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with John Dashwood, Chairman, ExxonMobil Australia

12.04.2011 / Energyboardroom

The mosaic of activities amongst the supermajors in Australia attests to the importance of the country for their global portfolios: Chevron is operating Gorgon Gas, Shell is pioneering floating LNG, and ConocoPhillips has its Optimized Cascade Process for Darwin LNG, to name few. Having contributed over $200 billion to the country’s GDP, ExxonMobil certainly means a lot to Australia. What does Australia mean to ExxonMobil?

ExxonMobil has been in Australia for over 110 years, first starting off as a small company called Vacuum Oil that worked in lubricants. Over a long period of time we have transitioned from a downstream entity into an upstream business, firstly when BHP Billiton invited us into the Bass Strait to develop some of the world’s premier reservoirs which paved the way for over 40 years of production. Our Altona refinery located west of Melbourne dates back over 60 years. We have a long history, heritage, and track record of developing resources for the benefit of this nation.

In terms of attractiveness, Australia enjoys stability of law, respect for commercial contracts, and business transparency which you do not necessarily get everywhere in the world. That’s important to ExxonMobil.

And as we are clearly finding out, the country has a tremendous resource endowment. If you roll the clock back five years you would see that peoples’ perception of the potential of unconventional gas in Australia was very limited. Although we are not in that business in Australia, the perception has since changed rather significantly. There are certainly a lot of sizeable resources that allow organizations such as ExxonMobil to integrate its technical expertise, financial wherewithal, and management capabilities in order to bring forth large scale projects.

Looking back, we have produced two-thirds of the country’s oil out of the Gippsland Basin and a third of the country’s cumulative gas. There is indeed a legacy feeling that Australia has been a real jewel in ExxonMobil’s history.

Looking forward, we have a 25% interest in Gorgon Gas, a 50% interest in the Scarborough project which is still in its infant stages of field development, and, although not in my direct portfolio, ExxonMobil is the operator of the Papua New Guinea LNG project. The Australia-New Zealand-Papua New Guinea region will attract $1 out of every $10 of ExxonMobil’s global investment which highlights the importance of this area to ExxonMobil.

The Bass Strait and Gippsland Basin are the birthplace of Australia’s offshore oil and gas industry. However, despite the region’s historic role the spotlight on Victoria has been overshadowed by the hotbed of exploration and production activity off the Northwest Shelf. Is Victoria still a premier province for offshore hydrocarbons?

In Bass Strait, we have been blessed with wonderful reservoirs. As I’ve just mentioned, we’ve supplied a significant amount of Australia’s oil and gas and have played a key part in the economic development of this country. However, we are seeing a decline in oil production in Bass Strait. But we do have a very long tail on these fields so it is a question of how long we can economically continue to produce those fluids.

We are only about halfway through the gas reserves and have a significant number of years to continue to extract gas. While production in the Gippsland Basin is 40 years old, we are about to put the biggest steel structure in the Bass Strait – the Marlin B platform to develop the Turrum field. The Kipper and Turrum fields were discovered several decades ago but needed to wait for the right opportunity to begin developing them; that time is now. There are still another couple of decades of production to come from the Bass Strait and a lot of business yet to be done here.

We have the challenge of some new facilities and ageing facilities which requires a different type of operation. The whole regime of conditioned monitoring is an important aspect of the business making it an exciting time to be here. It is a great place for engineers to see what a field looks like after 40 years of production and then transfer them to other places within our global organization to apply their knowledge to younger fields.

The oil and gas industry often cites that the era of “easy oil” is over. ExxonMobil has cogently pointed out that oil was never easy to find; it was tough, innovative engineering that made it look easy. When operating in the Bass Strait one does not necessarily encounter benign conditions. What types of engineering breakthroughs has ExxonMobil brought forth that have allowed for decades of successful production?

I think oil is only easy 10 years after you have found and produced it because we discover new technology that provides lasting breakthroughs that were never previously conceived. In the area of seismic, for example, three things come to mind: 1) the processing technologies, capabilities, and algorithms that allow us to manage data acquired over the life of a field and synthesize it so that we get a good picture of what’s underground; 2) advances in drilling technology that allow us to accurately pinpoint a pool (and define a small pool to drill through the middle of); 3) production technologies such as hydro cyclones to separate oil from water that we encounter in our reservoirs.

Over a period of time we have been able to identify smaller fields that we can access more economically. The transmission of energy from the surface to the drilling side of the business allows us to drill at significantly higher paces than historical rates. Putting together reservoir simulation and engineering, and integrating seismic data for reservoir modeling into fluid dynamics, the whole design aspect has allowed us to continually improve on what we thought we had. Second, it allows us to develop smaller pools proximate to our existing facilities.

What type of challenges have been encountered and creativity has been involved in integrating the existing field infrastructure for daily production with the new equipment for KTT development?

