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Schlum
berger-Confidential
Transforming Reserves into Production:The Challenges of
Effective Delivery
Arnold Volkenborn Managing Director Asia Schlumberger Business
Consulting
September, 2014
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Challenges in the industry
Reserves need development
Performance needs improvement
Industry levers
Enhance operations
Staff productivity
Governance practices
Implications
Discussion points
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50
45
40
35
30
25
20
0
5
10
15
55
2000 20051995199019851980 2010 2013
-8%
+2%
2P OIL DISCOVERIES, FIVE-YEAR AVERAGE
Note: 2P discoveries curve does not include unconventional
unproved resources. Data excludes Canada onshore and US lower-48
onshore.Source: IHS Edin; SBC analysis
Billion bbl
Deep and ultra-deep waterOnshore and shallow water
The industry has stopped the decline in oil and gas discoveries,
and Asia is not an exception.
Oil
Brazil, US, Russia and China
Turkmenistan, Iran China and Mozambique
Major contributors of last decades discoveries:
Gas
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Source: Rystad Energy; SBC analysis
Bn USD Bn USD, USD/boe
Upstream expenditures have grown consistently
GLOBAL UPSTREAM CAPEX EVOLUTION GLOBAL UPSTREAM OPEX
EVOLUTION
0
2
4
6
8
10
750
600
450
300
150
0
12111009080706052004 13
x3
OPEX
OPEX/barrel
Upstream OPEX OPEX/boe
450
150
600
750
300
0
x3.6
12111009080706052004 13
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EVOLUTION OF GOVERNMENT TAKES FROM COMPANIES O&G
REVENUES
1 Includes: Royalties, income tax, profit oil and bonuses.2
Average government takes between 1985 and 1990 compared with
average between 2008 and 2012 (as % of O&G revenues).3 In the
last decade some changes on American fiscal policies for the energy
sector have given generous tax relief to O&G companies (e.g.
American
job creation act /2004 and 2005 Energy bill).Source: Rystad
Energy; SBC Analysis
% of O&G revenues paid to local governments1
0
10
20
30
40
50
60
70
80
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
2012
Government takes have been increasing
Latin America
Europe
CIS
Asia US & Canada Sub-Saharan Africa
SE Asia and OceaniaNorth Africa
Middle East
Fiscal benefits have pulled NAM out of global trend3
Globally, government takes have increased 7pp since late
80s2
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GLOBAL REVENUES FROM O&G PRODUCTION1 AND OIL PRICES
1 Upstream revenue is provided by Rystad Energy. According to
Rystads analysts, revenue numbers are calculated based on yearly
O&G production, oil prices, destiny of gas exports and local
gas prices.
Source: BP Statistical Review; Rystad Energy; SBC analysis
MMboe/dayTrillion USD; USD/bbl
Limited O&G production growth and stable prices constrain
revenues
GLOBAL O&G PRODUCTION
+2%
2012
147
86
61
2011
144
84
59
2010
141
83
58
2009
135
81
54
2008
138
83
55
Gas Oil
0
20
40
60
80
100
120 9
8
0
4
3
1
2
5
6
7
Trillion USDUSD/bbl
2012/13
6.1
2011
6.0
2010
4.2
2009
3.1
2008
5.5
RevenuesBrent Oil prices
2013
86
61
147
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COMPANIES AVERAGE RETURN ON CAPITAL EMPLOYED1
1 Average values from a group of 5 major, 12 NOCs and 22
Independent companies.Source: Evaluate Energy; SBC analysis
% %
Companies margins and returns have been declining
COMPANIES OPERATING MARGIN AS % OF GROSS REVENUE1
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011 2012
NOC IndependentMajor
0
5
10
15
20
25
30
35
40
45
2006 2007 2008 2009 2010 2011 2012
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MAJORS CAPEX ANNOUNCEMENTS
1 Net cash used in operating, investing and financing
activities.2 IHS Herold selection includes 312 O&G companies.3
Organic CAPEX (excludes acquisitions).
Source: IHS Herold; Companies 2013 Financial Reports; Quartz;
SBC analysis
Bn USD
2013 year-end and 2014 plan
The industry cash position is decreasing and most Majors have
reduced their CAPEX
CUMULATIVE INCREASE/DECREASE IN CASH & EQUIVALENT1 OF
O&G COMPANIES2
-3,000
-500
-1,000
0
-2,500
-2,000
-1,500
2000 20122002 2004 2006 2008 2010
2013 2014E Inc./Dec.
