IHS CERAWeek: Oil executives cite rising business costs

Demand for all types of energy continues to increase as oil and gas companies adapt to handle the ever-rising costs of finding and producing hydrocarbons, said the chief executive officers of Chevron Corp. and BHP Billiton during the IHS CERAWeek conference on Mar. 4.

“There is a new reality in our business,” said John Watson, Chevron chairman and chief executive officer, referring to rising costs. Regarding oil prices, Watson said that “$100/bbl is becoming the new $20/bbl in our business…. Costs have caught up to revenues for many classes of projects.”

Anticipating world economic growth and escalating global energy demand, Watson said he would like to see the US lift the ban on crude oil exports although he expects to see much more study and debate on the issue before a decision is made.

Watson said he agreed with Mar. 3 comments to IHS CERAWeek from US Sen. Lisa Murkowski (R-Alas.) advocating US crude oil exports (OGJ Online, Mar. 3, 2013). She is the ranking Republican on the Senate Energy Committee.

“I thought the benefits of free trade were well established long ago,” Watson said. “Free trade wins. We ought to get on with it.”

Watson expects natural gas will play a larger role in the future energy mix, adding, “I think what will surprise people is that coal will continue to have a role as well.”

Andrew Mackenzie, chief executive officer of BHP Billiton, agreed that natural gas will play a growing role in the global energy mix, but he said its growth rate might take longer in some regions than it has in the US.

“The cost of generating electricity in Asia from gas is at least twice the cost of generating electricity from coal,” Mackenzie said. He also called for improving energy efficiency and for industry to reduce carbon emissions.

Christophe de Margerie, chief executive officer of Total SA, said, “Energy has a great future if we control our costs.”

He believes oil and gas companies, engineering firms, and service companies need to work together to lower costs.

“What we are delivering today is too expensive,” he said. “We have to go to the sub-sub-subcontractors and tell them we can no longer be the deep pocket.”

In September 2013, Total said it planned to lower capital expenditure in 2014 after heavy spending on exploration.

Nizar Al-Adsani, chairman and managing director of Kuwait Petroleum Corp., said KPC has expanded its oil production since 2008. KPC plans to spend $53 billion over 6 years with a goal of reaching 4 million b/d by 2020. That compares with OGJ’s estimated 2013 Kuwaiti oil production of 2.56 million b/d (OGJ Worldwide Report, Dec 2, 2013, p. 30).

“We are managing costs aggressively,” he said during a question-and-answer session.

KPC is working to develop heavy crude, and it needs the international oil companies to help in those efforts, he said.

Nigeria’s Minister of Petroleum Resources Diezani Alison-Madueke said the oil and gas industry in her country needs to become more accountable and more transparent. She is the alternate president for the Organization of Petroleum Exporting Countries.

“We fought long and hard” to get the long-awaited Petroleum Industry Bill passed, but it remains stalled in the Nigerian Parliament, Alison-Madueke said (OGJ Online, Sept. 28, 2010).

“We are still watching it closely. For international companies, the intention was to ensure that their investments were protected. We did of course rework the fiscal terms.”

She said Nigeria continues to review those fiscal terms for oil and gas investors. “We are now in a much more competitive African environment,” to attract oil and gas capital, Alison-Madueke said.

Given robust US unconventional oil and gas production growth, she said Nigeria has been looking toward exporting more of its oil and gas to Asia.

Contact Paula Dittrick at paulad@ogjonline.com.

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