MEOS 2015: Innovation, Collaboration Keys to Navigating Downturn in Oil Price
Managing the business amid the downturn in the price of oil and overcoming the challenges facing the industry topped discussions during the 19th annual Middle East Oil & Gas Show and Conference (MEOS), held in Manama, Bahrain, in March.
Industry leaders agreed that the industry should not repeat the mistakes that it made during the last oil price decline when staff were laid off and investment in research and development (R&D) was reduced.
Speaking at the opening ceremony, Abdulhameed Al-Rushaid, 2015 MEOS conference co-chairman and chief drilling engineer at Saudi Aramco, said the industry is proving to be resilient during the recent collapse in the price of oil.
“Many of us have seen volatility repeated time and again, with similar challenges in 1986, 1997, and 2009. Through the inevitable down cycles and shocks, we must continue our transformation, remaining agile, resourceful, and prudent in our operations,” he said.
“The industry should take safety, efficiency, productivity, environmental stewardship, and cost management to higher levels, while remaining focused on long-term strategic vision to work together to produce global energy,” Al-Rushaid said.
Abdul Hussain bin Ali Mirza, energy minister of Bahrain, said his country will continue to plan for the long term and will increase investment in technology despite the price downturn. “Innovation comes with technology, and we have been using EOR technology at our major oil field, Bahrain field, in the last 6 years that has helped offset the production decline. We are working with our partners to increase the recovery rate in the field,” he said.
The ministerial panel session looked at the global energy picture and the challenges facing major oil and gas producers in the region. The panelists were Suhail Al-Mazrouei, energy minister of the UAE; Ali Al-Omair, oil minister of Kuwait; Abdalla Salem El-Badri, secretary general of OPEC; and Mirza.
Mirza said the challenge facing his country is to boost oil discoveries and to adjust the budget according to the price of oil. “In Bahrain, our challenge is to find new discoveries of oil because we are surrounded by rich oil and gas countries and we are trying to find some new resources. In addition, the challenge now is to work on what is the best budget for the fiscal year 2015/2016,” he said.
Al-Mazrouei said that the UAE is interested in becoming an active player in technology development rather than being only a consumer of technologies. “Of course, we are not looking for all technologies, as we are only interested in special types of technologies that meet our needs, such as EOR technology, where our strategy aims to increase the recovery rate to 70%,” he said.
On collaboration and partnership, Al-Mazrouei said the UAE has developed a new partnership model, requiring the maximization of recovery in the concessions awarded to international oil companies.
“Through this partnership model, instead of you looking for technology and developing it yourself, you work with the best-in-class companies in partnership and a collaborative manner and their best interest in producing technology with you,” he said.
“The challenge for us now is to be the host of developing technologies. We don’t want to be just the test field where these technologies are tested, we want to be involved through all the development process and be partner from A to Z,” he said.
Sustainability and affordability of energy are important to the UAE. “We need to work toward a mix of energy that ensures that we maintain the lifestyle we have, and we want our people to be happy. The target is to ensure that the last thing to worry about is energy. This is not easy, but we are working on that. The second challenge is to change the people’s consumption habit which includes energy subsidizing,” Al-Mazrouei said.
The Kuwaiti government wants to decrease its reliance on technologies from abroad with its own development of local R&D centers. “We still rely on worldwide technologies in order to improve our production, so the strategy is to build our national technological capabilities,” Al-Omair said. “We are also working on building our human capabilities, offering scholarships not only for Kuwaiti nationals but also for international students, who are able to add the plus to our economy. We think we are on the right path,” he said.
Another goal is to decrease Kuwait’s reliance on oil revenue. “Oil revenues count for more than 94% of our GDP, so our challenge is to reduce the reliance on oil. The second part is looking for alternative sources of energy, and we have started thinking about other alternatives like nuclear energy, and making sure that we learn from the lessons,” he said. “The third challenge is to work on carbon capture and storage initiatives as well as reducing our carbon footprint,” Al-Omair added.
About the price of oil, El-Badri said that OPEC members should not cut output to subsidize higher-cost shale. “Tight oil is not a challenge for us,” he said. “The market should now be left to decide which source of petroleum can survive at current prices.”
El-Badri said OPEC and non-OPEC members should work together to stabilize the market. “OPEC cannot subsidize another source of energy. If we reduced production in November, we would have reduced it in January, again in June. … We would have to reduce it maybe three to four times a year,” he said.
