A Review of the Nigerian Energy Industry

Statoil ‘signals deeper cost cuts’

Statoil-logo05 June 2014 – Statoil is reported to be preparing to make further swinging cuts in capital investment, operating expenses and manpower to generate an additional $5 billion in annual cash flow to 2020.

The Norwegian state-owned company, which has seen returns on investment eroded by high costs, is targeting several areas for cutbacks – including drilling and platform modifications – as part of a so-called technical efficiency programme, according to leaked internal documents cited by Bloomberg.

The company stated in the documents that it “faces escalating costs and declining returns, and needs to significantly improve cost and resource efficiency”.

Statoil, led by chief executive Helge Lund, aims to slash capital expenditure by as much as 25%, operating costs by 15% and eliminate 20% of its technical staff as part of the efficiency drive, it is stated.

The proposed measures apparently signal a deepening of cutbacks unveiled at a strategy update earlier this year when Statoil said it was looking to cut costs by more than $5 billion between 2014 and 2016 and reduce annual investments by 8% to $20 billion over the same period.

It was also targeting annual savings of $1.3 billion from 2016 as part of the effort to boost the cost-efficiency of drilling and projects, as well as streamline development and engineering work.

According to the latest documents, Statoil aims to reduce well-related costs by 25% and the cost of modifying existing platforms and other assets by 30% within 2020, compared with previously announced targets of 15% and 20% by 2016, respectively, for the two areas.

In addition, the company intends to lower the cost of new facilities by 25% over the six-year period, with standardisation of offshore platforms and subsea installations also a key part of the efficiency effort. It also aims to cut research and development spending by 10%.

Statoil is reported to have identified six projects for cost reductions, with cutting drilling expenses that have soared over the last decade off Norway considered the top priority.

The cost of drilling production wells from mobile rigs and fixed platforms is 25% and 20% higher than for the company’s peers, respectively, according to the documents.

A government-commissioned report on high drilling costs off Norway revealed in 2012 that they were at least 40% higher than those off the neighbouring UK and recommended a relaxation of rig safety rules and lower labour costs to boost drilling of exploration and production wells.

Statoil stated in the documents it wants an open discussion with the Norwegian authorities both on safety regulations and an offshore worker rotation system to close the costs gap with the UK, which now stands at about $100,000.

A Statoil spokesman declined to discuss the content of the internal working documents when contacted by the news agency.
*Steve Marshall and news reports – Upstreamonline

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