Senior sector leaders have been forced to readjust their strategies to create value in a low-oil-price environment.
Berislav Gaso, executive vice president upstream at MOL Group said: “We as oil producers became somewhat lazy. It was easy to generate margin and cash flow in a $100 environment. But we forget that for many decades we were operating very profitably in a $30-$50 oil price environment.”
MOL’s response to the new reality included production optimisation (reducing marginal barrels), cutting back on frontier exploration, and reviewing all supplier contracts to extract additional value.
Gaso added that the industry should “stop designing wells like bespoke suits”, adding: “We have drilled hundreds of wells. I want standardised design. I want Ryanair, not a first class Learjet.”
Erwin Kroell, senior vice president MEA at OMV spoke in similar terms about his company’s transformation that involved a 40% reduction in costs. “It has been tough given the cost base we had. The industry grew rather fat, not just the operators but also our contractors.”
He said that in a $100+ per barrel environment the organisation focused on upstream, explored new frontiers (deep water, arctic etc), and developed ‘unconventionals’. But in the sub-$50 per barrel environment, the business is “opportunity constrained” and there has been a strong reduction of upstream costs and investments to the point where the downstream business is now supporting the upstream business.
The oilfield services company representatives spoke of achieving greater efficiencies with equipment. Kyle Chapman, president – global product line marketing at Weatherford, noted that in the high oil-price environment “there wasn’t a lot of movement of equipment”. He said: “We just built new equipment. Now we need to use what we have, move it and repair it efficiently.”
Jean Francis Poupeau, executive vice president corporate development & communications at Schlumberger, revealed his company’s ambition to reduce non-productive time rate 90%. “In other words, a 10-fold improvement in reliability,” he said. “In our industry there are a lot of defects. A lot of time [equipment] doesn’t work.”
The oilfield industry operates at 4 Sigma, said Poupeau, with more than 6,210 defects per million opportunities, compared to the automobile industry, which operates at 5 Sigma (233 defects per million). “We are going to take it from 4 Sigma to 5 Sigma,” he promised, adding that this stepchange in reliability and efficiency is “good for us and good for our customers”.
Poupeau revealed that Schlumberger is 51% of the way to its target will reach its objective by the end of the decade.
