 Technology from Europe:
the Netherlands
Botts describes Europe as entering vibrant middle age of E&P
Tom Botts is CEO of Shell EP Europe. He is responsible for all the firm's upstream business throughout Europe. Mr. Botts is a member of the Shell EP Executive, responsible for global Shell EP activities.
Question: Mr. Botts, what is Shell's role within the Netherlands upstream industry?
Answer: Shell owns 50% of, and operates, NAM (Nederlandse Aardolie Maatschappij B.V.), which is the leading E&P company in the Netherlands. NAM has both onshore and offshore operations in the Dutch sector of the continental shelf. ExxonMobil owns the other 50% of NAM.
NAM is part of the Shell Exploration and Production in Europe organization, known as EP Europe. EP Europe brings together Shell E&P activities throughout Europe under one leadership team and comprises activities – both operated and non-operated – in eight countries. Europe is a key area for the Royal Dutch/ Shell Group.
NAM was established in 1947 and has built up over 55 years of experience in the oil and gas E&P sector. Since the discovery of the large Groningen gas field in 1959 (which started production in 1963), the Netherlands has become known as a truly natural gas country. Almost every household is connected to the gas grid, while over half of the country's total energy requirements are met by gas.
On an average winter day, this country uses a total of 220 MMcm (7.76 Bcf) of gas. However, on some particularly cold days, this can be a lot more. For example, during the Eleven Cities Skating Race on natural ice in 1986, the Netherlands used some 480 MMcm (16.95 Bcf) of natural gas on a certain day. Approximately 75% of total annual production is supplied by NAM. The company is, therefore, the largest operator, with about 300 onshore locations and some 20 offshore platforms.
Blessed with large gas resources, the Netherlands has a robust energy system made up of Groningen field, smaller gas fields and underground gas storage. This system meets every market and weather condition, and encompasses a first class infrastructure. In this respect, I strongly believe that NAM plays an eminent role in the Netherlands' energy supply, providing value to shareholders and the government.
Q: What is your assessment of last year's E&P market for Dutch operators and equipment/ service companies? Was it satisfactory?
A: According to the annual review, “Oil and Gas in the Netherlands,” of the Ministry of Economic Affairs, total gross gas production from Dutch fields during 2002 was 71.2 Bcm (2.51 Tcf). NAM's share of that output was 51.6 Bcm (1.82 Tcf). Overall figures for 2003 are yet to be reported by the ministry, but the NAM 2003 data are 50.5 Bcm (1.78 Tcf) of gas. This is 2% lower than 2002's level, due to warm weather and lower industrial demand. Oil production during 2003 was 605,000 cubic metres (10,426 bpd).
For NAM, 2003 can be characterized as a successful performance in a transitional year. A brief, detailed overview reads as follows:
- Robust financial performance
- An offshore discovery was made in Bock K15 (65 km northwest of Den Helder)
- The K07-FB and Kielwindeweer satellite developments came onstream
- Handover of three clusters of the Groningen field back to production, as part of the Groningen Long Term renovation program
- Excellent performance on well delivery and cost reduction
- Record safety performance, with over 6 million hr without lost-time injuries.
The reference to a “transitional year” relates to the formation of the business organization, EP Europe. During 2003, Shell restructured its European E&P business as part of wider changes to Shell's global E&P operating model. This is designed to generate more value and reduce annual operating costs by $500 million to $800 million by 2006.
The new operating model adopted by Shell, which brings E&P operations in eight countries under one umbrella, will help deliver these targets, and secure Shell's and NAM's longer-term future in and around the North Sea. The operating model offers cost savings and business efficiency improvement opportunities, as well as more rewarding roles for our staff.
In this new business organization, NAM in Assen has become the center for gas operations and managing onshore facilities. The Southern North Sea operations are managed from Assen as well, covering the Dutch and UK sectors of this portion of the North Sea.
Shell in Aberdeen has become the European center for production and technical operations, including development and project delivery. Shell EP in Risavika near Stavanger (Norway) has become the center of gravity for exploration, and Shell EP in Kristiansund is the center for operations in northern areas.
For the Netherlands, the new operating model especially offers new growth opportunities for the successful Dutch small fields policy. Working smarter and more efficiently will increase the economic viability for a larger number of small and marginal fields. This offers continuity for E&P activities in the Netherlands, which – in the light of growing gas demand – plays a crucial role in the long-term national and European security of supply.
We have long been a major player across the European gas market, and I believe this cohesion – and our ability to harness diverse supplies and marketing channels – will ensure we continue to be a very strong competitor. We feel that this integrated approach is vital for meeting Europe's expanding gas needs and will enable us to make the most of indigenous resources.
Q: What level of activity and business do you expect for 2004?
A: Shell EP intends to invest between $1.5 billion and $2 billion, annually, in Europe for the next several years. We consider this a robust investment level for a region that is considered to be a heartland for Shell EP worldwide.
Q: What industry initiatives and projects is Shell participating in to improve the Dutch E&P sector?
