil and gas industry into a sustainable future. But it is necessary, because we are a part of the problem; therefore, we must also be a part of the solution.

The future is still bright!