Driving down costs key to success in Flemish Pass, says Statoil Canada president

The president of Statoil Canada says the establishment of a producing oil field in the Flemish Pass remains one of the company's priorities, but only if development costs and the break-even margin can be lowered as much as possible.

• Statoil 'disappointed' with reduced prospects for Bay du Nord discovery

Paul Fulton was a guest speaker Wednesday at the NOIA oil and gas conference in St. John's.

Like many oil companies, Statoil is going through a dramatic cultural shift in the face of lower prices.

As such, it will only proceed with projects when costs can be reduced by 50 per cent, and the profit margin is at $40 per barrel and below.

The company is achieving this on several projects in the North Sea, saving billions in capital expenditures, and in some cases cutting the break-even point in half.

"We don't ignore the drive to get to first oil and maximizing production, but the balance has shifted," he said, referring to a period in 2013 when even at $100 oil, the company was still struggling with cash flow.

"We have to be humble to the scales of the improvements that are needed," he said.

The company has taken a three-pronged approach to driving down costs: simplification, standardization and industrialization.

"We have to have a portfolio that is competitive through price cycles. We can't have projects break-evens in the 80s, 90s and above," he said.

So how might this new strategy affect development opportunities in the highly touted Flemish Pass, where Statoil and its partners have made promising discoveries?

The area poses great challenges because of its harsh environment, deep water and 500-kilometre distance from Newfoundland's coastline.

Still a big role for local suppliers

But Fulton said it's possible.

We have to be humble to the scales of the improvements that are needed.- Paul Fulton

"If we can work with you, the suppliers here and the regulators, on these three elements — simplification, standardization and industrialization — there is reason for optimism in being able to realize projects in the Flemish Pass," he said.

"Even in low oil prices."

So might this mean less of a role for local suppliers?

Not according to Fulton.

"It should help to increase the competitiveness and long-term sustainability of the supply industry here," he said.

So what is the break-even point for prospects such as Bay du Nord? How will it be possible for Statoil to reduce project costs by half?

Fulton was not available to answer such questions after his presentation, and told CBC News he was leaving for a meeting with Premier Dwight Ball.

Formal talks between the provincial government and Statoil on a development agreement for the Flemish Pass broke off late last year, though informal talk are ongoing.