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Helge Lund on Integrated Operations

Thursday, November 6, 2014

At the Trondheim Integrated Operations conference (Sept 30-Oct 1), Statoil CEO Helge Lund shared his perspectives on how integration and technology can help the oil and gas industry to improve

The industry is going through a 'rather challenging geopolitical environment' with events in Iraq, Syria, Russia and Ukraine, instability in North Africa, Venezuela and Nigeria, and 'last week we almost got a new country in Europe,' Helge Lund said in his keynote speech at the Trondheim (Norway) Integrated Operations conference on September 30th, organised by the Integrated Operations Centre.

Oil major CEOs even have to convince students to work in the industry these days. 'Last week I was in Trondheim to visit more than 500 students at NTNU. My job was to convince them that by joining this industry they could be part of solving the most pressing issues of society,' he said.

'There was a very high engagement in the room, the topics of our industry really engaged the students.'

'On top of this rather challenging geopolitical environment there are three issues that I believe the industry needs to work effectively with as we move forward. Communities, climate and competitiveness,' he said.

Communities
'This industry depends on access to resources, we also need acceptance.' 'Our industry is entering now new and more sensitive areas. We are conducting our business closer to where people actually live, like
in the onshore business in the US.'

'Therefore communities will focus more on how we are operating. They expect much more than only us not to create harm, they also expect to share all of the benefits that this industry is creating, and that goes much beyond royalty and taxes.'

'A few weeks back I was in Tanzania where we have made some significant gas discoveries and we are planning the first big oil and gas projects there.

'You can sense the expectation from the local society to what this industry can deliver. Also very high expectations as to deliveries on the short term. Perhaps a bit imbalanced in their expectations and insight.
But still an important framework condition for the industry.'

Climate
'My second C is about climate and carbon efficiency.

'Last week I attended a UN summit on climate in New York together with many people from this industry.'

'I could feel a personal pressure to be part of solving this issue as a representative of this industry.'

Mr Lund said he believes that oil and gas will still play an important role in society in 30 to 50 years in the future, even if we manage to limit temperature increase to 2 degrees.

'But we need to provide these resources with less CO2 emissions,' he said. 'This will require more innovation, new policies to stimulate innovation, and a lot of actions by this industry.'

'I think the most forceful action societies can take these days is to put forward a sufficiently high price on CO2 to stimulate all institutions, companies and individuals to work towards more effective solutions to address the climate issue.'

'For many years this has been very high on Statoil's agenda. Carbon intensity is an integrated part of how we plan our business moving forward. We assume tighter energy and climate regulations, and we factor in increased CO2 prices from 2020.'

'Last week we also launched, together with some industry colleagues, an industry initiative to deal with short lived climate pollutants with particular emphasis on methane emissions.

CO2 planning
Until recently, Statoil planned its projects around the price it thought the world would need to deliver to deal with CO2 and keep temperatures within two degrees.

'We have gradually adopted a more analytical approach [looking at] what will the political communities be able to deliver regionally or on a global basis.'

As an indication, he said that Statoil uses the price of around '$50 per ton in our analytical tools and models from 2020 onwards.'

'Personally I think that is a little bit on the low side in terms of what the world needs.

You have to have a price where gas is replacing coal.'

CO2 in Norway
'For those of you familiar with Norwegian politics, the price is $75 / ton.

'To my knowledge this is the highest CO2 price anywhere. I think it has led to an industry in Norway which is delivering world class CO2 efficiency.'

'However there is a limit to how far Norway should go in my opinion in being in front. You are impairing the competitiveness of Norwegian industry and not improving the climate because CO2 will be emitted elsewhere.'

'I think [a higher CO2 price] is necessary for us to keep the license to operate, to ensure continued support for oil and gas, to make gas more competitive against coal. So this is the way we have approached it.'

Carbon competitiveness
There are a lot of synergies between being carbon efficient and being an efficient company, he said.

'If we have that price ($75/ton) I think the best and most CO2 efficient company will prevail and win. I think there is a huge link between the competitiveness agenda Statoil is running now, to lower our cost, and the climate issue.

