Chief Growth Officer Ebbie Haan outlines how exploration and BD are working to deliver a material boost to Maersk Oil’s reserves and resources pipeline.
In bringing to sanction two genuine mega projects this year, Maersk Oil has been bucking prevailing industry trends. Both the operated Culzean HPHT gas project in the UK and Johan Sverdrup in Norway serve as timely reminders that discoveries are lifeblood of the company. Both came through exploration activities and the maturation of these projects this year accounts for almost 300 million boe in additional booked reserves for Maersk Oil this year.
Upstream firms today find themselves living with the effects of a prolonged price tumble almost halving revenues. At first driven by a largely non-OPEC unconventionals oversupply, recently the situation was compunded by softening Chinese demand and growth.
In this new market situation exploration and production companies, small and large, are critically examining their project and asset portfolio and rephasing large capital projects and offering pieces of their portfolio that may not fit the latest strategy.
That, says Ebbie Haan, Maersk Oil’s Chief Growth Officer, presents opportunities which we would be remiss to not pursue. “In the good times, board rooms all over the world resonate to the sound of the question: Why didn’t we invest in the down cycle? It’s a good question. Volatility and instability have triggered a lot of companies to reassess what they are holding, and our priority has to be to seize the opportunities these circumstances create,” he says.
Economic sweet spot
“If you have the vision, courage and the investment backing to go against the cycle, then this is a unique moment for a of the next few years. We are looking for materiality, at fair value, where the development looks economically robust enough to be profitable in a number of market scenarios and time horoizons,” he says.
“The gas and oil mix, geography and type of development, onshore, offshore, deep or shallow water - are all very important considerations in reshaping our portfolio. The fact that historically Maersk Oil’s production has been oil-heavy (over gas) has stood the company very, very well over a large period of time – exposure to generally high oil price has been a solid bet. But we acknowledge the world has changed in terms of energy demand – it’s gassing up in response to a number of factors – partly a reaction to the long term gas volumes in relatively benign operating environments and partly a shift in the energy mix with gas replacing a lot of coal and being a flexible resource to support increased investment in renewable energy and more electrification. All this could be a factor in why now, where we see the oil price has come down so much, gas has actually held solidly in some core regions,” he says.
Gas has been in the ascendancy for a number of years now, so should more natural gas be a fair assumption for Maersk Oil watchers?
“It’s not a stated aim, but we have taken a big step in that direction with the sanction of Culzean. That will supply 5% of the UKs gas demand at peak production. Add to that the dominant position in Danish gas, and we have quite a bit of gas in the business. Whether we hike the proportion of gas even more is one of the discussions,” he says.
Acting decisively now could have a transformational impact on the company in the future says Ebbie.
“The Group has made clear it wants to deepen investment in Maersk Oil. We are very fortunate that in the Group we have an investor who sees the advantage in moving counter-cyclically, and has the financial firepower to match that ambition with material growth activities. A lot of companies are not so lucky.”
Success has many definitions, Ebbie adds, but there are some colours he’s willing to nail to the mast: building a balanced portfolio that can achieve predictable reserves replacement with good returns. Naturally we have to both leverage core skills and competencies that we have and build new ones to grow. In addition we need to seek new partnerships and rethink that part of our strategy as well.
“Success is doing it safe, and technically sound to the benefit of all your stakeholders – it’s much more than just volume. Safe long term growth with a razor-sharp focus on costs and value is my goal, and we are working really, really hard to generate that right now."
With projects often taking a decade from inception to first oil or gas in an oil price crunch it is understandable that companies look hard at exploration expenditure, and typically hunker down on costs.
“Right now most companies are cutting back exploration activity to save short term cash. We have also done that as a first step in our portfolio reset. What we have proposed with the newly appointed Growth Leadership Team (GLT) is firstly, to radically curtail non-essential exploration activities in our held licenses. Then we are rethinking the strategy and desired portfolio, critically balancing risk-reward profile through new venture activities.”
There are upsides to a cooler exploration market, he adds: “With lower rates you can shoot lower cost seismic, drill cheaper wells… But also, it means there is a surplus of highly qualified staff out there. You get CVs of people hungry to work with us, recognising we are positioned to make counter cyclical moves.”
He continues: “Exploration has been successful for Maersk Oil over the long run, and although less so in the last few years, it will be again. It’s absolutely part of our DNA as a successful oil and gas company and the most cost effective way of replenishing our reserves. And we must do that right now as there is a danger if you wait too long then it will be twice as hard to dial up the machine again and rebuild a sensible exploration portfolio.”
The exploration reset which started last year has consolidated the company’s held asset investment and, Ebbie says, only the best of the best prospects will get support for drilling: “We will always honour our commitments to host governments and partners. After that we will only drill exploration assets which are technically assured and economically sound.”