Oil Explorers Embrace the Sharing Economy to Drill Cheaper Wells
(Bloomberg) - The biggest oil-industry downturn in a generation has companies collaborating in ways they never thought possible.
In this global effort, one of the world’s most expensive oil regions intends to lead the way. Last month companies operating in the North Sea started pooling spare parts and tools, and they are even sharing plans on how to drill wells so they can work faster and cheaper, said Paul Goodfellow, Royal Dutch Shell Plc’s vice president for the U.K. and Ireland.
This is a big change from oil’s boom, when costs weren’t such an issue as long as $100-a-barrel crude kept flowing. As companies focus on adapting to prices closer to $50 by making their spending less wasteful, they also aim to boost profitability for years to come by keeping costs low as markets recover.
“We didn’t particularly focus with the same urgency on costs when oil and gas prices were high,” said Colette Cohen, senior vice president of U.K. and the Netherlands for Centrica Plc, a natural gas supplier. “Now it’s about coming in every day and thinking how can I do that better, or how can I reduce costs,” but it’s “very difficult” to keep this going when prices recover, she said.
Companies responded to the price slump by reducing spending, potentially cutting as much as $1 trillion by 2020. The industry has reduced costs by 10 percent to 15 percent overall, but in the U.K. about three-quarters of these savings are linked to things like rig-rental rates, which typically go back up when oil prices rise, said Malcolm Dickson, principal analyst at consulting firm Wood Mackenzie Ltd.
The initiative in the North Sea aims to avoid that.
“You can sit there in a world of $100 and think all is good and not maybe realize how fragile the system is,” Goodfellow said in an interview in Aberdeen, Scotland, the center of the U.K. oil industry. “You’ve had the shock and that’s illuminated the problem.”
Shell and partners including EnQuest Plc, Marathon Oil Corp., Apache Corp., Centrica and Repsol SA’s Talisman started talking last year about setting up a pool of spare parts, ranging from nuts and screws to valves and compressors, Goodfellow said. They contributed their excess equipment, cataloged it and stored the more than 200,000 parts in warehouses in Aberdeen.
The system, which is managed by a company called Ampelius Trading, came online a few weeks ago. So now, for example, if Shell needs a valve for a North Sea facility, it can log on to the system, go through the catalog, place an order and have the part delivered the next day instead of waiting “six weeks, six months,” Goodfellow said.
Shell is also leading a group called the Wells Forum, which asked members to share their drilling plans so others could give their opinion and experience on how to reduce costs, Goodfellow said. Shell, BP Plc and France’s Engie SA were the first to put up their well plans and seven others followed, helping cut costs by at least 10 percent, he said.
Overall, operating costs in the area have fallen as much as 40 percent in the past two years, Goodfellow said.
Brent crude prices are half of what they were two years ago. They have increased more than 80 percent from a 12-year low in January. The August contract fell 0.4 percent to $50.40 a barrel on the London-based ICE Futures Europe exchange as of 3:46 p.m. local time.
While this cooperation is “very desirable,” it’s not enough to fully compensate for current low oil prices, said Nick Butler, visiting professor at the Policy Institute at Kings College in London and former vice president of strategy at BP. Investment cuts in the area will start to affect production from 2018, he said.
Still, lots of incremental savings can add up to significant cost reductions for individual projects. Statoil ASA and its partners have cut the estimate for capital spending on the giant Johan Sverdrup field in the Norwegian North Sea to 160 billion kroner to 190 billion kroner ($19.3 billion to $22.9 billion) from 170 billion kroner to 220 billion kroner previously.
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Operates 4 Offshore Rigs
- Apache Raises North America Output Forecast, Swings To Profit (May 04)
- Oil Producer Apache Posts Smaller-Than-Expected Loss (Nov 03)
- Trade Group Oil & Gas UK Makes 4 Board Appointments (Oct 04)
Company: Repsol more info
- Exxon Mobil Bets on Brazil, Buys 10 Oil Blocks in Auction (Sep 28)
- Repsol Says Drilling Suspended On Vietnam Oil Block Disputed By China (Aug 02)
- China Urges Halt To Oil Drilling In Disputed South China Sea (Jul 25)
Company: Marathon Oil Corp. more info
- U.S. Gulf Oil Producers Start Evacuating Staff Ahead of Tropical Storm Nate (Oct 05)
- Marathon Oil Cuts Capital Budget After Posting Quarterly Loss (Aug 02)
- Marathon Oil's Loss Smaller Than Expected On Higher Crude Prices (May 05)
Company: Centrica Energy more info
- Centrica To Produce 30 Bcf Of Gas From Rough Site By 1Q 2018 (Aug 01)
- Oil Explorers Embrace the Sharing Economy to Drill Cheaper Wells (Jun 22)
- Centrica Agrees to Award NCS Services Contracts to Aibel, Subsea 7 (Oct 30)
Company: Royal Dutch Shell plc more info
- Shell Shale Leader Discusses the 'Non-Moonshot' (Oct 17)
- Jacobs Signs Sulfur Recovery Tech Deal with Shell-Pique's JV (Oct 11)
- Refinery Blazes to Dent Shell 3Q Earnings (Oct 05)
Company: EnQuest plc more info
- EnQuest Profits Slide On Slower Kraken Oilfield Ramp-Up (Sep 07)
- Kraken 2Q Start-up 'On Track' (Feb 17)
- Unite Pledges to Protect BP Workers in EnQuest Transfer (Jan 25)