The panelists agreed that the industry has an obligation to meet future global energy demand, which is more challenging as oil and gas resources become increasingly difficult to find and extract, so it is unwise to over-react during the current downturn in the oil price.
Industry innovation has risen to the task by maximizing recovery from conventional resources while tapping into vast unconventional resources.
Amin Nasser, senior vice president of upstream at Saudi Aramco, said that keeping R&D a priority is complicated, especially with the industry poised to cancel about USD 1 trillion of capital cost. “Keeping projects on track is possible if we can distinguish between what is good and what is important,” he said. “Retaining talent is crucial for the future of the industry, and we shouldn’t repeat the mistakes we did in the past downturns.”
Nasser highlighted three strategies to deal with the downturn. The first strategy is a commitment to stay the course on investment in fit-for-purpose innovation and technologies. He referred to Saudi Aramco’s experience with the Abqaiq project and the development of new technology.
“Sustained investment is crucial. Clearly, in a business that is long term, investment must also be long term, Nasser said.
The third strategy is maintaining momentum, which involves leveraging low-cost market parameters and working with service providers to improve efficiencies and manage an expectation of long-range planning.
Underinvestment in any of the three areas outlined has historically proven to be problematic and difficult to reverse, Nasser said.
“The challenge of keeping up during a downturn is more complicated today than ever before,” he said. “But we have seen how that approach to a spending crunch plays out. Indeed, we are still living with the consequences. The reduced investment in technology and talent that characterized the 1980s and early ’90s should remind us that repercussions can be lasting,” he said. “In every challenge, there is a sea of opportunity, and progress need not take a back seat,” he said.
Refocusing on fundamentals and investment discipline and finding new technologies through innovation is crucial to companies for survival during the oil price downturn and to thrive in a future environment.
A global need for energy continues, and it is the duty of energy companies to deliver oil and gas to the world. Mark Albers, senior vice president at ExxonMobil, said, “Strong partnerships based on securing the needs of a community are key for success amid these tough times. Balancing risk and reward is the strongest type of partnership.”
Service companies such as Schlumberger want more involvement in operator decision making. “Companies now are facing a problem with profitability, and this requires thinking fast as there is no time for the risk,” said Paal Kibsgaard, chief executive officer of Schlumberger.
Service companies are being asked to be more ambitious and revolutionary in what they create, he said. “We need to aim higher and to look outside the oil and gas industry,” he said.
Hashem Hashem, chief executive officer of Kuwait Oil Company, said the supply of oil and gas surpasses the demand, which put the industry under pressure and led to a decrease in profits gained from investments. The industry’s commitment continues to be the cultivation of technologies that help develop the business and provide better solutions for oil extraction. “However, it is not enough to rely only on technology, but also to create an efficient working environment, which can help technology development,” he said.
Pushing beyond the limits requires not only investment in R&D, but also a willingness to take the challenge as an opportunity. “Technology and smart partnerships are keys to pushing beyond the limit,” Hashem said.
Factors for Success
Unconventional resources are changing the energy portfolio for nations around the world, and with the success from tapping into shale gas in the US, the Middle East region has also started looking for the possibility of a similar success story.
Khalid Abdulqader, general manager of unconventional resources at Saudi Aramco, said having the right business model is the key to success in developing unconventional resources. “Having the right derisking strategy, business model, supply chain, and economies of scale are key ingredients for success,” he said. “The presence of infrastructure is also critical for the success of development of unconventional resources.”
Abdulqader said that what makes the development of unconventional resources an economic reality is the potential to offset the increase in the crude oil used for power generation. He also said that Saudi Aramco has recognized the need to capitalize on the economies of scale, potentially resulting in significant cost reduction.
Referring to the shale gas development in the US, Douglas Valleau, director of unconventional exploration and production technology at Hess, said that having the “right geology” is one of the success factors. “Nothing beats ‘good rock,’” he said. “Establishing a solid supply chain, earning the respect and trust of your host, supporting laws and regulations favorable for multiwell and pad drilling programs, and delivering value through efficiency are keys for making unconventional resources an economic reality,” he said.
Panelists said that not all development areas have been successful in the US, where an estimated 30% to 40% of unconventional wells are uneconomical. Lessons learned from unconventional reservoirs around the world highlight collaboration and reservoir-specific solutions as the common factors for economic success.
MEOS 2015: Innovation, Collaboration Keys to Navigating Downturn in Oil Price
Abdelghani Henni, JPT Middle East Editor
01 May 2015
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