44.3 37 -16%
41.2 39.2 -5%
24.63 24-253 Flat
283 263 -7%
Five O&G Majors are expected to spend $155 Bn in 2014, 8%
less than last year
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INDUSTRY PERFORMANCE LEVERS
Source: SBC analysis
Economics and talent are at the top of industrys challenges
Operations excellence
Mega-projects management
Talent management
Local content development
Supply chain optimization
Safely maximizing production and optimizing OPEX
Ensuring capital discipline
Managing the shortage of experienced staff while adapting to the
changes in the industrys demography
Promoting long term industry development in the countries
hosting oil & gas operations
Increasing collaboration between operators and service providers
throughout the value chain
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Source: DECC, Oil & Gas UK, IHS EDIN, SBC analysis
Many mature basins, like the UK North Sea, face production
decline and increased operating costs
UKNS O&G PRODUCTIONMMboed
2.9
1.60.9
-6%
-11%
1.6
2012
0.6
2007
2.8
1.2
1999
4.5
1.6 Oil
Gas
bn, /boe
UNIT AND TOTAL OPERATING COSTS (NOMINAL)
bn (bars)
Production decline has accelerated Unit operating costs have
sharply risen
/ boe (line)
0
2
4
6
8
10
12
14
7
8
5
4
9
1
6
3
2
0
20052003 20072001 20112009
+75%
Unit Operating costs
Operating Costs
Operations excellence
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NORTH SEA PRODUCTION EFFICIENCY
Source: 4 years over 180,000 boed North Sea production (3
companies); DECC; SBC analysis
%
Production efficiency has been declining consistently and causes
are easy to manage individually
Other surface equipment and facilities
Metering
Injection
Artificial lift systems
Pumps
TAR overrun
Instrumentation & control systems
Flowlines/ pipelines/ risers/ exports
Safety systems
Wellhead & subsea equipment
Power generation & distribution
Wells
Tanks/ vessels
Compression train
MAIN SOURCES OF LOSSESPercentage of Maximum Production
Potential
55%
60%
65%
70%
75%
80%
85%
121110090807060504
Benchmark
Efficiency is not correlated with
facility age
Operations excellence
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1 Projects with budget >$1bn (real 2011$).Source: IHS
Upstream database, February 2012; Rystad Energy; US PPI
More companies manage Megaprojects, with delays and overruns
increasing
E&P COMPANIES SPENDING >$5BN (2011 US$) CAPEX PER YEAR
AND MEGA-PROJECTS1
DELAYS
34
6 5
79
13
16
17 1816
15
17
2012
37
7
13
2011
33
7
11
2010
32
7
9
2009
31
7
6
2008
31
7
7
2007
27
7
4
2006
23
7
3
2005
18
7
2
2004
15
7
1
2003
10
5
2002
11
5
2001
9
5
2000
7
4
# of companies; years of delay
Majors
NOCs
Independents
0.0
0.5
1.0
1.5
2.0
2.5
Ye
ars o
f de
lay
Average delay
Mg-proj. management
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Source: SBC Capital Projects Survey 2013; Post-Survey Interview
notes
Main project challenges are internal to Oil & Gas
companies
MAIN CHALLENGES FACED BY COMPANYNormalized % of Survey
replies
6%8%
8%
Governance
Supply chain
20%28%
30%
People & organisation
.Safety & environmentTechnical & economic challenges
External stakeholders Talent availability / skill
pool management
Team alignment
Availability & quality:
Critical equipment
Engineering service
Contracting and Procurement
Assurance & risk management
Framing, decision-making and FEL
Aggressive targets
Internal to O&G companies
Mg-proj. management
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PTPS PER AGE BRACKET ON A GLOBAL BASIS
Note: Excluding China and oilfield services companiesRetirement
rate: 20% for 55y-59y, 50% for 60y-64y, 70% for 65y+Recruitment
targeted inputted in the demographic profiles as follows: 40% in
20y-24y, 60% in 25y-29yAttrition at 2% (people leaving the E&P
industry)
Source: SBC O&G HR Benchmark 2013
Percentage of PTPs
Changes on industry demography lead to three distinct
challenges
Talent management
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berger-ConfidentialR = 0.92
0 15000100005000
0
0
0 14000100005000 0 470019000
R = 0.95
R = 0.96
EXPLORE
G&G Eng.
PTPS BY DISCIPLINE VS. RESERVES AND OPERATED PRODUCTION1
2012, Numbers of PTPs, Reserves in mmboe, Operated Production in
kboe/d
For mid-career PTPs, it is all about productivity
Oil-weighted2
Gas-weighted
DEVELOP PRODUCE
2P reserves (mmboe) 1P reserves (mmboe) Operated Production
(kboe/d)
Drilling&
Completion Eng.
Reservoir&
Production Eng.
# of PTPs
Product
effect
R = 0.95
Note: 1 For confidentiality reason, company data and numbers of
PTPs have been modified to mask sensitive information2
Oil-weighted: oil production >50% of total production
Source: SBC O&G HR Benchmark 2013
n2
n1
n3
Talent management
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EDUCATION AND TRAINING TIMELINE
Source: SBC analysis
Cumulative number of people (FTE)
Industry can forecast future employment potential and education
and local content requirements
EXAMPLE: JOB CREATION IN A SUB-SAHARAN AFRICAN COUNTRY
Mechanical
Engineers
Mechanical
Technicians
Driver heavy duty
Machine Operator
Operators
Electrical
Civil Craftsmen
Welders pipe
Craftsmen
Lead time to certify/train to work in industry Formal education
time when needs to be supported
Time to start workTime to start recruitment for
training/certification
Years
2030202520202015
Operators
Craftsmen
Technicians
Engineers
Today
ILLUSTRATIVE
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Transform itself once again
New technology enabling new reserves
These reserves need development
Change the way they do business from within
Enhance operations
Staff productivity
Governance practices
Operator-supplier relations
It may sound like a big task, but the industry has conquered
more complex obstacles
Will surmount these too
Summary
Transforming Reserves into Production:The Challenges of
Effective DeliveryDiscussion pointsThe industry has stopped the
decline in oil and gas discoveries, and Asia is not an
exception.Upstream expenditures have grown consistentlyLimited
O&G production growth and stable prices constrain revenuesThe
industry cash position is decreasing and most Majors have reduced
their CAPEXMany mature basins, like the UK North Sea, face
production decline and increased operating costsMore companies
manage Megaprojects, with delays and overruns increasingChanges on
industry demography lead to three distinct challenges Industry can
forecast future employment potential and education and local
content requirements