Norway's largest oil company StatoilHydro
ASA (STO) is preparing a big maintenance and modification contract for its
Norwegian fields and plants, which it plans to put into the market this autumn,
an executive said.
StatoilHydro's Chief Procurement Office Anders Opedal told Dow Jones Newswires
in a recent interview the company is putting together a package to support
operations at most of its offshore oil and gas installations in the coming five
to seven years. Onshore installations including Kaarstoe gas process plant and
Mongstad, will also be included. The company wouldn't divulge the likely value
of the contract because it hasn't yet completed it.
"We want to take out the full potential resources of the maturing
[Norwegian] shelf and need to do a lot of drilling and project development to
do that. So we're working very closely to secure the necessary rigs and
drilling contracts, either for the redevelopment of existing platforms or
smaller increased oil recovery projects," Opedal said.
The company is taking a new approach as it compiles this portfolio, dividing it
into more parts than in the past, to sharpen competition and attract smaller
companies to tender, Opedal said. "There are a lot of new suppliers in the
area of maintenance and modifications. Hopefully we'll get competitive rates.
We know suppliers are competing, but we want them to also provide safe,
efficient and high quality services," he added.
Opedal said oil services costs have fallen by between 10% and 30%, with greater
declines seen in commodity pricing than equipment and personnel, since oil
prices peaked at nearly $150 a barrel in mid 2008. By early 2009 they'd fallen
to below $40 a barrel, but have since partially recovered to more than $70 a
barrel.
Further cost erosion will depend on how many projects oil companies put into
the market, Opedal said, adding he reckoned the recent cool down in the
services industry has removed the excess supply capacity seen at the oil price
peak, likely limiting a price fall.
Since oil prices fell and economies plunged into recession worldwide, the heat
has come out of the oil services market. That has pushed down oil demand, in
turn prompting oil companies to postpone or cancel projects. One result has
been a renewed focus on quality, Opedal said.
"Before the financial crisis, we lost focus on quality a bit and were
incurring huge costs because things needed to be done two or three times...It's
important to see we not only have a good contract price, but that our strict
[quality] specifications are met," Opedal added.
News of StatoilHydro's contract plans will be a salve to oil services companies
which have been hit hard in the downturn. They've cut staff and costs among
other measures to preserve profits in ailing markets. While their short-term
prognosis has been generally gloomy however, most retain a bullish long-term
outlook.
There's widespread expectation that the current slowdown in activity will
result in a supply shortfall within a few years, driving up oil and gas prices
and potentially triggering another oil price and activity boom.