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Interview

with Oystein Michelsen, Executive vice president in Statoil ASA since 10 November 2008, Statoil Norway

09.12.2012 / Energyboardroom

Looking at how this partially-privatized state oil company conducts its E&P strategy in Norway, would you describe Statoil as an IOC or an NOC?

Statoil functions a lot like an IOC in Norway. The regulatory authorities in Norway are separated from the company and we therefore fall under exactly the same harsh scrutiny as any other player on the NCS. Of course, Statoil plays a certain “architect” role on the NCS as we are heavily involved in the most prolific areas of production. In this respect, Statoil is responsible for a lot of the infrastructure and consequently has a significant say in how this is developed. Nonetheless this is a consequence of our size and historical role rather than of our function.

Statoil is maintaining its leading position at the same time as the diversity of operators on the NCS is undergoing a major increase. In around four years 13 companies will have platforms on the NCS and there will be around 40-50 operators and 60-70 license investors. So far, we have been used to cooperating with the international majors and they are still our main partners in production. However, to an increasing degree, we are now building relations with newer and smaller players on the NCS, although some of these are still fairly major companies like Centrica and Wintershall. Our position as a type of basin master grants us the experience to share our extensive knowledge base with these new partners.

In addition, the heavy investments that Statoil has made in infrastructure over many years are enabling the fast-track development program advocated by the Norwegian petroleum authorities. Statoil has developed its own fast-track business unit designed to tie in smaller developments quickly and efficiently into existing installations. Some of these are major projects from USD 500 million to USD 2 billion. There are 12 such projects in the pipeline, five will be in production in the next four to five months.

Statoil‘s goal is to increase its global oil production from today’s around 2 to 2.5 million barrels of oil equivalents per day (boed) in 2020. The rationale behind Statoil‘s internationalization has hitherto been to offset declines in the domestic market. However, following the Johan Sverdrup and Skrugard/Havis discoveries, how has the importance of domestic production shifted within Statoil‘s production strategy?

Domestic production was always important to meet this goal and given the scale of new discoveries it is even more so. The NCS will be a growth story for Statoil towards 2020. There is a slight reduction in production in the short term but it will increase towards 2020 and our goal is to produce more than 1.4 million boed by 2020 from the NCS. We will grow our production in the order of 5-600 thousand boed until 2020; this is a tremendous growth story and our production on the NCS will match our international production over the coming years.

Naturally we do have a portfolio of declining fields. Therefore a large part of our actual growth will be absorbed by these declines. Currently the decline is around three percent on average on our existing portfolio, this figure counts for the measures we take to sustain production. However the broader picture is of production growth over the next eight years. The perception of the NCS as a gloomy, sunset production area is simply wrong. The Northern finds in particular, such as Skrugard and Havis and the North Sea giant Johan Sverdrup have opened people’s eyes to the ongoing potential of the NCS.

The fast-track portfolio is equivalent in magnitude to the opportunities provided in the North. In addition new platforms such as Dagny and Aasta Hansteen (formerly Luva) will be sanctioned in a short time. In the next five to six years we will start production from six new platforms.
Statoil is also repositioning its portfolio following a USD 1.35 billion deal with Wintershall. How does this deal fit within your strategy?

We have been working on a strategy which concentrates our efforts on areas where we see the potential, where there are pre-established production hubs and where there is exploration potential for small but very profitable fields located close to existing installations. The tie-in portfolio is very profitable. We do not aim to have a broad portfolio of assets and then not develop them; we would rather divest them to someone who will develop them and concentrate our efforts in the regions where we see the highest value. The Brage exit enabled us to enter Edvard Grieg field which is strategically important for us because it will be the host for the Ivar Aasen field where we have 50 percent interest, operated by DetNorske. This is building our interest in an area where we want to be strong with the Johan Svedrup discovery close by. We are optimizing our portfolio and balancing risk with some fields where we have a very high interest and it is natural to be looking at the possibility of farming down.

How important is IOR to your production growth over the next few years and on what does further improvement depend?

IOR is a very important part of our growth story. Typically it involves drilling more wells in existing fields and low pressure production. We are engaged in many of these projects around the NCS which are very exciting. For example there is one project at Gullfaks involving a subsea compression unit, which is smaller than the one we have installed at Åsgard. These subsea compression stations are very demanding, innovative and exciting projects; they represent an important step in the development of the subsea factory. Over the last couple of years we have matured as much production from IOR projects as from new developments.

