Schlumberger Business Consulting's President, Antoine Rostand shared his views at Oil & Money 2013
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Schlumberger Business Consulting's president, Antoine Rostand shared his views on the challenges of execution from discovery to production within the energy industry and the ability to be able to transform reserves into production.
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Schlumberger Business Consulting's President, Antoine Rostand shared his views at Oil & Money 2013
- 1. From Discovery to Production—The Challenges of Execution Oil & Money 2013, London, UK October 2, 2013 This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address our expectation of future conditions including, without limitation, economic conditions, energy demand, energy supply and capability requirements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
- 2. The industry has reversed the declining trend in oil discoveries Five-year averages of oil volumes discovered and crude oil prices -6% 140 +3% 50 120 Billion Bbl 40 100 -8% 30 80 +6% 60 20 40 20 10 1965 US$ (2011) 60 1970 1975 1980 Onshore and SW Source: IHS Edin; Rystad Energy; BP Statistical Review; SBC analysis 1985 1990 DW and Ultra DW 1995 2000 2005 0 2010 Crude oil prices © 2013 Schlumberger Business Consulting. All Rights Reserved. 2
- 3. More companies manage megabudgets and project delays are increasing E&P companies spending >$5Bn (2011 US$) capex per year and megaproject* delays 40 3 35 2.5 17 25 16 17 18 20 13 15 7 0 6 16 4 5 5 2 3 4 7 5 2001 1 5 2000 5 4 3 2 1.5 9 10 15 7 7 7 7 6 9 11 13 Years of Delay Number of Companies 30 1 0.5 7 7 7 7 7 0 2002 Majors 2003 2004 2005 Independents with budget >$1bn (real 2011$) Source: IHS Upstream database, February 2012; Rystad Energy 2006 2007 NOCs 2008 2009 2010 2011 2012 Average Delay * Projects © 2013 Schlumberger Business Consulting. All Rights Reserved. 3
- 4. Lack of internal capabilities is the main project challenge Capital project challenges by type External Shareholders, 14% Project Teams & Skills, 26% Technical Challenges, 21% > 50% of the issues are internal to the Organizations Governance, 18% Contracting & Procurement, 12% Project Management Processes, 9% Source: SBC Capital Projects Forum © 2013 Schlumberger Business Consulting. All Rights Reserved. 4
- 5. The industry faces a shortage of experienced professionals PTPs per age bracket on a global basis Global number of PTPs (2011-2025) 25% 2016: lowest number of experienced PTPs Percentage of PTPs 20% 15% 10% 5% 2022: level of experienced PTPs of 2011 2005 2016 Note: PTPs stands for Petrotechnical Professionals (geoscientists and petroleum engineers). Source: SBC O&G HR Benchmark 2006-2012, World Energy Outlook 2012 Experienced PTPs 2025 2020 2015 2011 0% Unexperienced PTPs Inexperienced PTPs © 2013 Schlumberger Business Consulting. All Rights Reserved. 5
- 6. It matters as production is correlated with talent availability Total number of technical resources vs. operated production Number of PTPs R² = 0.9 R² = 0.9 Operated production Kboe/d Low production growth1 High production growth 1Low production growth: companies with less than 2% CAGR of operated production during the last 4 years. Note: For confidentiality reasons, company data have been replaced by illustrative data points Source: SBC O&G HR Benchmark 2012 © 2013 Schlumberger Business Consulting. All Rights Reserved. 6
- 7. Sub-Saharan Africa: the challenge of education Ptps required to support the production growth in Africa Necessary amount of enrolled students to supply PTP graduates1 11,000 239 Current supply 4,400 3,100 Thousand People Number of PTPs Additional required 4,300 8,000 ~700 more PTPs per year until 2020 141 87 1.2 0.7 0.5 2011 PTPs PTPs leaving Supply of the industry Graduates current students progression rates Source: SBC O&G HR Benchmark 2012, UNESCO GAP 2020 required PTPs Yearly amount of graduates 10 6 4 Tertiary 51 98 36 Secondary Primary 1 At © 2013 Schlumberger Business Consulting. All Rights Reserved. 7
- 8. Education and training capacity should meet employment potential Job creation in a sub-Saharan country Education and training timeline Years Craftsmen Cumulative number of people (FTE) Welders pipe Civil Craftsmen Operators Machine Operator Driver heavy duty Technicians Mechanical Engineers Mechanical Electrical 2015 Operators Source: SBC analysis 2020 Craftsmen 2025 Technicians 2030 Engineers Today Formal education time when needs to be supported Lead time to certify/train to work in industry Time to start recruitment for training/certification Time to start work © 2013 Schlumberger Business Consulting. All Rights Reserved. 8
- 9. From Discovery to Production—The Challenges of Execution Oil & Money 2013, London, UK October 2, 2013