There are two fields – Kipper and Turrum. Some of the challenges arise from gas compositions differing from what we currently have in our reservoirs. The technical challenges we have faced are how to deal with it in the future since our processing facilities are not currently set up for it; what to do once we get the gas onshore; and what is required in the longer term to be able to run the plants.

As always, there is also the marine environment to consider; Bass Strait is a tough place to operate. However, we have done a lot of projects in this same environment, so over the course of 40 years we have collected a lot of metocean data that allows us to more accurately understand what we can and cannot do in the environment.

There is also new technology in terms of the application of subsea developments and coolers. KTT will have the first bridge-connected platform in Bass Strait which will link our existing Marlin A facility with the new Marlin B platform. While we have installed numerous platforms before, KTT will see some first-time applications. The subsea facility is tied back to a concrete gravity subsea structure which to my knowledge has never before been done in the industry – at least not retrofitted to an existing concrete structure as large as West Tuna. We are seeing many different applications to existing technologies all of which engage engineers to solve complex problems.

While production in the Bass Strait still has another several decades left, that is relatively soon and well within our lifetimes. What is the sustainable legacy that will be left beyond the life of the fields?

I think there’s the story of Bass Strait – that’s certainly a legacy. The history of production from Bass Strait is a unique one and has significantly shaped the Australian offshore oil and gas industry, as well as contributed significantly to Australia’s GDP.

In terms of what the area could be used for in the future, there is a definite legacy that will be left in subsurface understanding that could very well help the environmental drive to sequester carbon, especially considering its proximity to the Gippsland Basin. There’s still a lot of work to be done in this area before the commercial and technical viability of any CCS project in Gippsland can be determined, but the data we have collected over the past several decades could help with this process.

As a 25% equity holder in Gorgon Gas, what are the next timetables and targets that ExxonMobil is looking ahead to?

The first 18-20 months have been about getting a foothold on Barrow Island, environmentally sensitive as it is, to allow people to work there to execute the rest of the project: building accommodations, preparing the site, and getting through all of the environmental protection and quarantine requirements before work starts in earnest. On Barrow Island there is a whole new business to get ready for concerning the sequestration and injection of CO2. On the theme of preparation it is about getting ready to drill wells and obtaining the contracts for large pieces of equipment.

Coal seam gas is an attractive and lucrative market that is drawing investment from the biggest names in the industry. Why isn’t ExxonMobil getting in on the game?

ExxonMobil is very selective in the projects that we consider and invest in. Until the acquisition of XTO, unconventional gas was not something that we had a lot of experience in, and certainly not in this country since all of our experience here is offshore.

ExxonMobil has made very strategic investments during times of market downturn. The XTO purchase came at the end of 2009 and the company was able to secure $15 billion in capital for the Papua New Guinea LNG project during the heat of the financial crisis. Conversely, we are now seeing a sustained spike in oil prices given recent global events. What impact will this have on investment and operations?

We are an organization that looks very heavily at the long-run; we are a long term business. We operate our business to withstand the various peaks and troughs of business cycles. When you say that we acquire during downturns, that may be happenstance or it may be planning. But at the end of the day it is all part of our long range, consistent approach to business: being methodical, disciplined, analytical, in the right place at the right time, and having the financial wherewithal to invest. It is simply how we do business.

What is your medium-to-long term view of the LNG market, particularly in light of the energy infrastructure crisis in Japan? Is it a buyer’s or seller’s market?

I again tend to view this with a long term perspective.

Let’s look towards 2030 in order to be consistent with ExxonMobil’s annual Energy Outlook. Energy demand in 2030 will increase by 35% from 2005 levels. A large amount of that energy growth will come from developing countries and despite huge energy efficiency gains, without which energy growth would be three times as large. Speaking as a global citizen, it is a massive undertaking to supply that energy. How is it going to be supplied and where it will come from? Our analysis says that all forms of energy – gas, oil, nuclear, renewables and coal – will be needed. Over that time frame, the environmental imperative of minimizing carbon footprints while supplying that energy will likely mean that gas will occupy a much greater portion of the energy mix. Gas will likely be the second most prevalent form of energy consumption ahead of coal but behind oil because of its environmental benefits. Approximately 80% of energy will come from those three fuels because of how affordable, versatile, and adaptable they are.

When I think of LNG in that spectrum – and, again, maintaining the long-term view – while there may be micro balances over months or years because of what is happening in Japan and global financial crises, if you draw a line through the middle, then LNG will find a home. It will be needed.

How is ExxonMobil driving energy efficiency gains which, as projected by its Energy Outlook 2030, will substantially lower OECD emissions over the next 20 years?