A: NAM has been involved in the launch of the Oil and Gas Council (OOG, which in Dutch stands for Overlegraad Olie en Gas) in 2001. This board is made up of representatives from several ministries, the E&P industry, non-governmental organizations and some key opinion leaders. OOG's purpose is to facilitate dialogue with several key interest groups and stakeholders, to develop a sustainable energy policy vision in the Netherlands for the future, in which natural gas takes a key role as a transition fuel.
By means of discussions and publications, OOG is trying to better balance the economical, ecological and societal interests with respect to E&P activities. Furthermore, OOG focuses on continuation of the Dutch small fields policy, and a stable mining climate, to reach a situation whereby there is a win-win situation for all parties.
Q: Do you think that the Netherlands government is doing enough to encourage E&P activity?
A: With respect to investment, the following can be said: As per January 2003, the government discontinued the fiscal arrangement, Depreciation at Will, for investments in mining installations on the Dutch Continental Shelf. This has major repercussions for the industry, and especially for its suppliers.
The industry association, NOGEPA (Netherlands Oil and Gas Exploration and Production Association), has stated that abolition of this fiscal instrument will negatively affect the mining climate in the Netherlands. NOGEPA has argued that an improvement of the mining climate, as in re-introducing Depreciation at Will, would create an extra recoverable gas volume of about 140 Bcm to 200 Bcm (4.94 to 7.06 Tcf). This corresponds to an additional governmental income of 10 billion to 14 billion euros. We trust that the government takes this message seriously and will improve the mining and production climate.
Q: What are some major field projects that Shell and other Dutch firms are involved in?
A: The best example to give would be the Groningen Long Term (GLT) project. Discovered in 1959, Groningen gas field was developed in the 1960s and 1970s with 29 separate production locations (a total of 300 wells) and six metering stations. After decades of operation, the age of the locations means that the facilities had to be renovated, to comply with current and future environmental standards coupled with the continuation of a reliable gas supply.
In 1995, NAM invited firms to prove they were individually qualified for specific parts of the GLT project. These included engineering, construction, supply of centrifugal compression and instrumentation. The consortium Stork GLT (consisting of Delaval Stork, Stork engineers & contractors, Stork ICM, Siemens and Yokogawa) was awarded the project.
The nearly 2-billion-euro GLT project is well underway. Last year, it delivered three renovated production clusters. It is within budget, on time and safely executed. The project's scope is large by any standards. Major differences between the old and the renovated Groningen system will be a change from free-flow to an entirely power-driven system. The highly automated facilities will need supervision by only a very limited number of staff that will be presented with real-time information on gas demand, energy costs, and the mechanical and electronic “health” of installations.
Groningen's main function is to provide the balance of volumes and capacity between market demand and other sources of gas available from non-Groningen fields. Groningen reserves have dwindled to less than half (40%) of the original 2.7 Tcm. In December 2003, NAM celebrated 40 years of production at Groningen field. With the GLT project, Groningen becomes fit for at least another 40 years.
Q: What recent projects focused on important Dutch technology?
A: In general, I would like to stress that technology is at the heart of our E&P business. In our challenge to maximize recovery from the mature North Sea while seizing opportunities to further grow our business, technology, as well as its rapid application, plays a decisive role.
One of the developments over the past few years that I would like to mention is the development of monobore drilling. This technology is revolutionizing the drilling process. Being able to maintain the same well diameter from top to bottom is reducing drilling costs by up to 50%. And it also reduces waste, using half the amount of cement and steel, and reducing cuttings by 75%. After more than 55 years of experience, our understanding of the geology is still developing, helped by advanced seismic processing technology, such as pre-stack depth migration and 3D multiple elimination methods.
Q: Toward which international areas do you think that oil company interest, and investment money, are moving?
A: Shell EP Production is clearly on the move. New acreage was acquired in Saudi Arabia, Nigeria deepwater, the Gulf of Mexico and China for growth projects. We recognize that in the center of all this, our heartlands include Europe, North America, Nigeria, Oman, Brunei, Malaysia and Australia. 
Tom Botts was appointed CEO, EP Europe, in October 2003, having previously been managing director of Shell UK E&P. He gained a BS degree in civil engineering in 1977 and joined Shell Oil Co. that year in Ventura, California, as a production engineer. After various engineering assignments, he became division engineer in 1982. In 1986, he became manager of E&P Economics. In 1987, Mr. Botts headed up a new offshore project group, shortly afterward becoming division engineering manager. In 1990, he became division operations manager, responsible for the western onshore half of the US. In 1993, he was appointed manager of Corporate Planning for Shell Oil, also covering Oil Products and Chemicals. In 1995, Mr. Botts was appointed treasurer of Shell Oil. He moved to the UK in mid-1998, holding positions as gas director, oil director and managing director. During his UK assignment, he was also chairman of Step Change in Safety, and a member of PILOT, the Industry Leadership Team, and the UK-Norway North Sea Cooperation Workgroup.
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