Notas del editor
- Thank you David for the kind introduction, and good morning ladies and gentlemen.This morning I would like to talk about what I think is becoming the next bottleneck of the industry: our ability to transform reserves into production. We had a lot of exploration successes recently, the challenge today is to deliver the projects, if possible on time, on budget and on specifications.There are several challenges here and they will form the basis of my remarks this morning.But before I begin, I would like to tell you more about Schlumberger Business Consulting or SBC. We are the management consulting arm of Schlumberger. We focus entirely on energy, working on strategy with questions like “should I enter the unconventional business”, organization on issues like “should I separate my unconventional business from traditional E&P”, HR where the key question is to know if a company has the right capabilities to deliver the strategy and finally on operations, to improve exploration success, better manage projects and produce more efficiently. We are now the largest management consultancy in upstream O&G, and our success comes from combining consulting best practices (problem solving, analytical and fact based approach) with the deep energy industry expertise of Schlumberger.Let’s go now to our today’s subject.
- At the beginning of the last decade, there were a lot of concerns about the industry’s ability to replace production; if you remember the debate was around peak oil and access.Today, more than 10 years after the start of the boom, we can see on this graph that the industry has clearly reversed the declining trend in discoveries; this is true for oil as in this picture, and for gas. The reasons for this new trend are well known, it is a matter of technology, economics and access.On technology, our industry is benefiting from exponential increase in computer power, enabling for instance much improved sub-surface imaging, amongst other things. We’ve also benefitted from drilling and production technologies like horizontal drilling, multi stage fracturing, new generation deep water rigs, FPSOs, FLNG for stranded resources etc…And new technologies have transformed the “access” discussion, as new resources come either from North America or in new or relatively open countries for Atlantic margin discoveries.Are we replacing today all that we consume every year? The answer is no, but we have certainly reversed the trend. So it is a clear industry success and we should celebrate.The question now is: what’s the next challenge for the E&P industry if we want to deliver to the world safe and affordable energy? Are we as an industry able to transform reserves into production?
- In fact we can see on this graph that the answer is most probably no, and I am sure that most people in this room will agree that project execution is an issue today.We have plotted in red the average delay for megaprojects (i.e. over one bn$). In 10 years, the average delay has been multiplied by 5, moving from 6 months to 2.5 years. We would have a similar picture for cost overruns, and the O&G industry is now performing far worse than other capital intensive industries. We have also plotted here the numbers of companies spending more than $5bn of CAPEX per annum, the bars. In the same period, we moved from a world where 4 majors and 3 NOCs were spending this kind of money, to a world where 37 companies are in this league. 5 times more. And we should ask ourselves: do these companies have the capabilities to deliver? Can so many new players master the art of delivering mega projects? To answer these questions, SBC has launched an industry survey two years ago to better understand the reasons behind project delays and overruns.
- I have extracted one key message from this survey, showing the main reasons behind project challenges, as seen by O&G companies themselves.We can see that most of the issues are indeed internal issues. First of all, lack of skills in project management and technical domains. Second, issues around governance of these mega projects: how to set targets and timing, how to approve budgets…Issues around project management, contracting and procurement processes are also important to explain these project challenges. Again, these are both mostly under management control.External issues like technical challenges and external stakeholders are still there, but with much less weight than internal capabilities issues.In my mind, these two slides summarize well the industry issue today: we are facing major challenges to deliver and these challenges are ours, they are not externally driven. They are mainly under management control.So, what can management should do?
