Volume 31 Issue 13 out now!

                             

THE PRESSURE IS ON TO REDUCE COSTS, ONS IS TOLD

 vol. 31 - no. 12   4 September 2014
From ONS-2014, Stavanger: One could hardly take two steps at this show last week without hearing a conversation, a presentation, a debate - or even an order in a bar, as it is Norway - on one specific over-riding subject: cost reduction.

Not since the events of 9/11 thirteen years ago when security became an obsession has there been a subject that has overwhelmed the industry like the current momentum to force down capital costs. And this is more likely to happen than a fall in the price of the £10 pint of beer here.

There have been any number of such ‘crises’ that have gripped the industry over the last 35 years, but this one is different as was pointed out by a number of commentators.  While in the past, cutting costs was required by a fall in the price of oil, the per barrel value has been relatively stable for at least three or four years.

Too much, too many, few

It is the cost of projects that has run away.  Too much documentation, too many engineering man-hours,  too few repeatable solutions and too many very expensive deepwater wells have just piled on the costs, according to various speakers and presenters.

At a forum in the ‘Centre Court’ area of the exhibiton on Monday, domestic voices worried about the future of the Norwegian industry.  Linn Cecilie Moholt, CEO of electrical specialist Karsten Moholt, expressed the view that expertise would follow work. 

Ms Moholt said engineering may be carried out in Norway now, but as more and more fabrication work shifts to the Far East, eventually the engineering will follow.  She said Norway ‘had too many academics and not enough craftsmen’.

She said Norway is ‘too expensive’ with ‘high salaries and low efficiency’ and was one of the first to state that engineering and documentation are driving costs up.

At the same forum, Jan Skogseth, head of topside specialist Aibel which has benefited from having a highly efficient, low-cost  fabrication yard in Thailand, made the somewhat shocking statement that safety could be ‘just good enough’ to save money.  This might seem a surprising view, but it was another that was reiterated.  Safety requirements, particularly in Norway, are ‘too high’ and need to be ‘fit for purpose’.

A few hard numbers rounded it all off.  Nina Koch, Statoil veep for operations, said that capital costs had risen 300% in the last ten years and her company had instituted ‘an improvement agenda’ that by 2016 should result in opex falling by 20% and drilling costs come down by 25%.

On Tuesday, the heavyweights were brought out to hammer home the points.  Arne Sigve Nylund, Statoil executive veep for drilling and production in the domestic sector, told the main conference that the industry had to improve profitability, while not compromising on safety.

And this, he said, is against a backdrop of declining production from existing fields, even with the target of reaching 60% recovery rate, and declining return on capital, down by one-third

Statoil - and Norway - will be saved by a ‘call to arms’.  The ‘fast-track’ programme has seen seven smaller subsea fields already brought into production, getting their reserves onstream before host facilities get closer to abandonment. 

There is Johan Sverdrup, Norway’s new giant with 2-3bnbbls in reserves, which will be onstream in 2019 at 300,000b/d rising to more than 500,000b/d at peak.  And finally there is the prospect of new big developments in the Barents Sea.

Nylund, like Koch the day before, pointed to an internal efficiency programme - he mentioned STEP - which is aiming to achieve savings of $1.3bn by 2016.

From the other side of the table came a view from the suppliers.  Tore Halvorsen, FMC’s senior veep for subsea, said that the subsea slice of the major project ‘pie’ has not changed in the last decade from the 8-10% level, but the cost per well has tripled against a similar rise in the price of oil.

Halvorsen posed the question: why do similar pieces of kit used in other industries cost so much more in the offshore sector. He cited a fibre optic connector which cost $500 outside the industry and $35,000 when used subsea and a control valve that in the automotive industry cost Ⓤ13 and $25,000 in oil and gas.

Like many others, he called for the ‘industrialisation’ of subsea to bring down cost.  Reduced documentation, simplified technology and fewer ‘add-ons’ would begin the process. 

‘The opportunities are there’, Halvorsen said, but ‘the pressure is on’.