Statoil exec sees a year of cash flow challenges, cost containment
HOUSTON -- For the remainder of 2015, the global E&P industry should expect to see operators wrestling with cash flow challenges, negotiating price discounts with suppliers and looking to sell assets to raise cash, said Jason Nye, Statoil’s senior V.P. for U.S. Offshore Development and Production, North America. His comments came during a presentation to The 5th Norwegian Finance Day, held Wednesday by the Norwegian Consulate General at the Federal Reserve Bank in Houston.
“At Statoil, we are managing the cash flow challenge,” said Nye. “This includes examining our portfolio structure and its drivers, reducing CAPEX, driving down costs, selling assets, and practicing balance sheet management—keeping it strong to fund our ongoing business.”
Unfortunately, noted Nye, a number of IOCs and other large producers are having a tough time in the short term. “Total’s breakeven price in 2014, to be revenue-neutral, was $110/bbl,” said Nye. “That’s not going to happen this year. And then, there’s Exxon Mobil, which has a $23-billion funding gap in the U.S. at the moment. Ironically, BP (which is greatly maligned by the media) is the only major with enough cash on-hand to fund all of its operations. So, we look for major IOCs to continue to pursue divestments, to generate cash.”
The cash flow problem, coupled with low commodity prices, is certainly shaping the spending plans of many companies, observed Nye. “Among the peer companies of Statoil, only four—Woodside, Southwestern, Encana and PTTEP—are increasing their budgets. Most companies are reducing their capital spending 25%, which means that about $100 billion, industry-wide, won’t be spent this year. At Statoil, we’re reducing spending 10%, because we have a large, sanctioned program that must continue.”
How the various operators allocate their spending this year will be determined by the indicative breakeven prices for key oil plays, continued Nye. “At the high end of the price scale, the breakeven figure for Canadian oil sands extracted through mining is $100/bbl, and it’s $85/bbl for oil sands produced through SAGD. Arctic plays are at $75, ultra-deepwater areas and U.S. tight oil are at about $70. On the lower end of the scale, onshore Russia is about $50, with heavy oil, in general, at $47, and the U.S. offshore shelf at $41. The lowest is the Middle East, if you can get into any of it, at an average $27/bbl.”
A primary strategy at Statoil this year, continued Nye, is “strengthening our capacity to create long-term value. To that end, our efficiency program is on track, and we’ve stepped it up. We are reducing CAPEX another $2.2 billion, with the U.S. onshore seeming to be the big lever for us—we can ramp it up and step it down, as needed. We’re also maintaining flexibility in our portfolio and adhering to strict capital prioritization. Nevertheless, we’re still growing our production at 2% per year, and later on, we will boost that to 3% per year.”
Nye noted that at Statoil, “we’re focusing on adopting rest-of-world standards and simplifying operations, to get our costs down. In terms of efficiency progress, we have reduced our drilling time per well by 25%; we have cut our U.S. onshore cost, per boe, 30%; we have decreased our facility CAPEX for new projects more than 10%; and we have cut our field costs on the Norwegian Continental Shelf by 20%.”
