HOUSTON—The global upstream market is facing challenges as concerns about climate change continue, especially the impact of methane emissions along with addressing energy security.
A panel of energy executives spoke on March 12 during CERAWeek by IHS Markit on how they were combating these issues while remaining profitable.
Moderated by Atul Arya, a senior vice president and chief energy strategist, IHS Markit, the panel included Al Cook, executive vice president for global strategy and business development at Equinor in Norway, Gretchen Watkins, president of Shell Oil Company and executive vice president of Shell Upstream Unconventionals, Shell Oil Company, Daniel Gonzalez, CEO of YPF, Argentina’s energy company and Matt Fox, COO and executive vice president of ConocoPhillip.
Ahead of the panel discussion, Shell had announced its support tightening rules to control methane emissions.
“I am breaking that rule today to request that the Environmental Protection Agency continue the direct regulation of methane emissions,” Watkins wrote in a LinkedIn blog post. “The agency is thinking about stripping out methane from the 2016 methane rule and regulating a different emission instead. I disagree. I want EPA to keep doing what it’s doing. In fact, I would support EPA regulating methane emissions from existing oil and gas assets as well.”
Watkins, who was named as the new president of Shell’s North American operations in Houston in March 2018, is the former CEO of Maersk Oil, a Danish oil and gas company. She advocates adopting a stricter regulatory approach because the leakage of methane, a greenhouse gas, will impact the environment globally more than carbon dioxide.
The regulation has led to “more efficient production and better mitigation technology, all of which have helped us to reduce methane emissions from our operations,” she wrote.
Watkins reiterated the global oil and gas company’s stance during the panel discussion.
“We’re coming out clearly and telling the government should not strip out methane,” she said. “We support the regulation of existing and future sources. We need to do more.”
The company, which also has a large refining capacity, plans to focus now on boosting production from its shale assets which is mostly concentrated in the U.S. along with some production in Argentina. Unconventional plays are a large part of its portfolio of assets and Shell hit “cash flow positive” last July in its Permian operations.
“We brought the costs down and drilling performance up,” Watkins said.
Shell’s competitive advantage is to utilize technical improvements to “scale up rather quickly,” she said.
“We’re a long term player in these shale plays and returning cash to the company well into the next decade and beyond,” Watkins said.
The industry needs to adhere to more regulations and “step up and do more on greenhouse reduction and methane,” she said. “Technology will continue to play a really important part.”
Shell has plans to continue investing its cash in new fuels and examine methods to “thrive” in the energy transition in order to help solve climate change and be part of the solution profitably, Watkins said.
Technology is playing a greater role as energy companies pivot and incorporate artificial intelligence to find additional solutions. Shell has implemented artificial intelligence (AI) to drill in wells in the Permian basin.
“We have a number of investments in digital and some things are already humming along,” she said. “We put information into the hands in the fields and plants.”
The algorithms from machine learning provide information to produce “safe, reliable, low cost operations and we will continue to advance in that arena,” Watkins said. “I am super excited … it’s a huge part of how we work right now.”
Cook reiterated Watkins’ comments on technology and how it has increased the production of oil and gas.
“Technology is moving so incredibly fast,” he said. “It’s extraordinary to see. Digital is going to transform everything we do.”
Energy security should remain a priority for companies since there is volatility in crude oil prices and the world is facing a period of “political uncertainty right now,” Cook said.
Digitalization will transform the industry and companies “need to make a serious bet” even though it’s unknown which technology options will pay off and produce value in the future,” he said.
“We have to prepare for a transition,” Cook said.
While YPF has not seen the results of technology helping drilling and production costs yet, González conceded that the company was behind some of adoptions made by the majors.
“We are still a bit behind,” he said.
Despite not transitioning to more digitalization, YPF has increased production to be “sustainable at where oil prices are,” Cook said. The company’s goal is increase shale gas production within four years.
“The results are definitely there,” he said. “Despite these improvements, we have so much to improve by copying what our partners are doing here.”
Among YPF’s goals is to reduce the amount of sulfur content in its fuels and be more energy efficient.
“We need to do it efficiently and care for the environment at the same time,” Cook said.
ConocoPhillips needs to control its pace of investment since it has sold $3 billion of assets, added to its core position in Alaska and returned value to shareholders, Fox said.
The company’s focus is on long-term plans since oil prices are often volatile.
“It is cyclical and uncertain and impacts how you think” of your strategy, how to allocate capital and manage uncertainty, he said.
While ConocoPhillips has a strong investment portfolio, the company plans to allocate capital to sustain production, grow its dividend and distribute cash back through share buybacks while combatting climate change, Fox said.
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