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Declining efficiency and rising costs threaten the UKCS
• Costs per barrel have escalated 20% pa over the last decade with declining production and rising costs
• Such cost escalation was not sustainable at $110 per barrel – and even less so today
• At $55 54% of fields on the UKCS are break-even
3
Recent announcements affecting UK
• Over 5,000 UK jobs lost and 1100 at risk – 32 Companies
• 40,000 global jobs lost – Operators and Tier 1 Contractors
- (100,000 global jobs estimated by Douglas-Westwood)
• £1.9bn reduction in spend by UK Operators
• £20.5bn cuts globally by Majors will impact UK
• Offshore rotas – move to 3:3 by 6 UK Operators
• UK Contractor Rate cuts 10 - 20%
• UK staff salary cut -5%
• 10 rigs stacked in the UK
• 34 rigs to be scrapped globally
• UK projects being stalled
• Company mergers
© Deloitte LLP and affiliated entities.
The agenda for today’s session:
Topic
Volatility and Uncertainty
Setting the Right Ambition
Lesson Learned – What We See
Lessons Learned – What they Say
Summary
© Deloitte LLP and affiliated entities.
Volatility and Uncertainty: What is your view on recovery………..?
• Analysts view – liking organisations who have:
• Cost reduction stories, coupled with;
• Disciplined capital spend and;
• A strategy to drive long term value
• There is no consensus on the shape of the recovery:
• There are many divergent views on recovery strategy and actions
• What lessons can be drawn from other industries who won in a period of
crisis?
8
V, W, or L ?
© Deloitte LLP and affiliated entities.
Setting the right cost ambition is dependant on financial and
competitive necessity
9
• Asset / service /
geographic restructure
• M&A + network
integration
• Operating Model
• Activity reduction
• Consolidation
• Organisation design
• Digital / Technology
• Spend reduction
• Tactical process
improvements
• Cost avoidance
Imp
rove
me
nt (%
)
Category
12 – 36 months5 – 18 months3 – 9 months
TransformEfficiencyCost Out
Practical Observations:
• At least 30% more £s of initiatives need to be identified to achieve overall target saving
• Benefits are normally overstated, implementation costs are understated (typically 75p to 125p per £ of
benefit)
• A raw set of initiatives will typically contain up to 25% £ double counts / errors
• Allocate run rate targets, not target reductions
• Clear consistent approach for known difficult areas where executive and budgetary responsibility
may be shared
• Underpin expectations with a common language and approach i.e. Lean
Timing
10-15 %
15-25 %
25-40 %
© Deloitte LLP and affiliated entities.
Current Issues Industries with History
• Rapid market price change
• Uncompetitive assets
• Increased production costs
• Increasing complexity
• Significant volume drops
• Change in long term market
outlook……
These are not unique challenges in your own industry nor in others
10
© Deloitte LLP and affiliated entities.
What we see: Leaders used five fundamental principles to deliver
success
11
1. Sober Optimism
• Ability to describe a
credible future to
stakeholders
• Recognition of current
circumstances
2. High Definition
View
• Take a high definition
view of the market and
own performance
• Identification of options
beyond the enterprise
3. The Profitable Core
• Is the existing operating
model working in the
current condition?
• Where is the profitable
core of the business and
where is value lost?
4. Creating Options
• Practical options to face
the challenges of volatility
• Options for the entity, the
network and the
stakeholders
• First movers get the
advantage
5. Urgency to Act
• Creating an environment
of action
• 360 degree engagement
• Use the right tools for the
job
© Deloitte LLP and affiliated entities.
What they say: Leaders in their own words
Breakthrough –
“ We have to
demonstrate
commitment”
Tipping points –
“Tackling the sacred
cows”
Change of View –
“Re-organise the
industry, not just
yourself”
Aligning actions and
results to outcomes –
“It’s consumption AND
unit cost”
Alignment –
“Vision, accountability
and ownership”
Engagement -
“Everyone is in”
New ways of
working–
“Collaborate [and mean
it]”
Culture –
“Medium and long term
ambitions”
Initiative mix –
“Profit through
portfolio”
© Deloitte LLP and affiliated entities.
