Improving Operator Returns

There is a school of thought that the dramatic collapse in prices and oversupply of oil that has affected our industry, and has added to the challenges facing deep­water and mature developments, is a relatively recent phenomenon.

installation of a variable speed drive module at Åsgard
The installation of a variable speed drive module at Åsgard.

There is a school of thought that the dramatic collapse in prices and oversupply of oil that has affected our industry, and has added to the challenges facing deepwater and mature developments, is a relatively recent phenomenon. However, with extraction costs having nearly quadrupled over the past 10 years, it has been clear for some time that a rethink is required to make extraction financially worthwhile and to help operators improve their returns.

What has changed is the emergence of a greater sense of urgency. Energy producers were working hard to improve returns, reduce capital expenditure, and extend well life when oil was around USD 100/bbl. With prices now substantially lower, the clamor for new ideas and ways of working has become even more intense.

To secure a reasonable return on investment, it is important for operators to optimize production in mature fields. For long-term stability, the world needs new sources of oil, and the greatest potential lies in offshore deepwater reserves and in the world’s other most challenging locations, such as the Arctic.

To overcome these challenges in a sustainable way, a new thinking is necessary. Among other advances, it is vital to develop new technologies that reduce costs, to standardize equipment and processes, to disrupt convention, and to devise new ways to improve the execution of deepwater projects. This demands innovation and even higher levels of collaboration and trust between suppliers and operators.

It is notable that companies across the sector are responding to the new environment. They are not only working hard to reduce costs, but also receptive to change. I have been attending more customer meetings than ever before and it is clear that there has never been a better time to push new ideas through, share information, talk about new technologies, and for producers and their partners to influence how each other works.

New Ways of Collaboration

There are numerous areas in which operators and their partners can work together in new ways to reduce the expense of subsea developments and gain efficiencies across the life of a field.

For example, it makes a great deal of economic and operational sense for service companies to be involved at the earliest possible stage in the development of a field. This is when the ability to influence cost is at its greatest. Having a presence in the initial phase allows a company to assess the field up front and propose a lower-cost development scheme. By rationalizing and simplifying the overall field layout, costs can be reduced by up to 25% to 30%.

Similarly, standardization can have a dramatic effect on the cost base with, among other things, potential savings in terms of preorder and stock material, and access to volume that helps drive down cost per unit.

An example of the industry’s readiness to embrace standardization was seen last year when FMC Technologies forged an agreement with Anadarko, BP, ConocoPhillips, and Shell to develop the next generation of standardized equipment for use in high-pressure/high-temperature deepwater fields. Since these projects are complex and each is unique, they traditionally have required a high degree of customization. Nevertheless, standard approaches can create solutions that lower costs, reduce the time from project inception to first oil, and make wells more productive throughout their life cycle.

One of the most interesting areas in cost reduction is the development of technologies that take up less design time. In FMC’s next-generation compact manifold, we have reduced the size and weight resulting in a reduction in the installed cost. As a sector, we are only beginning to scratch the surface in this area of working to tighten costs.

A fundamental change in the contracting model would mean that it would be possible to reduce wasted time by combining front-end engineering design, delivery, life of field, and scope into one all-encompassing partner agreement.

Improving Project Execution

On a more general level, service companies can help operators increase their returns by improving their own project execution. They know they need to deliver on time so operators can meet their first-oil commitments and keep costs on target. For some time, this has been an important focus for many in the sector.

A spirit of collaboration can help companies share ideas on execution, bring about a reduction in hours spent on projects through lean operating models, and become more cost-effective as a result. It cannot be overstated how important efficiency improvements are as both service companies and their customers weather the downturn. Indeed, even when prices recover, the industry will still be challenged to improve project returns.

Framework agreements are an option that some operators choose to employ. These are useful methods of securing long-term assurances around price, quality, and quantity. They can cover specific services and offer stability over fixed periods, which can be renewed depending on the success of the arrangement. I know that framework agreements have helped deliver high uptime and availability for certain projects. They have encouraged standardization of equipment, thereby reducing lead times, increasing flexibility and interchangeability, and improving installation times.

Furthermore, framework agreements can help strengthen the relationship between operators and their partners as both parties work closely together to reduce life-of-field costs, improve efficiency gains, and simplify processes.

These are just some examples of the changes that are taking place and, despite the challenges our industry faces, some certainties remain: The world still needs oil, and in the longer term, oil and gas fundamentals remain strong. Nobody is predicting a shift away from deep water, and operators are committed to developing their discoveries.

As difficult as downturns are, they can be invaluable catalysts for positive change, especially when it comes to fostering new ideas and different business models.

Business as usual is not an option right now. This is a time for radical changes that address the industry’s challenges and help operators secure the returns they need. I have no doubt that those objectives can be achieved and that a new era of collaboration and technological innovation can make our sector stronger, more capable and, ultimately, more successful.


Tore Halvorsen is senior vice president of Subsea Technologies at FMC Technologies. Previously, Halvorsen was senior vice president of Global Subsea Production Systems, a position he had held since 2007. Before this, he served as vice president of Subsea Production Systems, with responsibility for Europe, Africa, Canada, and Asia Pacific.

Halvorsen served as managing director of FMC Kongsberg Subsea in 1994 following his promotion to director of Subsea Systems when FMC purchased Kongsberg Offshore in 1993. He joined Kongsberg Offshore in 1980 as technical manager at Subsea Systems. Halvorsen received an MS degree in mechanical engineering in 1980 from the Norwegian Institute of Technology in Trondheim, Norway.