The lower your costs, the more robust you are against changes in the environment.'

'If you believe, as I do that the CO2 price will go up, then you have a benefit if you run your operations at low cost.'

'It will be a competitive advantage [to run a] carbon efficient oil and gas company.'

Technology will be important in reducing CO2 emissions, he said.

For example, in its Bakken (North America shale) oil operations, it has been working together with GE to develop a way to use associated gas, to run the rigs, instead of diesel.

The gas needs to be compressed. Previously the gas had been flared, creating more CO2 emissions.

In the Brazil's Peregrino field, the company had many challenges, with heavy oil, low reservoir pressure and high water production. This meant that approximately 65 per cent of the energy was being spent on processing, heating and pumping.

Statoil implemented a small inflow control valve in the wells, which would reduce the amount of water produced relative to oil. It also found a way to transport the oil with 40 per cent less water. 'This contributes to roughly between 5 and 9 per cent reduction in the energy consumption for this field,' he said.

Competitiveness
Aside from the climate issue, improving business competitiveness is a high priority for Statoil now, he said.
New technologies are allowing Statoil to access more complex resources, but that means complex projects, which means high cost.

This is illustrated by the fact that return on capital by oil majors has decreased by 30 per cent over the past decade, although the oil price has increased from $40 to $100 per barrel.

More than half of Statoil's assets have a return on capital employed which is at or below 10 per cent, 'even though we are running some of the most profitable fields, the legacy fields,' he said.

The problem is best solved by improving productivity and removing complexity, rather than simply trying to cut costs, he said.

The industry has no choice. 'If we cannot do that, we will fail to attract capital and this perhaps one of the most capital intensive industries in the world.' he said. 'We will fail to attract talent because they will go elsewhere. And therefore we cannot fulfil our mandate to provide energy to the growing population of the world.'

As another illustration, Statoil compared data from two similar fields, one which opened in 2004 (Kvitebjørn) and one which opened in 2014. These are relatively similar fields.

It found that the number of metres of cable involved in the different projects increased by 30 per cent of engineering hours increased 70 per cent, and the number of man hours for life cycle information increased by 300 per cent.

'This is a trend that we must not only stop, we have to reverse it,' he said. 'In Statoil we are running the most comprehensive change and improvement program we have ever done in the history of our company.'

'Our short term target is to improve cash flow with $1.3bn in 2016,' he said. 'This is not about cost cutting, this is to look at productivity and take out complexity in every part of the business system.'

'I picked out some of my strongest leaders to lead a central effort in Statoil to address this. It is on everybody's scorecard to make sure we can address this.'

Fast track
One Statoil initiative to reduce costs is what it calls 'fast track projects'.

'That's a pool of projects, mid-sized or small discoveries near to existing infrastructure where we have standardised equipment so we can do it much quicker and at lower cost,' he said.

'We have launched eight of these projects that are producing around 80,000 barrels per day, with very good profitability. So standardisation did not hamper profitability.'

'I think we already have some pretty good examples - that standardisation and industrialisation (ie simplification) is working.'

Subsea standardisation
Mr Lund is particularly keen on standardising subsea. The cost of subsea installations have increased by a factor of 2.5 over the last 10-12 years, he said.

'One of the problems is that each operator, each asset, has individual solutions,' he said. 'Statoil aims at establishing an agreed standard on subsea interfaces.

'I'm quite inspired by Lego,' he said. 'Based on standardisation, you can build everything from castles, trains to Star Wars.'

'What if we could pout Lego bricks on the bottom of the ocean? Develop industrial standards across operators and suppliers.'

'This is not something Statoil can do alone. It requires a collaborative approach. We are trying to take lead to dip into this huge potential for simplification.'

'This will allow suppliers to compete within modules - but standardise on open interfaces to achieve plug and play functionality.'

'We depend on cost efficient subsea developments. 77 percent of new discoveries on NCS will most likely be subsea development.'

'One enabler for subsea development is to develop a subsea compressor. Probably a pioneer today, but a standard of the future, enabling increased recovery and new business opportunities.'

