A conversation with Statoil’s Peter Mellbye
EDITOR’S NOTE: Peter Mellbye, StatoilHydro’s Executive Vice President for International E&P, was a speaker at the CERA Week conference in February. He took time from his schedule to visit with OGFJ’s Don Stowers shortly after his arrival in Houston from company headquarters in Norway.
OGFJ:How is business?
PETER MELLBYE: It’s challenging, I would say. Everyone is struggling and trying to maintain a balance between short-term needs and long-term goals. A lot of companies are cutting back on exploration and struggling to adjust their execution to this new and uncertain environment. That is the challenge we are all facing.
OGFJ:How is StatoilHydro addressing this challenge?
MELLBYE: Well, our balance sheet is in pretty good shape, so we aren’t facing any major changes in the way we do business. Nevertheless, we have to look after our needs, and define what our options are, and look after our portfolio, and examine each project on a case-by-case basis. If there are some projects that don’t fit well in current economic conditions, then they may have to be deferred for a while.
OGFJ:Your position is executive vice president for international E&P. What regions of the globe does that include?
MELLBYE: It includes everything except the Norwegian part of the North Sea. However, the Norwegian part is still a very significant part of the company’s business.
OGFJ:What percentage of your total production is oil and what percentage is natural gas?
MELLBYE: Off the top of my head, I would say about 40% of the production is gas and 60% is oil. The reserves have the same ratio as production, 40% gas and 60% oil.
OGFJ:What are your most important global producing areas currently and what looks good on the horizon?
MELLBYE: All of them are important, but Angola is our number one producing area right now. We had a partnership with BP in Angola that was very successful.
OGFJ:Can you talk a little about your partnerships with companies such as BP, Chevron, Anadarko, and Chesapeake?
MELLBYE: Yes, these things take different forms. We have been involved in partnerships, joint ventures, and joint operating agreements with other companies for some time.We have, of course, the BP alliance. We also have formed an alliance with Chesapeake in the Marcellus shale play. However, the company that we are allied with the closest is probably Chevron, followed by ExxonMobil, and then Anadarko. These relationships are important to our success as well as that of our partners.
OGFJ:You mentioned your agreement with Chesapeake in the Marcellus. StatoilHydro is widely known as the biggest offshore company in the world, so getting involved in a resource play in the Appalachian Basin would seem to be a bit out of character for a Norwegian company. Can you explain how this came about?
MELLBYE: As you know, there has been a huge growth in gas development in the US because of the growth of unconventional gas. StatoilHydro made the decision that we would like to be a part of this. In examining the major players, we saw that Chesapeake was one of the top participants and they had a lot of expertise drilling in unconventional gas formations.
OGFJ:Unconventional resource plays are known for their long-life reserves. Was this a factor in StatoilHydro’s involvement?
MELLBYE: The character of this huge resource and the long perspective in terms of the lifetime of the asset were definitely factors. In addition, the cost of recovering the gas and its proximity to major market areas along the US East Coast also was part of our decision-making process. Taking this altogether, this was an extremely attractive combination for us, especially when compared with conventional resources in other parts of the world.
OGFJ:Was Chesapeake’s experience and specialized knowledge of drilling in shale formations a consideration in Statoil’s decision to partner with them in the Marcellus?
MELLBYE: Statoil obviously has a wide degree of expertise. We take pride in our abilities in drilling and concreting and so forth. But this is a different kind of formation and Chesapeake pioneered a lot of the fracturing techniques that are widely used in unconventional gas formations today, so partnering with them was an attractive proposition for us.
OGFJ:Were the terms of the deal favorable for StatoilHydro?
MELLBYE: I think the terms should be favorable to both sides. Chesapeake spent a great deal of time and money in acquiring the land, and now they are bringing in partners for development. During the time when we were negotiating, the market was rapidly going down, so it was a good deal for them in terms of timing, and I think the economic parameters were favorable for us as well.
OGFJ:Are there any other deals in the works that you can talk about?
MELLBYE: Well, we are looking at what Chesapeake is doing in other areas and they are looking at opportunities outside the United States. This is part of our alliance with them. However, I can’t talk about anything specific.
OGFJ:What are some of the other significant areas for StatoilHydro?
MELLBYE: Well, of course you know what we are doing in the North Sea and the Gulf of Mexico. These remain very important areas for us. However, we are very excited about some of the other regions, such as Brazil, Angola, and Canada – just to name several. We hold a number of exploration licenses in Brazil and we are working to expand our platform in that country, which we think has tremendous potential. Another exciting place for us is Canada, where we have entered the heavy oil business there. With lower prices for oil, a lot of companies are cutting back on their operations in the Canadian oil sands, but we think there are great opportunities for future development. The only question is when the economic circumstances will exist to allow this to happen. We are also involved in the Snohvit project, which is a very large gas project in the Barents Sea. This is the first offshore field developed in this area, and we will transfer gas via a 143-kilometer pipeline to the Melkoya LNG terminal near Hammerfest. This is technologically and economically extremely challenging, but this is the kind of work that StatoilHydro has excelled at. We are the operator and we’re working together with Total, GDF Suez, Petoro, Hess, and RWE Norge on this development. We expect completion sometime in early 2010, and we have committed a lot of resources to make this happen. And then we are in North Africa in Egypt, Algeria, and Libya, and in the Caspian Sea region. We operate in nearly all the major oil-producing regions, a number of them in some very exciting and interesting parts of the world.
OGFJ:How do you manage geopolitical risk in areas where you operate that might be considered politically unstable?
MELLBYE: We do consider threats that may exist. However, a substantial part of our portfolio, especially our growth in recent years, has been in relatively stable areas like Canada and the US Gulf of Mexico. There are certain countries on the UN and other “black lists” where we do not operate.
OGFJ:Is StatoilHydro working with PEMEX in Mexico yet? The head of PEMEX, Jesus Reyes Heroles, told us recently that his company is facing a challenging situation in that it desperately needs technological help in developing its offshore GoM operations, and he hopes to develop alliances with companies like StatoilHydro.
MELLBYE: As you know, PEMEX needs technological assistance as it moves into the deepwater areas of the Gulf. However, regulations in Mexico hinder this development because they prevent non-Mexican companies from benefiting from their petroleum deposits. They also are facing a huge decline in their biggest field and they need help with this. However, Mexican law does allow outside companies to benefit directly from commodity prices. Therefore, there will have to be some form of services contract in effect. There is a process coming up in which some companies will be invited in to participate, but we are not sure exactly what form it will take at this time.
OGFJ:Let me ask you about the 2007 Statoil-Hydro merger. How did this come about and how beneficial was this to the company’s development?
MELLBYE: This was very significant for us. There was already quite a bit of overlapping in which one company owned shares in a venture that the other company operated, so in a way it natural that the two complementary companies should combine. Hydro was probably the more international of the two companies, and when we brought the two companies together, it created a different animal – but a very strong one. It has made us even more competitive.
OGFJ:StatoilHydro has been referred to as one of the most ethical oil companies in the world. Can you expound a little on the company’s ethics and its attitude towards corporate governance?
MELLBYE: Well, we think of ourselves as being one of the most ethical companies PERIOD – not just one of the most ethical oil companies. Company management believes strongly that we need to be a good corporate citizen, and we strive very hard to do this.