With Alex Schneiter
CEO, Lundin Energy
Q: Congratulations on your recent name change. Can you tell us more about the reason behind the change from Lundin Petroleum to Lundin Energy? Why did you do this and why now? Are you moving away from being an oil company?
Our strategy has always been to turn natural resources into energy, both for individuals and for the progress of society, and that hasn’t changed. Since 2010, our company has been active in reducing our own emissions. We started our journey by taking steps to electrify one of the first platforms that we developed in Norway, Edvard Grieg, and that was followed in 2015 by the decision to fully electrify Johan Sverdrup which is now producing. We are now fully electrified at Johan Sverdrup, and we made last year the decision to fully electrify Edvard Grieg, by using onshore power for both, which is mostly renewable. We have also decided to offset and replace all the electricity that we consume by investing in renewables, as well as tackling scope 3 emissions from our operations such as helicopter and commercial flights through natural carbon capture projects.
When we looked at all of this, we felt that it was time to explicitly spell out our strategy to the outside world. You’ve probably seen that in January this year we released a press statement clarifying the clear objectives of our decarbonisation strategy with the ultimate target to reach carbon neutrality as an operator by 2030. When we saw everything we were doing, extracting oil and developing renewable resources and using renewables to power our platforms plus the natural carbon capture, I think it was a natural moment for us to change the Lundin Petroleum name into Lundin Energy. Above all, we are an energy company and not just a petroleum company. It was timely also based on all the investments we’re committing to. By 2022 we will have spent $750million on the optimisation and reduction of emissions. This is, in our opinion, a substantial amount.
Q: Without doubt the industry is facing challenging times with the spread of COVID-19 and subsequent oil price collapse. What is the company’s strategy to remain resilient in a lower price environment?
We’re doing what we’ve been doing all along. Our strategy is driven by organic growth but in tandem with that strategy, we have always strived to be as efficient as we could be through low operating costs and low breakeven projects and that really hasn’t changed. If anything, COVID-19 and the crisis we’re facing today is showing us that what we’re doing is the right thing. In today’s market, you have to be extremely efficient and have very low operating costs and a low breakeven point to be able to sustain this tough period, whilst keeping safe.
Q: You’ve also attributed the company’s resilience to the low operating costs of your production fields. Can you tell us a bit more about this?
Our operating costs in the medium to long term will sit between 3.2 and 4.2 USD per barrel and that I think is probably one of the lowest in the North Sea. If you take Johan Sverdrup alone, our operating costs are less than $2 a barrel – that is below what Saudi Aramco announced when they did their IPO. We have very, very low operating costs and they are here to stay and that is down to a couple of things. Firstly, because they are new platforms, we’ve been able to use the latest technology and secondly they are very high quality assets with high productivity per well as well as low emissions which helps keep the operating costs low. In Norway for instance, we pay very high CO2 taxes so it’s important that your emissions are as low as possible. Today and over the next 6 years, Lundin Energy will generate free cashflow even below $17 a barrel. This performance is also the result ofa very proactive, dynamic and professional operational team.
Q: Over recent years the company has focused on production growth, capital discipline and efficiency – will this change given current market circumstances?
The short answer is no. Of course capital discipline will be more important than ever. On production growth, we have achieved that through organic growth and I think in today’s world it remains very valid. If you have the ability to find more oil and you can develop this oil, you will make sure you only develop it if it’s very valuable and you can use the latest technologies. Despite the current major over-supply issue, in the future, oil and gas will continue to play an important role and organic growth is the best way to go if you are able to deliver low finding costs per barrel and apply the latest technology when you find the hydrocarbons in addition to only develop resources with low breakeven..
Perhaps one thing that has changed a little is that we are now focusing on very high value assets and so very frontier areas are perhaps less attractive than they used to be. You tend to explore close to existing facilities so that you can use the existing facilities and optimise your costs.
Q: Like many companies Lundin Energy has recently announced a carbon neutrality pledge, but unlike many companies Lundin Energy has a defined decarbonisation strategy to get you there with specific targets. Can you give us the headlines of that strategy? Will this now change given low oil prices and pressure on operations and revenue?
