With production growth, multiple mega projects advancing through sanction, and a declared appetite for material acquisition opportunities, Maersk Oil has much to be positive about despite a gloomy E&P backdrop. Analysts and bankers assembled for the Group Capital Markets Day in September and were upbeat on the company’s approach to cost and investment.
At the Maersk Group annual Capital Markets Day on September 9 in Copenhagen, Maersk Oil delivered a broad status update and presented its roadmap to growth to influential financial stakeholders. While upstream players worldwide wrestle with a suppressed oil price, Maersk Oil has moved decisively and delivered a proactive response to market conditions and continues to invest in its robust material projects.
“In the current oil environment Maersk Oil is in a unique position. In spite of the market conditions, by focusing our efforts in key areas of the business and taking tough decisions, we are able to continue to deliver on the core aims of our strategy,” said Jakob Thomasen.
Delivering on the plan
Having set out on a course to deliver profitable growth in 2014, Maersk Oil has held firm and delivered on its goals: First oil from three new projects – on time and on budget in the UK (Golden Eagle), first production from the US Gulf of Mexico (Jack), and in Denmark (Tyra South East) and two mega projects - Johan Sverdrup in Norway, and the Maersk Oil operated Culzean HPHT development in the UK - have both received government sanction.
In addition, production has grown 30% to 306,000 boepd the last year, made possible by operating more reliably.
“Our production guidance for the full year 2015 remains around 285,000boepd – 14% up on 2014. That improved performance in our mature assets is a direct result of the operations excellence programme we unveiled last year. In all we estimate that we can achieve a production premium of 10% - virtually a whole new asset for Maersk Oil – at a fraction of the cost to bring on production from new wells or projects,” said COO Gretchen Watkins.
In the last year, Maersk Oil has also used the market conditions to lower the project cost for the Chissonga project in Angola, however this material deepwater project remains challenged in its current form by the prevailing oil price. In Qatar, the competitive tender to renew operatorship for Al-Shaheen is underway.
Gretchen Watkins, Chief Operating Officer presented on strong project delivery and a massive year-on-year 33% reduction in per barrel opex.
Chief Financial Officer Graham Talbot demonstrated that Maersk Oil’s baseline was benefitting from decisive deployment of its Cost Transformation programme, targeting a reduction in opex of 20% by Q4 2016.
Chief Executive Jakob Thomasen showcased how the company was navigating turbulent economic headwinds to deliver on its core strategy.
The day delivered a 3% share price bump, and cake to boot.
Razor sharp cost focus
CFO Graham Talbot took to the stage to reiterate that Cost Transformation in Maersk Oil is a fundamental pre-condition of a company’s right to invest and grow. Maersk Oil is on track to deliver 10% opex savings in 2015 and in good shape to reach its overall target of 20% by the end of 2016. It has renegotiated more than 250 contracts in 12 months and realised cost savings of US$1.7 billion in project capex and opex.
“Prudent portfolio management is a critical component of both operational and financial performance. In light of a detailed review of all our assets we believe the time is now right to cease production from the Janice asset in the UK. These are difficult but important decisions to ensure the health of the business going forward,” Graham added.
“Cost Transformation requires every single person in every part of the business to treat the company’s money like it is their own and think hard before spending. We are making a difference, but there is still a great deal to be done to embed a lasting cost culture in Maersk Oil. We cannot afford to slip back into bad old habits and the continued pressure of the market may mean longer and deeper cuts will follow,” said Graham Talbot.
Transforming for Growth
Securing the long term future of Maersk Oil requires a combination of active portfolio management and investing to rebuild our resource base.
Exploration continues to be the most cost effective route to long term stable production. But in the near term, the market conditions mean that there are a range of distressed assets available from which Maersk Oil may be able to deliver a premium. “Acquisitions in this climate may even deliver barrels now at costs that are competitive and lower risked than exploration. Opportunities must deliver returns on invested capital in excess of 10% and we will continue to leverage growth from our core strengths and experience – whether in our existing footprint or through occasional step-outs,” said Thomasen.
Maersk Oil differentiates from other oil companies by having a robust production and project portfolio characterised by low unit cost and by the financial backing from the Maersk Group. With this and its cost and capital discipline, the business is geared to take advantage of opportunities the market and pursue for future growth by counter cyclically investment.