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178 PRODUCING OIL FIELDS AND AROUND 10,000 ACTIVE WELLS LEAD TO RECORD PRODUCTION

Oman 2018 | ENERGY | VIP INTERVIEW

TBY met with Raoul Restucci, Managing Director of the Petroleum Development Oman (PDO), on low oil prices, record oil production, and objectives for 2018.

What strategy is PDO currently following in order to mitigate the impact of low oil prices?

There is a comprehensive effort to leave no stone unturned in our drive for cost control/efficiency and value creation, including far greater collaboration with our contractors. Throughout 2016, we staged 24 Contract Optimization Reviews (CORs), which are focused, multi-day workshops where we, together with the relevant contractor, identified opportunities for efficiency enhancement and waste elimination. This resulted in the identification of USD64 million cost savings for the year, and importantly with efficiency/productivity gains for PDO and our contractors. Our strategic partnership with Petrofac has enabled us to save in excess of USD480 million on key equipment and other purchases for our Yibal Khuff mega project. For 2017, we have set an aggressive target of 30 CORs. Already 20 had been completed by the end of August, identifying around USD185 million of cost benefits. We have challenged all of our projects and standards to examine if there are any ways we can explore and produce hydrocarbons more competitively and efficiently and our second Focused Results Delivery (FRD) program has identified an opportunity to simplify the regulations around our small oil and gas facility projects that could save more than USD100 million a year. We undertook this after the success of our first FRD program in 2016 which identified over 500 cost-saving improvements through the removal of “nice-to-haves” in our engineering standards. One particular area I'd like to highlight is our Lean program which has transformed the way we work by stripping out waste and streamlining our practices across all aspects of our business. It's integral to all we do internally, but there remains much scope for expanding our Lean practices across our supply chains. So far, Lean has helped us to generate around USD1 billion through cost saving, revenue generation, and cost avoidance, and over 5,000 ideas for continuous improvement ideas have been submitted by our staff. Lean has galvanized all levels of the Company, delivering tangible benefits by freeing up resources and ratcheting down costs.

Although PDO has 178 producing oil fields, approximately 10,000 active wells and had its highest oil production in 2016, does PDO have any plans to expand its exploration and drilling operations?

We have to work within the mandatory parameters laid down by Government in the light of the OPEC production agreements. However, our focus remains on delivering our growth program with ever-increasing efficiency and staying the course on our key strategic priorities. We remain very bullish about our growth prospects as our portfolio remains healthy and profitable. We are capable of ramping up our long-term production plateau to at least 650,000 bpd in the next three years but are being guided by the Ministry of Oil and Gas on future targets. I'm particularly proud of the approach taken by our exploration team which has proficiently hooked up and monetized all exploration discoveries, enabling it to fully recover its exploration spend within the same year.

As evidenced through the GlassPoint EOR project, how is solar energy transforming the way PDO is doing business?

PDO is working to transition to a fully-fledged energy company with a greater emphasis on renewables, especially solar because of the Sultanate's climate. There is no reason why Oman cannot become a global leader in solar energy expertise and we are determined to play a major part in that. The Miraah project to produce steam for thermal enhanced oil recovery has already shown the scale of our ambition and we are currently actively implementing a number of other solar ventures in both our hydrocarbon and non-hydrocarbon portfolios. For example, we are now almost two thirds of the way through a project at our Muscat headquarters to install more than 19,500 solar roof panels on car parking lots. When finished next year, this will generate 9.5 million kWh annually to power key office buildings, with the electricity being diverted to the domestic grid during off-peak periods. Meanwhile, we will soon be issuing an invitation to tender (ITT) for up to five 20 MW solar projects in our concession, mainly scattered in the area between Bahja and Marmul. The aim of the project is to save gas through the daytime generation of power while learning how best to support and service photovoltaic (PV) solar facilities in our operating environment. The overall venture is expected to introduce an equivalent fuel saving of 70.5 million cubic metres of gas per annum (US$17 million a year), reducing our dependency on conventional gas turbines. It will also reduce overall CO2 emissions by around 8,550 tons annually. Along with the gas saving and the environmental benefits, the enterprise will be a landmark in the country as it will be the biggest solar PV initiative to date and bolster our position and operating experience in renewable energy.

What main initiatives is PDO currently rolling out across its multiple operations?

