Country manager Pål Eitrheim. Photo courtesy of Statoil.«Lava Jato is the most forceful attack on corruption that I have seen in my 15 years as an international leader in Statoil», country manager Pål Eitrheim says.
«We are already seeing changes, in terms of how companies are adjusting, the way integrity has been moved to the front and center of the debate. I really like that it is driven from within – not imposed from the outside – and by Brazilians. It is quite messy right now, but at the end of the process I see a more competitive and transparent Brazilian industry. My job, as head of Statoil, is to make sure that we have integrity in everything we do and that we have a business culture that demonstrates zero tolerance to corruption», says Pål Eitrheim, the top executive for Statoil Brazil, in this interview with Nordic Light/NBCC. Since coming to Rio de Janeiro in 2014 to take over as country manager of Statoil Brazil, he has had his hands full having to manage the impact of plummeting oil prices, unsustainable industry cost levels, and major political and macro-economic uncertainties in Brazil.
But in the year that Statoil marks 15 years of presence in Brazil, the Norwegian oil company has reasons to celebrate: Peregrino Phase 2 will go into execution shortly, with a 35 percent reduction in investment cost compared to the original plan. In the third quarter of 2016, Statoil will take over as operator of BM-C-33, with the world-class Pão de Açucar discovery in the Campos Basin. Statoil and partners will in coming years also embark on one of Statoil’s most active drilling campaigns outside Norway on the Espirito Santo blocks.
Being an IOC executive is however no walk in the park these days. The cost level has increased as much as 300-400 percent in some industry segments, according to Mr. Eitrheim. The combination of a complex regulatory framework and a high cumulative taxation level currently works to erode Brazil’s global competitiveness.
«If you look at the recent results from the oil and gas industry, hardly any company delivers a positive cash flow from operations. That basically means that this industry is not currently generating enough money to pay its bills. The industry’s role is to simplify the way we work and attack our cost base, and that we are doing. The whole industry is slowing down, cutting, postponing, and also working on efficiencies to deliver projects that are competitive in a low price environment.»
The Statoil group will invest USD 13 billion this year, compared to USD 14.7 billion in 2015, and the global competition for access to these funds is tough.
«This is why I am concerned on behalf of Brazil. Brazil remains one of the world’s most attractive petroleum provinces, and has a huge resource base of discovered and yet-to-find volumes. The subsurface offshore Brazil is second to none! But I am competing with projects and opportunities all over the world – in Norway, UK, US and Canada to mention a few. I continuously work my cost base but I also need for the government to adjust to new realities and come up with framework conditions that are competitive and conducive to investments. Statoil does a global ranking of all its projects based on attractiveness, and right now Brazilian projects fall short of the best.»
This is why Statoil welcomes the recent government initiatives to make the Brazilian framework and business environment more flexible and competitive.
«The debate that is now taking place in around REPETRO, local content, license rounds and unitization shows that Brazil is taking this seriously. This is positive and I´m looking forward to talk translating to walk! The review of the local content regulations is another welcome initiative. Statoil fully supports the ambition of developing a strong domestic industry, but it must be competitive on cost and quality», the executive says.
Statoil also supports the ongoing initiatives to opening up pre-salt to other operators.
«In general I’m a strong believer in operator diversity and competition, also in Brazil. When an entire industry is struggling to deliver positive cash-flow, the last thing we need is an even heavier tax burden. State initiatives for new or increased taxes are something the industry cannot afford. It would pose a risk to investments, activities, and jobs», he says.
2016 is also the five year anniversary of production on the Peregrino field. On August 2, 2015, the field passed the milestone of 100 million barrels of oil produced. According to a report published by the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) in March 2015, Peregrino is Brazil’s eighth largest field, and has the second heaviest oil ever produced in Brazil. It is also the largest offshore field operated by Statoil outside Norway and accounts for about 12 percent of the company’s international production.
«Peregrino is a success for Statoil and Brazil. We have built a young and deeply capable operating organization in Brazil, almost 90 percent of which is Brazilian. We have been able to realize values in Peregrino that few others actually saw. Peregrino is only possible because of the offshore and heavy oil experience that we have from other operations in the North Sea. It is a great story for Statoil and Norway but also a great story for Brazil because lot of this has been done by Brazilian professionals and companies», Mr. Eitrheim says.
Since submitting the development plan for Peregrino Phase 2 to the ANP in January 2015, significant improvements have been made. The first phase of the engineering is done. The next step is launching tenders and starting the contract procurement.
«We have been able to reduce the investment costs by around 35 percent and we have also improved the break-even from almost $70/bbl in 2014 to below $45/bbl in 2016. We have an ambition of lowering the break-even of all the projects that we do. Had we not been able to do this improvement, it would also have been much more challenging to realize the project.»
At the current oil price level, there is very little upside in accelerating activities.
«We have been revisiting timing and schedules for our activities. It does not fundamentally alter the overall profile of the Statoil portfolio but we have been optimizing in terms of time and cost. This is not unique to Brazil; it is happening all over the industry. Postponing activities, doing things more efficiently, and also stopping things that are not absolutely necessary – those are key components of doing business in a low price environment. This is what we are doing in Statoil in general and also in Brazil.
There is a strong interest in Statoil in expanding the activity level in Brazil.
«My mantra for the two years that I have been managing in Brazil is that we need to adjust to new realities. In Statoil we work extremely hard every day to reduce cost, improve productivity and boost efficiency, and we are getting in shape to face a low oil price for long. Competitiveness is a collective effort and we need contractors, suppliers and the government to chip in. Adjustments in Brazilian framework conditions will give the country’s relative competitiveness a boost and unlock investments. Brazil should take inspiration from its great footballers: The best of them do not focus on where the ball is but where it’s going to be.», Mr. Eitrheim says.
By Runa Hestmann, NBCC journalist
Photo courtesy of Statoil/Øyvind Hagen