Integrated operation
'Integrated operation, as I see it, is an enabler to get the most out of technology, and it can address some of the root causes to the competitive challenge,' he said.

'10 years back - IO was to a large extent about building the infrastructure. I think my company Statoil took a visionary approach at that time, and was one of the driving forces of the fibre optic network on NCS.'

'This network is quite unique in the world. It enables a multidisciplinary collaboration both offshore and onshore. The high speed fibre optic cables are linking platforms, and people, together in a new seamless way of working. Experts can be anywhere offshore, onshore or even in another country.'

'The second phase was that the infrastructure enabled us to develop a new way of working. It enabled us to establish a new operating model for all our installations on NCS.'

'We have established a broad set of centralised expert centres - production support centre, subsurface support centre. This saves cost but more importantly it improves the quality and speed of decision making, such as more accurate well placement in drilling, more safe and efficient operations, and a much better utilization of the core experts in the Statoil organisation.'

'Now the key components of integrated operation is how we can improve efficiency further. It is about using our model to work smarter and leaner.'

'Technology has enabled us with overwhelming volumes of data. We have to make sure we capture the right data, right routing of data, efficient data utilisation for efficient operations.'

The company has managed to improve production by 4.6 per cent on some fields through more integrated operations.

Operations and projects
Statoil is very interested in 'lean concepts' for new field developments, looking for projects which can deliver high production at low cost.

'If you read Norwegian newspapers you would think we have put most projects on hold. This is not the case - we have never had a larger project portfolio on the Norwegian Continental Shelf,' he said.

Statoil initially planned to operate its fields at 30 per cent recovery. 'Now it's around 50 - we have set a new target for 60 on average on our fields,' he said.

At its new Johannes Sverdrup field outside Stavanger, 'We think it's realistic to have 70 per cent [recovery]' he said.

The recovery is 'partly based on technology and the way we approach these things.'

Statoil operates over 40 different installations. 'The real backbone of Statoil is to operate these installations in the best possible way,' he said. 'There's a huge focus on operations.' It has established expert centres to make the most out of the company's expertise. 'Drill wells efficiently, solve problems efficiently, make sure rotating equipment failures are addressed with the best competence possible.'

'We have never performed better in terms of operational quality than we do now,' he said. The expert centres have 'helped us address bottlenecks in expertise in a much more efficient way,' he said.

'Previously these guys had to travel offshore, work with a difficult well. Now they can sit in Forus in Stavanger - they can help 3, 4, 5 different wells simultaneously.'

But the Integrated Operations philosophy also needs to be applied to projects. 'I think we need to build in the philosophy of integrated operations to all new projects,' he said.

'We have so many new projects in the pipeline - it is a very important of future efficiency.'

Governance
Mr Lund was asked about the company's governance structure and how integrated operations fits with this.

The company gives its 'DPs' (heads of development7 and production) three mandates, covering safety, production efficiency, and developing the maximum potential of assets, he said.

The wells are delivered by technology and projects teams, which cut across the company, and work with integrated operations.

Complexity
Mr Lund was asked how he thought operational and process simplicity could be achieved.

Integrated Operations allows more people to be involved in a decision, but this does not necessarily processes any simpler, a delegate pointed out.

'Integrated oil and gas companies will never be simple organisations,' Mr Lund replied.

'I think at least in Statoil and generally in the industry, the technical requirements and some of the processes that we have developed in oil and gas companies have grown too complex.'

'We are living in a compliance society and compliance is important, but I think we need to make sure that more people are actually doing the job and doing it with the right quality in the first place, instead of too many people controlling what other people are doing,' he said.

'I think there is a job to remove duplicationary roles. I think we can simplify some of our processes.'

Cuts
In response to criticism about reported Statoil cutbacks, Mr Lund said it was important to look at current levels in relation to the past.

The activity level on the Norwegian Continental Shelf is 'more than double now what it was in 2004,' he said.

'The same people that criticized our companies for running too high on activity level [in the past] now criticise me for pushing back a bit.'

'I know the recipe is not just to add on more CAPEX.'



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» Statoil
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