There are several elements needed to achieve this. Priority number one as I stated before, was to reduce our emissions to be as low as possible through the electrification of our platforms. By 2022, more than 90% of our production will come from two platforms, Edvard Grieg and Johan Sverdrup, and both will be fully electrified. Second, we are conscious that by electrifying our platforms we use a significant amount of electricity. We made a commitment that we will replace all the net consumption of electricity offshore by investing in renewables. As an example we’ve recently invested in a hydropower project in Norway and we just signed a deal in Finland for a wind power project. In this way, we are about to offset 2/3 of our electricity consumption but we still need to invest more in renewables, so you’ll probably see the company announcing more transactions in the future.
After this, we are still left with some remaining emissions that we just cannot reduce further.We made a commitment to achieve carbon neutrality by 2030. We will achieve this through natural carbon capture. At the moment, as an example, we are planting trees in northern Spain. But the reality is that even if you just look at the electrification of the platforms, today we are producing less than 4kg of CO2 per barrel. By 2022, when Edvard Grieg is also fully electrified, we will be producing less than 2kg of CO2. To put that into context, the average across the world is more like 60kg of CO2 per barrel so we’re already achieved significant emission reductions. Removing the remaining 2kg will be achieved through either natural carbon capture or other means. We have a clear strategy and we’re clearly walking the talk.
Q: Will this now change given low oil prices and pressure on operations and revenue?
No. The target to achieve carbon neutrality is there and it is a commitment we’ve made so we will not change that. Of course in a year like 2020, we will have to be very disciplined on costs but fundamentally the strategy won’t change.
Q: What do you think should be the industry’s counter-narrative to the ESG activists looking for divestment and funding diversion away from hydrocarbons?
It’s an interesting one. I think you have to look at the numbers first of all. Today, regardless of what you think, the reality is that 80% of total energy in the world comes from fossil fuels – coal, gas and oil. Now there are several scenarios, but by 2040, fossil fuel will still make up between 64-74% of the equation. Once you realise that, you realise that oil is here to stay.
Eventually, over time, there will be some reductions, but what we need to be focusing on is how to produce in the most efficient way possible. Of course society needs to improve too, but whilst we need to encourage ESG funds or ESG activities, we should also be encouraging those who are doing the right thing with fossil fuels because it is unrealistic to simply believe you can shut down the oil and gas industry, it will not happen. We should be encouraging those that are doing the right thing and helping them to achieve that, rather than just pointing fingers at the whole Oil & Gas industry. The reality is that not all the barrels are the same from a carbon foot print and overall efficiency point of view.
If everyone did what we are doing, you would save about 2 billion tonnes of CO2 per year, it’s significant and the equivalent of about 700 million cars. The reality today is that the industry in general is still regularly flaring, there’s a lot of poor usage of energy and efficiency overall. There’s a lot we can do so I would say from an ESG point of view, let’s recognise and identify those that are doing the right thing. The reality is that we haven’t yet found a replacement for the energy intensity oil and gas is delivering. With time, technology will develop and things will change but oil and gas will continue to play an important role – just hopefully in the most sustainable way possible.
Q: How do you think a career in O&G can be made desirable especially in light of the increasing pressure and scrutiny? And what are you doing at Lundin Energy in regards to the attraction and retention of talent?
It’s a good question, its important. We as a company agree that there is a challenge out there and that climate change is a fact. As a company, provided you are open to all these changes and you embrace the challenges, and are open to new things, like electrification, new technologies, digitalisation and other processes, renewables and natural carbon capture, then new talent will want to speak to you. I think the younger generation, when they see us doing all these things, we will attract them. Our industry is doing some amazing and phenomenal projects. Provided you are open to change, I think you will attract people and people will be passionate about being part of that change. It’s about being open to new technologies and being open to the transition. It is not about being reluctant and denying that there is a challenge out there.
Q: And finally, what excites you for the year ahead at Lundin Energy?
Previously I was asked instead what keeps me awake at night. I think the answer is the same for both questions! For me, it’s the speed of change. Today as a CEO, the speed of how our industry and the world is changing is phenomenal and it’s challenging, and it’s true that it sometimes keeps me awake; but on the other side I think it’s also exciting. It’s about accepting the change and trying to be part of that change. Every day when you go in the office you have to re-think every answer and how you do things – how to be a part of this energy transition, or how can you be a company that’s a model for the future in our industry, so that’s exciting but at the same time very challenging.
During a difficult time like this where demand has dramatically reduced and the oil price has collapsed, only the most adaptable oil companies will survive. This happens regularly in this cyclical business and is not necessarily a bad thing as, for the future of the industry and society, we need the best companies to be producing the most sustainable oil possible.