One of the issues confronting operators in Norway today is the shortage of capacity, especially in rigs. How is Statoil dealing with this issue?

Statoil has succeeded in securing its rigs for the near future, in a combination of developing and hiring new builds and existing rigs,so there are no major challenges for us in this regard. However, we do have an ageing fleet of mid-water rigs and this is a concern because many of the new rigs entering Norway have been deep-water rigs, very heavy and not very fit-for-purpose on the NCS. Statoil has therefore been working to increase capacity in this mid-water segment. For the Troll field Statoil has been contracting two COSL rigs because their mid-water rigs were the most apt for this development and we would like to see more rigs like this in the market.

Statoil has been engaged with its contractors in designing a new Category D rig, “fit-for-purpose” and has already been contracted. This serves two purposes: to increase rig capacity on the NCS and also to have a fit-for-purpose rig capable of dealing with the challenges we see in Norway including completion capacities, intervention capacities and easily operable for 3-400m drilling and no more because that would only add complexity and weight to the rig.

The category B rig which is an advanced intervention vessel is another project Statoil has been working on. Statoil now has 500 subsea wells on the NCS which is 10-12 percent of all the subsea wells in the world (4.5 thousand), and we are now in a phase of repairing this subsea equipment. It is no longer an exotic technology but the way that we operate and looking into the future, many of our developments are subsea. We therefore need vessels capable of effective intervention operations.

It used to be that projects would occur on and off and rigs would be idle for a period of time. Being a rig owner was then a risky business. What we have seen recently is a steady and continuous demand for rigs on the NCS and this is why Statoil entered the discussion about owning the rigs, because there is no point in negotiating contracts every three to five years, or commit to long contracts when rig owners do not want to sell out their upsides and therefore seek to charge a high day rate. We are looking at this ownership solution for a few fields, so it is not the type of shift that would heavily affect the market. Troll, Oseberg and Gullfaks are good candidates for this ownership model. If there is a 15-20 year need for a rig, not only for drilling but for repair and intervention then it is beneficial to own the rig. It is all about getting the rig price down because currently it is too high.

However, it is not easy to organize this new rig ownership model because there are many licensees to negotiate with, contractor would still be needed to operate it, and the tax system poses some challenges. It is all in the vein of reducing costs and finding the right tool for the job to increase efficiency. The development of fit-for-purpose category J (jack-up) rigs is intended for this segment.

Norway is heading into the Arctic, how do you see Statoil‘s leadership role in this region?

It is important to remember that we have been in the Arctic for 30 years and have been involved in roughly 90 wells in the Barents Sea, indeed there are probably only six or seven wells where we were not present. Statoil is operating Snøvit, a subsea development and a major partner on Goliat with ENI. On Skrugard and Havis we have also opened up some ideas about the area. We have big plans for approaching and developing the Barents Sea and we already have the technology to develop at least the southern part of the Barents Sea. Skrugard is further north giving us some additional challenges and in the Barents Sea the major challenges relate to the low temperatures and the lack of light. In fact, the sea conditions are calmer in comparison to the Norwegian Sea where we experience very harsh conditions. Our strategy is to gradually move step by step further North.

The Barents Sea is the easiest part of the Arctic to conduct E&P because it is open sea, and there are therefore low chance of ice problems. With our current capabilities with the subsea compression and complete subsea factory we are opening up the possibility of operating in very harsh environments. However, there are many steps to go before we can create this type of installation. In terms of our expansion, Skrugard will be the next step. This will be a floater with a subsea development and we are now looking at possibilities of either transporting oil to shore or offshore loading.

Do you see the Barents Sea offering the possibility to reverse Norway’s production decline?

If we have the success we hope for, then the Barents Sea has a major potential. We also see potential in the Norwegian Sea, and we are launching an exploration program to look into this area. I should say that there is a major opportunity in the North Sea and in 20 years this region will probably still be the main contributor to Norwegian production.

The Barents Sea is a stepping stone into the Arctic and this is where we are going to qualify ourselves to go even further North. The Norwegian sector is also blessed in that we have offshore islands capable of supporting future infrastructure to support the offshore industry as it heads further away from the shoreline. These are still immature possibilities that needs further development.
For Statoil, there are many areas to work on.

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