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Get fit, stay in shape

Cooperate and be flexible to survive, industry leaders tell AOGC

Many of the energy industry's most influential executives outlined their strategies for both grasping the opportunities and finding solutions to the most pressing challenges at AOGC 2017 on 8 May.

Not too surprisingly, the most upbeat panellist at the Strategic Dialogue session was B Ashok, chairman of Indian Oil Corporation (IOC), representing the thriving midstream and downstream side of the sector. His company is preparing to bring online what could be the world's largest ever refinery project to be built in one go, on India's west coast. This is a bid to take advantage of both low oil and gas prices and spiralling demand for refined products from the fast-growing Indian market.

A final investment decision on whether the refinery will be built, which would include a 3m tonnes per year ethylene unit, is due to be made by early 2019. The project could involve Saudi Arabian investment.

Ashok said the refinery, which would be flexible in which products it could bring to markets, was the product of cooperation between the major players in India's downstream sector, which will have common use of the facility. Pooling resources—and the backing of the Indian state—also allows the developers to contemplate completing the project in a speedy five years. "We can't take 10 years—we need to move much faster," Ashok said, referring to the need to take advantage of the benign conditions currently affecting refining in India, with high demand and low feedstock prices.

Cooperation and flexibility are also watchwords for the upstream sector, where conditions could hardly be more different than for companies such as IOC.

Cooperation and flexibility are watchwords for the upstream sector

Ryan Lance, chief executive of ConocoPhillips, told delegates that another key component of the industry's realignment, technological advance, was already making a big difference to companies' plans and costs. He cited progress in multilateral wells in the US shale sector—where more than one wellbore is drilled from and connected to a single main bore—as a good example of how the upstream industry could drive down costs.

"Just think what that revolution has in store in terms of efficiency, cost benefits in ultimate recovery coming from the shale. We are still very early in the stages of understanding what these technologies can do, but it's driving down the breakeven costs," he said. "I feel the technology is taking us to the place that will bring on a pretty abundant amount of supply in a less-than-$50 [a barrel] world. I wouldn't be surprised if many of our plays work at $30-$40 a barrel."

Slashing spending

Tan Sri Shahril, chief executive of Malaysia's Sapura Energy, emphasised the role of rapid and realistic cost-cutting and restructuring measures to turn companies into more agile competitors that can survive in the world of low cost oil. Sapura has gone through a period of consolidation, during which it slashed staff numbers and renegotiated contracts with contractors.

He is well-placed to comment on the health of the upstream sector as a whole, because Sapura has both exploration and production (E&P) and engineering contracting arms. While Sapura's E&P activities need to secure low rates from external contractors to cut costs, the contracting division faces a tough market.

"The pressure is still there. From what we see as a contractor, work is still very, very thin," he said. "We still have to go through at least another 15 months of really working very hard to make a reasonable return."

Meanwhile, on the E&P side, Sapura has been making significant progress, and is working on its first gasfield development, the B15 gas project off Sarawak.

Bakheet Al Katheeri, the recently-appointed chief executive of UAE-based Mubadala Petroleum, said that a low oil price could give his company the opportunity to grow further. Mubadala is already a strategic investor in several Southeast Asian countries, including Malaysia, and has a cooperation agreement with China National Petroleum Corporation.

However, the days are gone when Gulf companies expect to rely on the financial reserves of their parent conglomerates. Mubadala Petroleum has undergone a streamlining process along with much of the rest of the industry.

A sector that has a duty to supply oil efficiently to the world needs to keep in shape over the long-term, he told delegates. "It is not a short-term plan. It has to be consistent. You practice day in, day out, every day," Al Katheeri said. "Staying fit and healthy needs strong focus and dedication."

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