Summary
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Ensure alignment to your strategy
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Act now4
Industry changes will result in new
opportunities and risks21
Stick to the script3
Lean logistics in StatoilBy Line Kaldestad
Logistics Manager Statoil Petroleum U.K. 2015-04-24Classification: Internal
where are we heading?
competitiveness
smarter solutions
right solution first time
productivity
ne
w s
tan
da
rds
commercial
intensity
efficiency
value for money
Hammerfest
Sandnessjøen
Brønnøysund
Bergen
Mongstad
Kristiansund
Florø
Ågotnes
Stavanger
Heli
Supply
Trondheim
Total cost supply MGBP 70
Supply Bases 7
Tonnage 600.000
Bulk: 1.000.000
Total cost transportation MGBP 40
# calls 160.000
>90% Bring Cargo
Vessel cost total MGBP 350
Platform Supply Vessels 20 - 27
Emergency Response Vessels 20
Anchor handler Vessels 4-8
Total cost air transport MGBP 170
Passengers 400.000
Terminals 6
Helicopters 19 (+ Search and Rescue)
Logistics on NCS– a huge logistics cooperation…
Leaner logistics - Reducing crew-change capacity
2015-04-2418 Classification: Internal
Consequences
POB-reduction – reduce capacity
Efficiency measures
• Start earlier – later evenings
• Less back-up capacity
• Lower service level
• Dynamic allocation of resources
on NCS
• Cooperation with other operators
– cost sharing
And… renegotiating contracts
Leaner logistics – reducing PSV capacity
2015-04-2419 Classification: Internal
Consequences
Tonnage reduction and less
exploration – remove capacity
Efficiency measures
• Changed sailing pattern – 2
main supply bases in the south
• Reducing calls per installation
• Strict prioritisation concerning
requests outside plan
And… renegotiating contracts
Moving from 44 to 24 vessels
Leaner logistics – Area emergency preparedness
ConsequencesEnsure lean, but still robust EP -
arrangements
Efficiency measures
• Include Aasta Hansteen in AEP -
Halten
• Merge Tampen/TrollOSE AEP
• Implement a new AEP south
alongside Johan Sverdrup
• Ensure members and cost
sharing among all potential
operators
21
BNOK
8
2013
BNOK
6
2016
LLP – Lean
Logistics Program
Attacking the cost base through a change program
and the lean methodology
© Laurent Pascal/Total
COST EFFICIENCY IN TOTAL E&P UKOil & Gas UK Breakfast Briefing
London : 19 May 2015
TOTAL E&P UK LIMITED ...
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015 26
● 3 production hubs
● 2015 key figures (100% operated) :
- ~ 180 boe/d production (~70% gas)
- ~ £2 Bn expenditure
● 1,000+ personnel
● major projects in execution :
- Laggan / Tormore / Shetland Gas Plant
- Edradour / Glenlivet
● rigs & wells to drill :
- 2 platform rigs ( 1)
- 6 mobile rigs ( 4)
- 10 development wells
- 12 workovers
- 1 exploration well
West of
Shetland(start-up 2015)
Northern
North Sea(Nov 1987)
Central
Graben Area(Mar 2001)
TOTAL COST EFFICIENCY PROJECT : “4C&D” ...
27
Change Culture,
Compete on Costs,
& Deliver
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
THE 4C&D PROJECT ...
28
● launched in March 2014 when oil > 100 $/bbl
● has a 3 year execution phase 2015 - 2017
● Group-wide scope : corporate, exploration & production,
refining & chemicals, & marketing & services
● exploration & production scope includes HQ functions plus
over 50 affiliates
● includes in scope all operating, capital & exploration
expenditure, whether TOTAL operated or operated by
others
● utilises common methodology & tools
● targets sustainable culture change & reduction in cost
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
STRONG TOTAL RESPONSE TO 2015 ENVIRONMENT ...
