OTC: Oil firms more adept at long-term strategies

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, May 5 -- Oil and gas companies are becoming more adept at maintaining long-term business strategy in the face of short-term uncertainty stemming from oil price cycles, panelists said May 4 at the Offshore Technology Conference in Houston.

During a general session entitled "Coping with price volatility: how will it affect major capital projects," executives discussed cost-cutting measures that include lowering capital budgets and renegotiating contracts.

"We are getting better at going through these cycles," said Luc Messier, ConocoPhillips senior vice-president. "We must keep our options open as far as assets and properties to develop. We've adjusted our operational expenses to…remain competitive."

Messier said current oil prices remind him of 2004 levels, but he noted that operating costs have doubled since 2004. Consequently, ConocoPhillips reduced drilling in the US Lower 48 as well as Western Canada.

Matthias Bichsel, executive vice-president of Royal Dutch Shell PLC, said the company quietly renegotiated some contracts with suppliers.

A presentation by Petroleo Brasilerio SA (Petrobras)
mentioned renegotiating 360 exploration and production contracts. Solange Guedes, Petrobras executive director, prepared the talk but did not attend OTC. Cesar Palagi, Walker Ridge production asset manager with Petrobras America Inc. of Houston, was a substitute speaker for Guedes.

Patrick Pouyanne, Total senior vice-president of business development, said Total's solid balance sheet enables it to sustain a long-term investment strategy throughout price cycles.

"We want to avoid a stop-and-go policy," Pouyanne said in reference to massive layoffs that the industry experienced during the 1990s. "The basics of markets are changing, but it does not affect long-term trends."

Total is becoming increasingly more internally cost disciplined as it controls daily expenses, Pouyanne said. "We have to continue to believe that cost reduction will come from technology."

Dominique de Soras of Technip's subsea division was the only panelists representing an engineering firm. He briefly discussed the cost evolution of floating production, storage, and offloading vessels as well as subsea projects.

FPSO costs last year were twice as high as in 2003, largely because of "escalating raw material" costs, De Soras said. On subsea expenses, he attributed cost increases "very much on the installation side."

Technip remains committed to quality and continues to invest in research and development, De Soras said. The company boosted its payroll 34% during 2005-08, largely to hire young engineers, he said.

Contact Paula Dittrick at paulad@ogjonline.com.