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with John Scrimgeour, Northwest Europe Regional Manager, Petro-Canada

26.07.2008 / Energyboardroom

How important have international operations become for Petro-Canada which has traditionally been focused on upstream and downstream in Canada?

Traditionally very focused on Canada, though with some small previous incursions into international markets, Petro-Canada decided to take a quantum leap in 2002 when it acquired the upstream operations of German company Veba Oil & Gas. Despite the wealth of opportunities still available in Canada, the company realized it was important to look beyond in order to establish a complete gambit of plays. Petro-Canada was also looking for new growth opportunities, and this strategic acquisition was the vehicle chosen to go international firmly, as it instantly gave us assets in the UK, Holland, Denmark, Syria, Lybia, Tunisia, Algeria, Trinidad & Tobago, and Venezuela.

We have since rationalized somewhat our international presence, focusing on assets which can really make a material contribution to Petro-Canada. We are not big enough to be in every country in the world, so we have to choose carefully which ones will have a positive impact on Petro-Canada’s bottom line and integrate well with our Canadian operations. In this regard, the focus is on more conventional oil and gas exploration and production which are a good balance to our oil sands business in Canada. With this in mind, we divested our assets in Tunisia, Algeria and Denmark, for example.

In the North Sea, Holland remains an important market because we have an interesting combination of platforms, non-operated gas assets, and small gas storage facilities with considerable potential for further expansion. More recently, Petro-Canada has entered the Norwegian market which offers big opportunities in terms of exploration. There we have the Norwegian continental shelf, but also the Norwegian Sea which is more challenging technically but is supposed to have important gas reserve and the very prospective Barents Sea which is just opening up. The entry in Norway has been very successful thus far for Petro-Canada, where we already have 17 blocks licensed and are preparing for new bidding rounds. The company is also has a non-operated interest in a well drilled recently and will be drilling its first operated well in 2009.

What place does the UKCS have within Petro-Canada’s international business?

The UKCS is an area that Petro-Canada knows very well and represents a large chunk of our production, between 80 to 90 thousand barrels of oil on a reasonably good day. Most of the net production comes from our interest in the Buzzard development (approx. 60 thousand), while the remainder is originated by our operated assets around Trinity (approx. 15 thousand) and Scot (approx. 5 thousand).

How important is it for Petro-Canada to have an important stake in the Buzzard field, the largest such discovery made in the UKCS in many years?

Buzzard is an incredible project, one of those major developments which just keeps on getting bigger and better. The numbers of reserves for Buzzard are now at around 600 million barrels of oil, well above the estimations at the time of our entry in the project. Uptimes are great and production is up in its second year on stream, and we are now looking at a higher plateau than earlier envisaged. There are a few challenges to overcome, as in any other project of this magnitude, but it is nothing that can’t be managed. For example, there have been issues with higher than expected levels of H2S, but we are responding quickly with the installation of a new platform to deal with that.

What characterizes Petro-Canada’s operated assets in the UKCS, and how is production evolving in this key area?

Petro-Canada is by no means new to being operator, as we play this key role in our two platforms in Holland, in assets in Syria and Trinidad & Tobago, in Libya through joint operations with the local NOC, and of course all over Canada. The UK is no exception, but in fact what is interesting in this case is that we have inherited assets scattered out over a large swath of territory. In response, we have established a concentric growth approach which is based on core areas with infrastructure, to which the other surrounding fields are tied back. The key example is the Triton core area, which receives the oil from the Western Extension, Clapham and Pict fields. Pict also illustrates how Petro-Canada is bringing to development fallow fields discovered almost two decades ago. These are all small fields of between 10 to 20 million barrels of oil, but we are able to make them highly profitable and they end up paying for themselves in months rather than years.

The key to Petro-Canada’s formidable success in the UKCS are threefold. First of all, we have a great group of professionals completely focused on half a dozen quadrants, so our understanding of the geology is very good. Secondly, Petro-Canada owns the infrastructure and has rights to produce through Triton, thereby avoiding the issue of having to negotiate and pay for these aspects. And thirdly, Petro-Canada has been able to complete projects very quickly. We have a contract strategy that has allowed us to sanction to first oil in 15 months in some cases, which is exceptional. Not only are we coming through in terms of timeframe, but Petro-Canada has also excelled in terms of delivering totally operable projects and on budget. And of course, all this goes together with the fundamental priority which is safety, where the company has a very good track-record.