There are several ways to look at it. First, it is important to look at what we are doing internally about energy efficiency and how we enhance the efficiency of our own business through technology and the application of cogeneration to reduce our environmental footprint. We have a goal to increase efficiency at our refinery by 10% over any 10 year period. We want to have that continuous improvement in our own operations. Enhancements in flaring and energy efficiencies in the upstream are direct actions that we can take to reduce our energy footprint.

Beyond that, we are involved in many smaller processes which many people probably do not often think about. We work with many motor car companies on many ways to help improve the efficiency of vehicles. One such way is through improving the use of tire liners. If you can reduce the rolling friction of a motor vehicle then you enhance its mileage and therefore improve its efficiency. We also work with battery companies on lithium films that separate batteries such that you can better dissipate heat from the same size battery. This is important for hybrid vehicles. Getting a better charge retention requires less fuel to generate the power to feed the vehicle when you charge it. If you think of a world where everyone can double the fuel efficiency of a vehicle instantaneously, then the difference to the demand pool would be extraordinary.

Smaller sized E&P and engineering companies are very much impacted by the human resources deficit in Australia and the inflationary cycle that it is creating. What types of challenges are facing a company the size of ExxonMobil to recruit and retain top talent in this labor environment?

On the recruitment side we tend to recruit graduates and encourage them to stay with the company “forever.” I think that almost all of our current managers in Australia have been with us since they were hired as graduates.

Many of our current workers began their careers several decades ago working in Bass Strait. A good number of our people are contemplating the second career of family and retirement. I call it the “giant crew change”, but our ageing population is very much on our mind. We have been going through it for five years and probably have another 5-10 years to go during which many of the very experienced human resources that grew up with the facility will be moving on. That’s a lot of knowledge and experience to lose. So we have to hire young new engineers and workers, and make sure we transfer all of that knowledge over to them. We have to develop the next wave of the company.

In some ways we are in competition with everyone else for resources. On the other hand, because we operate in the Gippsland which is distant from the coal seam gas fields in Queensland and even more distant from the Northwest Shelf, a significant portion of our hires come locally. It is very beneficial for operations to have local people because it gives us an added capability when it comes to something such as emergency response.

Having said that, Australians are highly regarded around the ExxonMobil circuit. We are disproportionately represented in management ranks around the world. For example, one vice president in each of our global exploration, development and production companies in Houston is Australian.

One year on from Deepwater Horizon, what has been the lasting mindset that sticks with you?

The overriding thought is that we want to continue to operate so that “nobody gets hurt.” The number one objective out of the six that I have is to place safety first in all that we do. There is nothing to be gained from injury or by someone not going home at the end of the day. There is a lot to be said about the industry’s ability to operate in a rigorous, disciplined, and competent manner and properly mitigate the inherent risks in the business: there have been over 14,000 deepwater wells drilled around the world and only one Deepwater Horizon incident. What we do know is that if you design, train, prepare, inspect, and operate properly, then that sort of incident should not happen. Our focus is really on the prevention rather than the cure.

In a few weeks the annual APPEA conference will kick off. At last year’s conference Mr. Roy Krzywosinski, managing director of Chevron Australia, delivered a speech in which he described the “new energy economy.” What does the new energy economy look like to you and what role will ExxonMobil play in it?

There is no question that energy is necessary for the advancement of all societies in order to gain prosperity and to improve the living standards of citizens in developing countries. At the front of everyone’s mind is how to do that in the most efficient way that minimizes environmental footprints. Gas has a significant role to play in that process. Oil, gas, and coal will still be the bedrocks of the energy mix but renewables and nuclear will play increasingly significant roles.

I sense that renewables will grow quickly at 10% per year through to 2030. But since they are starting from such a small base they will only comprise 2-3% of the energy mix by 2030. I suspect that nuclear will play a significant role, despite the deliberation that comes in the aftermath of the catastrophe in Japan. But 80% of energy will still come from fossil fuels in which we clearly have a big role to play, particularly in gas production.

And while we continue to provide the energy that the world needs, we will also continue to do research in areas that we think will bring technological breakthroughs. For example, we have an extensive research program in algae with a company called Synthetic Genomics. If successful, these next generation biofuels could augment the world’s transportation fuel supply and assist in reducing greenhouse gas emissions. We are very excited about this research program.

There are inevitably some unknowns about the future energy mix, but we are trying to plan for all of it. We will do our part in the short term by being as efficient as we can. Over the medium term we will bring forth the best technologies and all sources of supply to the energy mix, with a strong emphasis on oil and gas as our core business. And in the long term we will research breakthrough energies, some of which may not be viable for some decades.

All things considered, is Victoria still “the place to be,” as its state nickname suggests, for the oil and gas industry in Australia?

There is still a lot of business to come out of Bass Strait. Melbourne has a high standard of living and consistently ranks as one of the most livable cities in the world. From the point of view of retaining people, it is a great place to be. If you want that balance then it does not get much better than being in Victoria, I can assure you.



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