It was discussed when I met with senior figures from very different service companies, in terms of their products and scale, at the Subsea Expo event in Aberdeen, Scotland. It also came up at a London briefing, again at a conference in Houston, and furthermore in several operator press statements.
All voiced concerns or provided examples of spending being stalled on a growing number of projects because of cost inflation.
My editorial colleague Steve Sasanow noted it in Hart Energy’s Subsea Engineering News recently: “Another term that continues to pop around the industry is ‘short-term volatility,’ i.e., operators are stashing their checkbooks in the drawer until the market settles and costs come down.”
Statoil has broken out the axe. Over the next three years it wants to reduce its annual capex to around US $20 billion, down 8% on previous estimates. From 2016 onward it wants to realize further annual savings of $1.3 billion.
The bulk of those will come from developments, mainly through standardization. Margareth Øvrum, executive vice president for technology, projects, and drilling, said the aim was to lower well costs by 10% to 20% through standard wells and platform costs by 8% to 10% through standard concepts.
The company’s Johan Sverdrup and Johan Castberg projects offshore Norway are planned to achieve $150 million to $300 million of savings through the use of standardized equipment and modules and between $0.8 billion and $1 billion in savings through the use of vertical christmas trees.
At the Arctic Technology Conference in Houston, Infield's Edward Richardson said longer-term exploration and development there is threatened by moderating commodity prices (Infield sees Brent crude at $92/bbl by 2020), rising costs, and increased competition from other resources such as shale and deep water.
Statoil popped up again, with the company’s Arctic portfolio manager Catherine Jahre-Nilsen saying a big hurdle is demonstrating the commerciality of discoveries in such areas. Just because something is technically possible doesn’t mean it will make money, she warned.
Careful planning on projects is a given. But one of the senior individuals I spoke with – who works for one of the largest contractors– said simply, “I see lots of bad planning constantly in this industry.” He works daily with the largest global oil companies.
There’s no magic answer. Spiraling costs must be controlled, and better efficiencies and reliability achieved – but investments must continue. If operators increasingly opt to delay their investments or cut too deeply, the balance between spending enough while maintaining cost efficiency could shift the wrong way. Bad planning is something the industry can’t afford.

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