After reporting profits of US$477 million in 2016,

Maersk Oil is building its future with a focus on even safer operations and world-class project delivery.

 

Maersk Oil has responded to two difficult years of low oil prices by fighting its way back to profitability and increasing return on invested capital (ROIC). In 2016 the company recorded a profit of US$477m with a positive ROIC of 11.4%, a substantial improvement on 2015’s results, despite an average oil price of US$44 per barrel in 2016 versus US$52 per barrel in 2015. The underlying profit was US$497m.

 

How has Maersk Oil achieved these remarkable results despite stiff headwinds? Since 2014 it has successfully rationalised activities and reconfigured itself, improving operational performance, lowering exploration costs and radically reducing operating costs by 36% – far ahead of the targeted 20% for 2014-2016.

 

3 PILLARS OF SUCCESS

With such a rock solid foundation for the future, the company is now looking ahead to 2017 and beyond. Throughout this year the focus will be on continued execution of the three pillars of its strategy, which were introduced in 2014. The three pillars are:

 

1 Maximising value from safe operations

2 World-class project delivery

3 Building our future business

 

By carrying out safe and efficient operations and maintaining its excellent track record of major capital project execution, Maersk Oil will be in a strong position to get the greatest value from its core heritage assets.

 

“Delivery on these pillars will be combined with the ongoing work to optimise cost performance and make sure the organisation is shaped to enable execution on our priorities,” says Maersk Oil’s Chief Executive Gretchen Watkins. “Further, we must raise our game on safety to provide a powerful foundation on which to build in the months and years ahead.”

 

1. IMPROVED SAFETY

As part of Maersk Oil’s sustained commitment to achieving Incident-Free Operations, it will continue to reduce its targets for total recordable incident frequency (TRIF).

 

Gretchen explains: “In the year past we had a really good push around the Incident-Free Life-Saving Rules and local initiatives to rectify specific and challenged areas of our operations. I’m confident we now have the right framework and we will further embed better safety performance.” Safety is such an essential part of the strategy that the business is introducing a new, more ambitious target. “More efficient operations go hand-in-hand with operating safely and that’s why we’re targeting a total recordable incident frequency (TRIF) below 1.5 YTD and top quartile production efficiency in the North Sea both by Q4 2017.”

 

Operational safety cannot be seen in isolation from wider behaviours across the business. That’s why the company’s new leadership framework was reconfigured in Q4 2016 to make even clearer the Accountability, Collaboration and Trust (known as ACT) underpinning the business and its leaders.

 

“This work will build on the strong culture which exists in Maersk Oil, underpinned by the values of our company and the depth and sincerity of our individual commitments to becoming an Incident-Free business,” says Gretchen. “These are valuable assets and a key part of our identity as we face the future.”

“Oil will continue to play an

important role in the global

energy mix, alongside gas and other energy sources, for the

foreseeable future.”

2. STRATEGIC DELIVERY

The key to securing tomorrow’s engines of growth – chiefly Culzean and Johan Sverdrup – is maintaining Maersk Oil’s excellent track record in completing major capital projects on time and on budget. If the business can do so for these world-class megaprojects, it will be in a strong position to operate at larger scale in existing operations elsewhere.

 

“We have some significant project milestones in 2017,” says Gretchen. “With the transport and installation of Culzean’s remaining two jackets and drilling start up for Johan Sverdrup in 2017, we must stay disciplined and on-track as we mature these projects toward start up at the end of the decade.”

 

3. BUILDING OUR FUTURE BUSINESS

The third strategic pillar is building our future business. In 2017, Maersk Oil will aim to solidify its position as a leading North Sea player and build scale in focused geographies where there is a clear line of sight to low-cost barrels. The recent acquisition of interest in Kenya is part of this strategy and Maersk Oil continues to invest in the South Lokichar licence. The company will also explore lower capital expenditure options that may well include mergers and joint ventures, with a focus on locations with higher profitability and a strong capability fit.

 

“When we are succeeding in the first two pillars of our strategy we will have the predictability of current and future cash flows that reassure potential partners or funders that we are a good investment or collaborator,” says Gretchen. “But I want to emphasise that our immediate task is continuing to deliver safe, reliable production and our major capital projects.”

 

One intriguing option for the future is to pursue more gas in the portfolio mixture. This will partly be a natural evolution that occurs as the flagship Culzean project comes onstream, delivering between 45,000 and 90,000 boepd of gross gas and condensate. The first gas expected in 2019.

 

However, Gretchen emphasises the continuing part oil will play. “We will continue to invest significantly in oil opportunities. Johan Sverdrup, for example, is among our biggest capital projects and is a strategic priority for the company.

 

“Oil will continue to play an important role in the global energy mix, alongside gas and other energy sources, for the foreseeable future, and this is likely to be reflected in Maersk Oil’s portfolio choices going forward.”

“The key to securing tomorrow’s engines of growth is maintaining

Maersk Oil’s excellent track record in completing major capital projects on time and on budget.”

CEO Claus Hemmingsen outlines how he sees the

future of the Maersk Energy Division.

 

Our goals at the Maersk Energy Division are to create value in

the short and medium term, while finding long term solutions

for future growth, which we will define before 2018 ends.

 

ON OUR STANDALONE BUSINESSES

We will ensure that Maersk Drilling, Maersk Supply Service

and Maersk Tankers continue to optimise their existing operations, while we establish long-term solutions, which

might include reshaping businesses through joint ventures,

mergers or listings, but are, of course, dependent on market developments.

 

ON MAERSK OIL

Having achieved 30% cost reductions from 2014 to 2016,

Maersk Oil’s strategic projects are well positioned and robust

in the current environment.

 

FUTURE FOCUS

We aim to focus the Maersk Oil portfolio on fewer geographies

to gain scale, particularly in the North Sea. We will reshape

and strengthen the portfolio through mergers and

acquisitions, as well as leveraging existing capabilities.

CEO Claus Hemmingsen outlines how he sees the future of the Maersk Energy Division.

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