by Chee Yew Cheang, APAC Editor
Nobody expected a 60 percent decline in oil prices when the inaugural Offshore Technology Conference (OTC) Asia took off in Kuala Lumpur, Malaysia two years ago. But it did. And senior company executives who spoke at last month’s conference called for greater collaboration to help the industry emerge stronger from the current downturn.
The significance of collaboration was a subject discussed in panel sessions at OTC Asia 2016, which attracted just over 20,000 visitors from 70 countries, around 20 percent lower than the 2014 event that drew 25,000 participants from 88 countries.
While oil and gas firms are still preoccupied with project cost reductions amid sharp cutbacks in capital and operational expenditures worldwide, panelists said the time has arrived for collaboration between operators and services contractors.
“Once misery arrives, everybody has to put mutual distrust aside and say, look, let’s stick together,” Mohd Anuar Taib, senior vice president for upstream Malaysia at state-owned Petroliam Nasional Berhad (PETRONAS) said.
Already, market watchers said project owners and contractors have stepped up engagement over the past year as the adverse effects of the downturn spread in the industry with more and more upstream projects being delayed.
But, industry player like France’s project management, engineering and construction firm Technip S.A. believed that such collaboration is proceeding too slowly. Technip’s CEO Thierry Pilenko said the existing shift in the industry mindset has not produced the sustainable solutions needed for the sector to significantly affect its cost curve.
“I understand that, in the very short term, all operators are doing what they have to do, which is trying to extract cost savings as quickly as they can. But, in many cases, those cost savings are absolutely not sustainable. If you’re starting to look at the way you work and the way you do the architecture of new developments, there is a real opportunity to reduced structural costs,” Pilenko said.
Industry collaboration could boost project efficiency in the present cost-sensitive market environment. To achieve this objective, involved parties must be willing to change their procedures.
“I would say in the current commodity environment that we’re having better discussions around what collaboration might look like and how it might reduce costs, but, at its heart, it needs to define an outcome that we can achieve as opposed to defining how we can achieve that outcome,” Jeffrey Miller, president and chief health, safety and environment officer at Halliburton Co., said.
Speaking as an operator, Bakheet al Katheeri, chief operating officer of Mubadala Petroleum, an Abu Dhabi-based oil and gas exploration and production firm with assets in the region, told OTC Asia 2016 participants that permanent solutions are required to curb industry costs in order for projects to be developed more efficiently.
“This requires being responsive, flexible and innovative in addressing costs, challenges and seeking out opportunities to adjust and thereby protect the value of our resources,” al Katheeri said.
In this regard, Mubadala has promoted the sharing of services and supplies for offshore operations, including facilities such as warehouses and office spaces, with other companies.
Meanwhile, the calls for industry collaboration has become a priority as investments in more upstream projects are delayed. Wood Mackenzie estimated that low oil prices could lead to more delays in oil and gas projects, with the investment value expected to rise to $500 billion this year, up from the previous projection of $400 billion.
“Will we get to half a trillion dollars in the course of this year? I won’t be surprised if we go that far,” Dan Young, Wood Mackenzie’s head of consulting for Asiapac said, adding that capital discipline and capital preservation are both acute pressures facing oil and gas companies.
Despite immense challenges facing the oil and gas industry, deepwater projects remain viable because of their high production rate per well, according to Royal Dutch Shell plc’s Upstream International Director Andy Brown, who added that such developments offer the most opportunities for owners and operators to deliver innovative technologies and keep costs down.
“It’s looking at the unit costs of these projects. We have to have projects that will deliver at the best. That is the important thing: our ability to be at the lowest cost on the overall cost curve and not be the marginal cost company,” Brown said.