Statoil ASA plans to use what one executive calls "low-activity time" to work on completion designs and to enhance recovery in its unconventional US plays, especially the Bakken of North Dakota and South Texas Eagle Ford. Statoil also holds operating and nonoperating assets in the Marcellus.
Torstein Hole, Statoil's senior vice-president for US onshore activities, said Statoil strives to reduce its environmental footprint through low emissions by teaming up with others on some innovative projects in the Bakken.
'We in the upstream business currently are feeling the pain of a downturn," Hole said. "It's nothing new to experience a cycle, but it feels just as painful every time…. I think we have to be prepared for a rocky road."
Meanwhile, he is focused on achieving the highest profits for unconventional projects during a low-price environment.
Statoil's senior vice-president for US onshore activities
"We have to compete for capital within the company, and the pace of development will depend on how successful we are in delivering high profitability," Hole said. "If I am able to continue margins, the unconventional will be competitive within the company. In the future, we are prepared for ramping up unconventional activity."
He expects US unconventional production will hold fairly steady this year, increasing somewhat but not significantly.
"Its (growth rate) will not be back to the levels we've seen in the past," Hole told UOGR during an April interview. "We as a company expect prices will come up in time, but it's very difficult to predict, of course."
Having slashed its 2015 capital budget 25% compared with last year, the Norwegian company blamed low oil prices for a writedown on some US unconventional assets.
Torgrim Reitan, chief financial officer and executive vice-president, said in an earnings call that Statoil took a $4 billion writedown on shale and oil sand assets in the US and Canada. Asset values declined with dropping oil prices.
Consequently, activity levels also declined.
"The beauty of these assets is that, we can actually react to market realities as we go," Reitan said. "And, we see very promising developments on drilling efficiency and completion and also the resources available."
Cost reduction is key
Hole sees his primary job right now as getting costs down and getting recovery rates up. Statoil has not tied its future drilling or completion activity to any specific oil price level, he said.
Previously, industry spent more money to produce less volume when oil was $100/bbl, Hole said, calling that pattern "a scorpion's tail," which he said is something for industry to avoid in the future.
"It is definitely important for our industry to move forward," Hole said. "We need a steep reduction in development cost." Statoil has seen its development costs drop 20% in 2 years, and the company is working toward more cost reduction.
He noted climate change is gaining importance on political agendas. It's an issue industry is working to address by implementing environmental improvements in daily oil and gas operations, he said.
"Gas capture in the Bakken is one way to achieve improvements on the environmental side that also turns out to be profitable," Hole said. "Stewardship and business can go hand in hand."
He was optimistic about all of Statoil's US unconventional assets, saying all offer "the ability to deliver profits."
Previously, Statoil abandoned its 2020 production target of 500,000 b/d from US operations by 2020, of which unconventional was to have accounted for 300,000 b/d.
Currently, Statoil's unconventional US production is in the range of 210,000-215,000 b/d compared with nearly zero in 2010, Hole said, adding, "That was a route set a few years back."
Although Statoil currently has the assets with which to increase unconventional production to 300,000 b/d, Hole said the company's priority at the moment is to maintain discipline toward profitability.
"When it comes to the future, there isn't a volume target. We are now much more focused on delivering value for every barrel and developing the acreage in the most sensible way."
In the Bakken and Eagle Ford, Hole said Statoil is testing some completions that are more expensive than earlier completions because the pilots involve using higher volumes of water and proppant.
Meanwhile, he said total costs continue coming down, in part because Statoil has worked closely with its service providers to achieve maximum efficiency. He estimates a cost reduction of 20-25% in 3-5 months across all operations.
Hole said Statoil has "come down to quite a low level" in daily operations.
A certain level of continuous operation needs to be maintained, he said.
"Otherwise, we lose key people," both employees and contractors.
"If we have stop-and-go completions or drilling, it's much more difficult to have continuous improvement and to optimize our operations so I hope we can maintain the current activity level," he said. "It will depend of course on the price we have going into the future."