29
● ~ $4 Bn cash impact from cost reduction initiatives :
- CAPITAL INVESTMENT reduced from 26.4 B$ to 23-24 B$
(~ 3 B$ upstream)
- OPERATING COST savings of 1.2 B$ (~ 0.8 B$ upstream)
- EXPLORATION budget reduced by 30% to 1.9 B$
● ~ 1.5 B$ additional cash flow from 8 upstream start-ups
● ~ 3 B$ incremental net asset sales
... 8 B$ CASH IMPACT REDUCES BREAKEVEN BY 40 $/B
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
STRONG FOCUS ON ...
30
● SAFETY : always our “priority of priorities”
● DELIVERY : projects on time & budget
● COST : increasing savings & capital discipline
● CASH : new start-ups & dynamic portfolio management
... TO INCREASE PROFITABILITY
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
ROADMAPPING ...
31
● project comprises a number of discreet action plans – “roadmaps”
– currently numbering 77 for TEPUK
● roadmap potential for savings range from <1 M$ to >10 M$ 100%
● roadmaps cover key areas of activity :
- well construction & maintenance
- field operations
- geosciences
- contracts & procurement
- projects
- logistics
- information services
- structure (organisation, finance, facilities management etc)
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
SOME EXAMPLES ...
32
well construction & maintenance
field
operations
geosciences
contracts &
procurement
implement simpler, less
complex well design
implement ‘Lean’ & ‘Six
Sigma’ process
improvement principles
optimise seismic
acquisition & interpretation
programmes
review & renegotiate
contracts with contractors
& suppliers
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
challenge design
requirements & implement
“good enough” solutions
logistics
information
services
structure
projects
minimise vessel fuel
consumption through
improved planning
optimise spend on support
desk, telecommunications
& printing
actively manage staff &
contractor benefits
SUPPLY CHAIN ACTIONS ...
33
● creation of ‘Key Account Negotiator’ role at Group level for 20+ strategic
world-wide contractors/suppliers (representing ~50% of Group spend)
● enhance ‘Category Management’ process to apply sourcing strategies in
~ 20 major market segments
● review &, if appropriate, renegotiation of ~150 TEPUK contracts
representing ~75% of spend
● enhance contract management through training
● stock optimisation & reduction
● supply chain efficiency review & improvement
● strong support for O&G UK initiatives :
- rig time offered for 2015 & 2016
- participating in spares sharing
- investigating potential for wider supply vessel sharing
- investigating potential for synergies during TARs at St Fergus
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
COMMUNICATION & CULTURE ...
34
● substantial effort being made to communicate “case for change” &
expectations with all stakeholders – particularly staff & supply chain
● strong participation by all sought :
- web-based ‘iSave’ tool implemented producing ~ 450 improvement
suggestions to date
- work-face “buy-in” during the first phase of ‘Lean’ very high
● good practice examples shared / communicated within TEPUK &
with other affiliates
● e-Learning support developed around cost awareness / behaviour
● training provision being updated & reinforced with competence
matrix to be established for all
● explicit objectives being set in annual appraisal process
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
FINALLY ...
35
● TOTAL has a strong, substantial, long term presence on the
UKCS, centred on 3 production hubs
● we must however adapt so as to be able run our business in a
sustainable & profitable manner over the longer term
● this is not just a short term reduction cutting exercise, the drive
to achieve cost efficiency is here to stay
● we will work with all our stakeholders to achieve this
Cost Efficiency in TOTAL E&P UK : O&G UK London Breakfast Briefing : 19 May 2015
Panel Discussion
Chaired by Stephen Marcos Jones, Oil & Gas UK
Our panellists are:
Simon Brew, Deloitte
Line Kaldestad, Statoil Production (U.K.) Limited
John Catlow, TOTAL E&P UK Limited
Speakers joined by:
John Pearson, Amec Foster Wheeler