SEAOOC 2014

Cost Control

Darwin

Thursday, 21 August 2014

9:30 – 10:00

1 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

Contact me for more insights: Geoffrey Cann

• National Director, Oil and Gas, Deloitte Brisbane

• Strategy, transformation, cost reduction

Blog www.geoffreycann.com

Twitter @geoffreycann

Email gecann@deloitte.com.au

Phone 61-447-366-333

2 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

North Americans are eyeing a promising market

0

2

4

6

8

10

12

14

2013 2014 2015 2016 2017 2018 2019 2020

Global LNG demand (bcf/d)

Japan Korea China Other Asia & Pacific Europe India Latin America

Source: RBC Capital Markets

3 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

Latter half of the decade belongs to North America

Source: IHS CERA, RBC Capital Markets

Global Liquefaction Capacity Growth Outlook 2008-20

4 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

Australia has a cost problem

5.44 4.93 4.82 6.95

2.88

2.43 2.17 2.31

1.58

3.26

5.3

4.1 3.6 2.5

4.3

0

2

4

6

8

10

12

14

16

Eastern Australia (CSG) East Africa(Mozambique)

West Coast Canada(Montney)

Western Australia(Conventional

Offshore)

US Gulf Coast(Haynesville)

Integrated supply cost comparisons Estimated Capital Cost ranges

Liquefaction Processing & Transportation Upstream Cost

$10-12/mcf

$13-14/mcf $11-13/mcf

$11-13/mcf $10-12/mcf

Source: RBC Capital Markets

5 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

Source Deloitte’s Gas Factory

We studied 60 cost problems in Queensland where oil and gas has been treated as a high margin business. It’s not.

People Technical teams Poor communications

Processes Bespoke

processes Poor scalability

Systems Siloed data Hand offs

Organisation Siloed disciplines Technical incompatibility

Performance Managed to time Cost over runs

Supply chain Cost plus Low innovation

Assets Custom built Costly maintenance

Increased

operating

costs

6 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

Innovation Collaboration

We prescribe the twin antidotes of innovation and collaboration

7 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

Source Deloitte’s Gas Factory

Australia could innovate its oil and gas business model along the lines of a factory

People Process teams Faster communications

Processes Factory processes Scalable, repeatable

Systems Architected data Transparency

Organisation Integrated

planning Responsive

Performance Managed to cost Margin focused

Supply chain Gain sharing Innovative

Assets Standardised Lowest cost

Decreased

operating

costs

8 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

The biggest cost out prize is collaboration on common infrastructure

Player 1

Player 2

Player 3

Generation 1

Today

Generation 2 Generation 3

Well

head FCS Well

head FCS Well

head FCS

9 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

Seven pre-conditions must be in place to foster collaboration in oil and gas

1 Alignment around a common

need

• Skilled resources

• Cost management

• Asset utilisation

2 Invested champion • Chief Collaboration Officer

3 Window of opportunity • Right time and right areas

4 Sense of urgency and

importance

• Prioritise areas of focus

• Develop an implementation plan

5 Top-level executive support • Align the key stakeholders and

executives and gain support

6 Compatible corporate values • Values of openness and

transparency

7 Transparent method of working • Transparent operating model

10 SEAAOC 2014: Cost Control © 2014 Deloitte Touche Tohmatsu

A call to action

1. Measure and report on productivity

2. Define a productivity strategy, centred on innovation

3. Improve abilities to adapt to change

4. Match contract strategy with changing project risk profiles and

environments

5. Collaborate with more and different organisations