These are many and varied but I'd like to flag several which will give you a flavour of our direction. In January, we launched PDO's in-house behavior-based safety system called Ihtimam in three pilot areas and it has provided a step change in how we manage personal safety and associated behavior. We now plan to roll this out across the entire company and contractor community. Changing and working to continuously improve our safety culture and that of our contractors will take time, but we have taken a major step towards that goal. Another pillar of this is our In-Vehicle Monitoring System, which provides a combination of online monitoring, structured analysis, and reporting, as well as consistent consequence management – and has led to significant falls in the number of road safety violations, such as speeding, seatbelt usage, and harsh braking. In February 2016, there were 14.76 violations per vehicle in the 8,500-plus PDO and contractor fleet. However, by August this year, this had fallen to 1.65 with improved compliance of around 89%. Our commuter bus network has been launched to discourage private vehicle use to and from our interior installations. This is also creating a big improvement in driving standards and road safety. Among a battery of environmental initiatives, PDO has officially endorsed the World Bank “Zero Routine Flaring” initiative, demonstrating our commitment towards gas conservation and reducing our carbon footprint. We are currently inviting suppliers of gas flaring mitigation technology and solutions to show their interest in helping us to tackle this challenge. In the company's journey of cost saving and unlocking production opportunities, new technology implementation remains a key enabler. Over 60 new technologies are being matured by the new technology (UCT) team at present with a trialing success rate of over 90%, reflecting comprehensive market intelligence, rigorous pre-trial technology assessments, proper success criteria definition and close execution monitoring. There is no doubt that new technology, “Big Data” and digitization are going to play an increasing role in shaping how we operate as the emphasis stays on growing production more efficiently. We are now engaging with number of leading IT companies on technology and software which could make a real difference to the way we operate thousands of wells and processes. It is about moving from lagging indicators to leading indicators and then to predictive indicators. We are also working with a number of Omani universities on research and development to devise solutions to our challenges and increase the exposure of their staff and students to the oil and gas industry. Technology is changing our day-to-day modes of working, and we are currently trialing a flexible working plan by allowing a selected group of staff to work from home or a hub office. This will increase productivity, improve personal work schedules and home and family commitments, while reducing commuting headaches. This year, we launched a high-profile diversity and inclusion campaign to ensure PDO is a workplace free from bias, harassment and bullying where everybody can succeed regardless of background, gender or age. And in relation to our contractor community, we are in the middle of a three –year initiative called Project Prism to establish the welfare standards for more than 30,000 personnel and ensure they are being treated in accordance with PDO policies and the Omani law. Our finance directorate is making good progress towards its vision of being world class by 2020. A recent benchmarking review by global business consultants The Hackett Group has recorded significant improvements in both effectiveness and efficiency since the last assessment two years ago. The review found that finance has maintained top quartile efficiency, with improved speed of execution, with a 34% improvement in cycle times since 2014; and contracting and procurement has made big strides to world-class status, despite a heavier workload, in areas such as sourcing cycle time and cost avoidance. There is still much to do, but there is no doubt that the wave of initiatives launched by the directorate is underpinning our drive to do more with less. In this respect, I also cannot overstate the importance of Lean (mentioned earlier) which is transforming the way we work by empowering staff to challenge the status quo and seek simpler, faster, more productive and less expensive ways of doing things. Beyond PDO, we are working closely with the Government's Tanfeedh program on enhancing economic diversification in Oman in a number of key areas: manufacturing, transport and logistics, labor, and tourism. We are energetically pursuing our National Objectives program to provide thousands of employment, training and redeployment opportunities for Omani jobseekers in the oil and gas sector and have also signed a number of commitments with non-oil sector players to fund vocational training for Omanis such as aviation, retail, real estate, digital media and fashion as part of our effort to create 50,000 such opportunities over the next three years.

What are PDO's main objectives for 2018?

To stay the course on delivering our key projects while adding value and controlling costs across the full spectrum of our business, from exploration to abandonment. In a nutshell, this means delivering on promise and meeting our stakeholders' demands and expectations more safely, more efficiently and more responsibly. We will continue our drive for the early monetization and hook-up of low unit technical cost prospects while maintaining our overarching focus on personal and process safety as we strive for “Goal Zero:” no harm to our people, our environment and our assets. At the same time, to guarantee our future sustainability and that of the nation, we must ensure reserves and contingent resource replacement ratios are above one. The roll-out of sustainable and diversified in-country value programs and initiatives will continue to ensure Omani employment and skills levels are raised, both in the oil and sector and beyond our natural boundaries, and ramp up our support for Omani entrepreneurs to boost the Sultanate's SME sector and help spur the greater diversification of the national economy. Within PDO, we will continue to focus on the development of Omani leaders and staff. Continuous improvement and innovation, through Lean, simplification and standardization will help us meet our targets to maximize net cash to shareholders with agreed spend ceilings. You will also see us continuing to embrace new technological solutions to tackle our challenges and PDO will increasingly leverage its expertise and human capital across our sector and further afield as we forge new partnerships with national and international operators to monetize our know-how and best practice.


 

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