We are able to deliver this fast-track performance also thanks to our size and structure, which allows for quick decision making and allocation of resources. The type of fields being developed in the UKCS are well within Petro-Canada’s reach, as we are used to expensive projects in oil sands for example which can reach almost 20 billion dollars. In comparison, the Buzzard complex came up to about 3 billion dollars, and the net cost of the company’s 7 ongoing projects in the UKCS runs at between 200 and 400 million dollars. Projects of this relatively small scale are not very suited for the majors, but they are perfect for a company like Petro-Canada.

How active is Petro-Canada in terms of exploration in the UKCS?

Petro-Canada is a very active player in terms of exploration in the UKCS. In fact, we made the biggest single commitment in the 23rd round of licensing, have already drilled two wells and are making plans for new exploratory drilling in 2009. So far, we have one announced discovery which is near the Captain field, at 30 million barrels of oil. However, we are planning to appraisal it and are hoping that it could be bigger than that, possibly enough to be a standalone development. Another discovery in the area north of Buzzard is the Dee field, a farm-in, which is smaller but we are looking into ways of making it commercial.

To what extent is Petro-Canada partnering with the other Canadian operators which have also been entering the UKCS over the last several years?

Petro-Canada is here in the UK on a commercial basis, so we are partnering with whoever suits our interest regardless of national origin. We are working together with several Canadian companies, which are particularly good to deal with once a project is in the operational phase. In any case, companies like Petro-Canada represent the future of the North Sea and particularly the UK, because not many big plays are left and the majors are not even looking into anything containing less than 200 million barrels. But besides that, there is room for many different types of companies. For example, even for Petro-Canada Dee may be too small but for small companies it may be well suitable.

In your view, what government and industry initiatives could help boost E&P activity in the UKCS?

The biggest area in which government can play an important role is in ensuring contractual stability for oil companies operating in the UKCS. The UK has a particularly poor track record with regard to fiscal stability over the last several years, as politicians here seem to tamper with taxes every time they work on a budget. The two consecutive tax rises in a very short period that we experienced had a negative impact on Petro-Canada, and indeed on the overall level of investment in the early part of this decade in the UKCS. The government needs to realize that in today’s globalized oil and gas industry it is very easy to take money out of an unfavorable climate and invest elsewhere, and the opportunities abound. The oil companies have always been an easy target for the government, but as inflation rises and production declines in the UKCS despite the record-high prices, it seems that our industry is finally getting the attention it deserves. By nature we take very big risks, and it is only natural that we are exposed to equally big rewards.

What is the importance of Aberdeen to Petro-Canada’s international expansion, a city it chose as the platform for all Northwest Europe operations?

I have worked in Africa many years, and it was clear that if you wanted technological assistance, people with expertise or solutions for specific problems, the answers would generally come from Aberdeen. There is no doubt that Aberdeen is the biggest centre of excellence for the industry outside of Houston, even though Stavanger is also an important hub. But indeed, Petro-Canada is having internal discussions about setting up a global centre of excellence for drilling in Aberdeen, which would service our operations around the world. The business focus and level of service possible in Aberdeen is simply unmatched anywhere else.

What are the main challenges and opportunities for Petro-Canada over the next 5 years in the UKCS?

The main challenge will be to have access to acreage and these are the types of opportunities that the government needs to keep delivering. There are licensing rounds coming up and fallow processes which could allow us to invest in exploration ideas developed by smaller companies. Our growth will probably be based more on exploration than on acquisitions, considering the current competitive climate for acquisition, but they are not completely discarded either. Petro-Canada is not about taking over old fields, there are many other companies focused on that segment. We are more about applying new high-end technologies in order to develop fields of different sizes, which allows us to deliver projects on time and on budget that make commercial returns.

What is your final message to the readers of Oil & Gas Financial Journal on Petro-Canada?

Companies like Petro-Canada represent the future of the UKCS, and Aberdeen is a great place to do business in the global oil and gas industry.



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