- On the people side, the issue is pretty well understood. In SBC, we have been doing a quantitative and qualitative benchmark on technical skills in the industry since 2004. From this benchmark, we know that the industry is today recruiting enough. We also know that many companies have changed their training processes and people are now developed much faster than before, lowering time to autonomy of PTPs from 15 years to 8. So I think the industry is doing a good job on recruiting and training.But we are still faced by two challenges:The first one, on the left, is around generational change: 5 years from now, the industry will be very different, this room will look very different; we will be a young industry! But this is not going to be an easy journey.We all know leadership development and succession planning are complicated matters in normal times, it will be particularly complex when everyone is going to change at the same time, at company and industry level.The second challenge, on the right is the lack of experienced people. We are still in a period of a decreasing number of experienced professionals and tightening the market. According to our data, this phenomenon is not expected to ease before 2016. The deficit is estimated to be 20% of total pool. So what shall companies do about it?
- First of all, it is important to realize that it matters: there is a strong correlation between operated production of oil & gas companies and the number of petro-technical professionals or PTPs they employ.By PTP, we mean geoscientists and petroleum engineers.It is striking to see that there are no economies of scale in our business: to double production, a company must double its technical talent pool. In fact our industry is much more like health care: when the population doubles, the number of doctors has to double to maintain the same level of care. It is the same for us. We can also see that growing companies have a higher PTP intensity.Does it mean we cannot act? I don’t believe so! We have seen that deficit of experienced professional is around 20% of the pool, and we can see on the graph and in real life that productivity differences do exist between companies, some companies are more productive than other, and we have the means to absorb the talent gap by doing things better.We can improve worker’s productivity with technology, like remote operations for drillers. We can organize better to allocate resources, for instance by centralizing functions like Development or Exploration. Finally we can optimize internal resources through outsourcing of large work packages, like subsurface characterization, turn-key drilling, or an LNG plant.All of this require companies to challenge themselves and improve the way they do business, but solutions are on the table and I am sure we will adapt.I would like now to elevate the debate at industry level and discuss what we have to do collectively.
- I would like to take the example of Africa, as many discoveries have happened in this continent, often in countries with little or no previous oil & gas history.What do we see there: first, a huge demand for professionals to deliver the projects and transform reserves into production. And a supply from local universities and the overall education system that is simply unable to meet the demand.Is it an acceptable situation? Obviously not, but one will argue that it takes 15 years to develop a good directional driller and that we could not have predicted 15 years ago the current boom in Africa. So, it is normal to use expatriates for these highly technical positions.But what’s about the future? Do we accept the status-quo? Do we have to import welders, crane operators, drivers when we need them? Or do we work as an industry with government to upscale the overall education system of these now oil countries?Asking the question is answering it… And we should not do it only by “grandeur d’âme” or philanthropy even if these are important, but also to ensure that required people and enterprises will be in the country when needed and that communities will accept operations in their traditional landscape. That’s the only way to avoid the resource curse, with all its negative consequences on the country itself but also on our industry. What can we do?
- In fact, it is not a difficult task, we just need to work together to achieve itModels like the one on this graph exist that can predict at a country level the number of jobs created by our industry, for each job category. From these models we can easily see if the education system of the country is geared to deliver at all levels, primary, secondary, vocational, tertiary, business etc… We can model the gap between the education infrastructure and the needs of the industry: we do have a long term planning horizon for our business, let’s apply it to create real jobs locally, and develop industries that we need. This requires close collaboration with government, not as individual company CSR activities, but as a genuine industry effort to create long term development in these countries. This is a win-win proposition. In all other alternatives, someone loses at some point in time.
- I would like now to conclude before taking your questions: The world is asking the O&G industry to continue delivering safe and affordable energy. We have taken the challenge and reversed the decline of discoveries; we have applied our minds, our ideas to find new resources and we have succeeded.Today, we have in front of us the challenge to deliver the mega projects required to transform these discoveries into production.We are indeed struggling but we know the issues and solutions and we have no excuses not address them.There are issues that must be addressed by the companies themselves on how to apply best practices to improve delivery.There are also issues that must be addressed by the industry, in each country, to make sure that the country will deliver the necessary people and supply chain. By doing so, we will not only satisfy the world energy demand, we will also ensure economic development in each of these countries;We have taken on more complex challenges in the past, and I am sure we will be up to the task again.