By Chris Thompson, chairman of engineering firm Express Engineering
We all know that the global oil and gas industry operates in a shifting and challenging business environment.
Variations in supply and demand linked to global geopolitical issues have historically contributed towards uncertainty in an industry that has craved stability that has seemed out of reach. Now, strategic partnership models are set to recalibrate this and bring greater confidence and reduced volatility through the cycle.
Cyclical Shock
Indeed, the slow-down of 2014 - 2017 was one of the longest and most severe and extremely challenging for all those involved in the Subsea equipment sector. There were aggressive cuts to employee numbers, strategic alliances were formed and manufacturing facilities around the globe were closed or consolidated to cut costs in an effort to simply survive.
So, it’s against this landscape, that the subsea sector is now focused on achieving the efficiencies and competitiveness that will bring important projects to fruition to support future production volumes and the wider supply chain. The dynamic between the customer and supplier is changing - a different type of relationship is evolving that’s reshaping the terms of engagement, heralding advantages to customers and more added value to capable outsource partners who operate within the subsea supply chain.
There’s no question that we have seen critical knowledge, experience and capacity lost from the sector during the last downturn due to an exodus of people and suppliers, and it’s highly unlikely that we will see the same levels of engineering talent and capacity return to the sector, at least in the foreseeable future.
In the face of the skills exodus, operators such as Shell and ExxonMobil demanded a recalibration of costs, reduced lead times and product solutions from their subsea infrastructure partners, which could deliver acceptable ROI on the back of lower oil prices - new business models and new product systems were required to accommodate the risks and volatility of macroeconomic global influences on the oil price. Service companies (FMC, BH, Aker, OneSubsea) became smarter and leaner, bringing in new products and new business models in anticipation of a market recovery and to secure business.
New business models
Service companies have started to take a fresh look at the way they operate and engage the supply chain to assist them to deliver their growing backlogs and win more business. They have scaled back their investment in manufacturing resources and engineering expertise, instead focusing their efforts and resources elsewhere to bring online a more capable supply chain.
This opens up opportunity for those agile, well placed and highly skilled supply chain specialists and contract manufacturers who can participate successfully in the race to deliver access to the best engineering talent and ultimately, cost-effective manufacturing solutions.
The competition to secure business with the highest performing products delivered in the shortest timescales can only be achieved through investing in and developing strong supplier relationships and outsourcing to those supply partners who can operate higher up the supply chain. Working more collaboratively with suppliers to draw on their core strengths and skills, will deliver real bottom-line savings and benefits during bidding and execution of projects.
Sharing responsibility for project and schedule risk equitably in a transparent open culture is to everyone’s advantage. The accurate flow down of information drives up product quality and delivery performance and feeds innovation for the standardization of products and processes to drive out cost. Fostering a ‘real’ partnership brings other advantages. Investing in the long-term strategic supplier relationships rather than simply seeking short term, tactical, transactional and contractual engagement motivates and incentivizes businesses, encouraging them to invest time, effort and resources to deliver the products and services required and adopt flexible working practices and facilitate a culture of innovation.
Industry reports* indicate that the subsea tree market is expected to grow at a CAGR of approximately 7.70% during the forecast period of 2020 – 2025, driven by the decline in operating costs and increasing exploitation of unconventional reserves. Estimates place the value of the market to reach in excess of US$3.5 bn per annum by the end of 2027.
The favorable outlook for a returning subsea oil and gas sector has created a renewed opportunity for trees, tie-in, manifolds and connections and tooling OEMs such as Technip FMC, Aker Solutions and Baker Hughes.
Winning contracts and gaining market share has become an intense competition to secure business and build backlog. There have been a number of new product innovations and subsea systems successfully introduced that have been designed to reduce weight, improve efficiency, extend life and to reduce costs, while shorter ‘time-to-oil’ lead times continue to secure project wins and the flow of oil from deepwater fields around the world in the Gulf of Mexico, Australasia, the east coast of Brazil and the west coast of Africa.
However, it’s vitally important to continue to think about the long-term. The future business models that we need to create must-have inbuilt resilience in anticipation of the next slowdown in subsea infrastructure investment. Enterprises cannot thrive in a boom or bust environment, it’s not good for the industry or shareholders. Operators and contractors will remain focused on their core strengths and where they can offer the most value while they outsource to trusted supply chain partners key parts of what previously may have been considered core business. This will ensure that when the next downturn inevitably comes around, fixed costs (facilities and staff) will be lower and more sustainable.
Partnerships
A partnership is built on trust. The customer must trust the supplier with their intellectual property and accumulated knowledge. This demands integrity from the supplier who must also trust that their investment in resources and skills is translated into a tangible forward order book. Equally, it can be hard to form a professional partnership based simply on trust alone. A demonstrable track record of success and reliability offers reassurance in the supplier and in the whole customer/supplier relationship.
Express Engineering is manufacturing, assembling and testing critical subsea components, sub-assemblies and complete connection systems that have attained the requisite customer qualifications and quality standards. The company has also taken full responsibility for qualifying a new supply chain of its own to add capacity to support the increasing demand and specific systems’ scope required to meet customer needs.
Working in partnership with customers, Express Engineering offers seamless and integrated solutions for the value-added engineering and manufacturing requirements of customers. It applies many years of accumulated specialist subsea expertise and provides transparent accurate capacity schedules with integrated MRP management and finite capacity planning for strategic product supply across a raft of current and new global Subsea projects.
In response to recent demand, Express has also invested in additional technology, manufacturing capacity, internal engineering systems, assembly, and test facilities and supply chain management personnel to deliver effective, added value support. All designed to keep the subsea oilfield services sector ahead in the race to secure productivity and return on investment as a strategic supply partner to the industry.
Chris Thompson is the Chairman of Express Engineering, a UK-based engineering company. He is currently a shareholder, investor, director or chairman of more than 20 enterprises within the North East region in the UK.