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Step towards savings

The petroleum industry has historically enjoyed higher profit margins than most other sectors, particularly when oil and gas prices are buoyant. Nevertheless, shareholders demand efficient operation. That makes cost control a key element – for Statoil/Equinor as well. Certain development features from the merger with part of Norsk Hydro in 2006-07 to the present day are addressed below, concentrating on the Step project.
By Ole Jone Eide, Norwegian Petroleum Museum
- Photo: Anja Wendelborg Fremo/The Norwegian Petroleum Museum

Merging with Hydro’s oil and energy division and the commitment to North America were key elements in Statoil’s expansion from 2006-07. Much of the basis for the aggressive commitment in the early part of this period was provided by high oil prices – with the 2008 financial crisis as an exception.

While substantial assets were acquired in line with the high oil prices, big sums were also flowing out. A sharp rise in the level of costs, largely fuelled by the industry’s global hunt for new reserves, reduced profits to such an extent that a number of efficiency and cost-saving programmes were initiated – including outsourcing in several parts of the organisation.[REMOVE]Fotnote: Boon, Marten 2022. En nasjonal kjempe. Statoil og Equinor etter 2001. Universitetsforlaget: 299.

“Statoil costs plunge after turnaround”. Facsimile: Stavanger Aftenblad, 1 November 2014


The most far-reaching of these projects during recent years has been the Statoil technical efficiency programme, or Step. This was officially launched at the company’s capital markets day in 2014 as a multiyear project in six parts.[REMOVE]Fotnote: For a more detailed overview of these steps, see, for example,  Hundvin, Andreas, 2018, Organisational Effects of the Equinor STEP Programme. A Qualitative Study, master’s thesis, Norwegian School of Economics: 9.

1) Integrated well deliveries. This included more standardisation with and cost control of well work.

2) Strengthening the early phase of projects. One point here was greater efforts to determine the right development solution from the start.

3) Standardisation and industrialisation. This included standardisation and industrialisation of production systems for subsea technology on the Norwegian continental shelf (NCS).

4) Efficient operation, maintenance and modifications. An important point here was to clarify the relationship between calendar-based and condition-based maintenance.

5) Supplier management and supply chain efficiency. This included an emphasis on even better contact with and competence on the supplier industry in order to avoid unnecessary costs.

6) Simplification and prioritising resources more generally, particularly technological resources.

Nilsson and Opedal

Jannicke Nilsson, whose previous positions included platform manager and senior vice president for operations North Sea, was appointed to head Step.[REMOVE]Fotnote: Annual report, 2016, Statoil: 97. (References to annual reports in this text refer to the Norwegian edition of the reports.)

From 1 April 2015, Step was subordinated to the newly established post of chief operating officer (COO), held initially by Anders Opedal.[REMOVE]Fotnote: Annual report, 2015, Statoil: 102. That gave him overall responsibility for cost savings.

Opedal took over responsibility for Statoil’s Brazil commitment in December 2016, when Nilsson was appointed his successor as COO.

Jannicke Nilsson. Photo: Helge Hansen/Equinor

Castberg and Sverdrup

Step was introduced at a time when greater attention was being paid to cost control. As early as Helge Lund’s time as CEO, and before the oil price downturn in 2014, several large projects had been postponed and thoroughly reassessed to determine how profitable they actually were. This work was extended and further developed after Eldar Sætre became CEO. The point was to initiate developments which put money in the bank even if the price slump proved lasting.[REMOVE]Fotnote: From that perspective, the thinking which led to a project like Step was an important part of the continuity from Lund to Sætre.

An example of increased cost awareness was the process pursued with the Johan Castberg field in the Barents Sea, where Statoil reduced the project’s breakeven oil price sharply from USD 80 per barrel to USD 35.[REMOVE]Fotnote: Equinor website, Submitting plan for development and production, and awarding Johan Castberg contracts, 5 December 2017, https://www.equinor.com/news/archive/05dec2017-johan-castberg, accessed 23 March 2022. These savings were made possible in part because of cost cuts by suppliers (see item 5 in the Step list above). A thorough reassessment was made of whether all the proposed installations were essential. That led, for example, to the elimination of a NOK 400 million reserve generator as not strictly necessary.

Another important part of the cost-cutting process was that the field would be developed with a floater rather than a fixed platform. In that context, Arne Sigve Nylund, executive vice president for development and production Norway, commented that the company had “utilised experience and knowledge from Step, including with regard to standardisation and how wells should be drilled”. See item one, for example, in the Step list above.

Substantial cost reductions were also achieved in the same period with the Johan Sverdrup discovery in the North Sea. Since a plan for development and operation (PDO) for phase 1 was submitted in 2015,[REMOVE]Fotnote: Annual report, 2014, Statoil: 3. investment had been cut by NOK 37 billion or 30 per cent by 2018. The phase 2 development achieved a breakeven oil price of less than USD 25 per barrel in the same year.[REMOVE]Fotnote: Equinor website, 27 August 2018, Increased value creation, more resources and greater ripple effects from Johan Sverdrup, https://www.equinor.com/no/news/27aug2018-johan-sverdrup.html, accessed 23 March 2022; A key project closely associated with Step and the organisational efficiency (OE) programme on administrative cost savings was a downsizing of the company by about 20 per cent, which included early retirement and termination packages. This process sparked concern among the unions. See, for example, Safe Magasinet, 3/2014: 4-7, https://www.safemagasinet.no/wp-content/uploads/2016/06/SAFE-Magasinet-2014-Nr-03.pdf, accessed 24 February 2022.

Getting cuts right

How far it is reasonable to go in cutting costs will always be a matter of debate. Savings which are appropriate one day do not need to be so another. The most important consideration is therefore to pursue a continuous discussion where everyone involved has a voice, so that reductions are not made at any price.


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