New business models involving alliances, integrated offerings and early engagement with suppliers were hailed as ways to do business better in today’s cost conscious environment, the Underwater Technology Conference (UTC) in Bergen was told last week. Yet, not all agreed and there’s still the matter of trust, a senior executive from Statoil said.
Image: The UTC 2016 panel discussion. L-R: Carl Andreas Holm, Boston Consulting Group, Arild Selvig, SVP and head of front end, Forsys Subsea, Øyvind Mikaelsen, Subsea 7, Torkild Reinertsen, Reinertsen, Erik Sverre Jenssen, Lundin, Jon Arnt Jacobsen, Statoil.
A slew of industry alliances have been created in the past years, as contractors and suppliers look to combine their offerings to operators, enabling greater efficiency, reduced interfaces, more collaboration and new ideas. Everybody, it seems, is doing it, with alliances between the likes of Aker Solutions with Baker Hughes and more recently ABB, and OneSubsea with Subsea 7, but also new businesses, such as FMC Technologies and Technip’s Forsys business, which appears to have preceded the recent announced merger of the two businesses.
All are hopeful of early engagement with operators in order that they can understand the client’s issues early on and therefore offer the best solution, reducing change orders or working around what one speaker described as sub-optimal solutions.
Scott Rowe, group president at Cameron, owned by Schlumberger told a UTC panel session that alliances would move away from situations where a subsea project might have 15-20 different suppliers. “We think this is sub-optimal,” said Rowe. “It fails to drive reliability and we don’t think it leverages the latest technology as operators push down specifications. We believe the integrated approach is the best way. Bring the supplier in early.” Schlumberger, owns OneSubsea, which has the alliance with Subsea 7. It also has a subsea services alliance with Helix.
Subsea 7’s Øyvind Mikaelsen, EVP, agreed. He told the panel session: “The whole industry has a huge challenge to make money at $50/bbl. We believe engaging suppliers early is the solution for sustainable cost.”
Setting the bar when it comes to alliances appears to be Aker Solutions, with alliances with power and automation firm ABB, oilfield services firm Baker Hughes, compressor business Man, with whom it’s working on subsea compression, and Saipem on subsea umbilicals, risers and flowlines.
“These types of collaboration are needed to make changes going forward and provide the flexibility operators need,” Aker Solutions’ CEO Louis Araujo said in the UTC keynote session. He also said Aker Solutions wants to go further. It has a goal for “push engineering,” where field solutions can be developed without having to, each time, go out to the same suppliers and get more valves, etc.
Together with Germany’s Man, Aker Solutions is developing the next generation subsea compression station. It will be “slimmer and more cost efficient and to be used in even the smallest fields,” says Araujo. “We can reduce the size and weight by 50% without reducing the core efficiency.”
Yet, for companies operating in alliances to be able to offer the best synergies, “the operator has to change as well,” offering more functionally driven specifications, Arild Selvig, SVP and head of front end at Forsys Subsea, told the panel session.
“New contract models are needed,” says Mikaelsen. “Squeezing margins cannot carry on. I think we have not been collaborating. There is a permafrost, experts don’t like to be challenged, also within our companies.” Once alliances are up and running and working, “it is an eye opener and very powerful,” he says. “Those who do not bring us in early are missing an opportunity.”
Yet, Torkild Reinertsen, President at offshore engineering house Reinertsen, told the panel session that those asking to be brought in early “had had their chance.” “I think we have been bringing in companies early already and it is not working. You have had your chance. Oil companies need to change their contracting strategies. We have been working to reduce costs in topsides facilities. We reduced cost by 30% and we are heading for 50% across total projects. I think the same can be done within subsea. I don’t think subsea is different. It is complex, the problem is the model you have got.”
He said when companies go in early and pitch their ideas these inevitably favor the supplier’s own solution, which means there will be no competition among the suppliers after decision gate 2, a part of the design engineering process, and the client will be locked in. “It is the same with selecting your installation contractor,” he says. “If one company covers all the competence areas, that’s a problem. You cannot use the full market. You need an independent engineering house as you do for other [topsides] projects.”
The operator perspective was given at the panel session by Erik Sverre Jenssen, COO at Lundin, and Jon Arnt Jacobsen, chief procurement officer at Statoil.
Lundin, which operates a lean outfit, has leant on suppliers and contractors, who Jenssen says have most of the competence. “We want to give responsibility to the contractor because we know they are competent,” he said. “Let them use their suppliers.” This had worked on Edward Grieg, which was on time and budget with very few change orders, he said. But, he warned: “We are dependent on high quality delivery. Some suppliers lean on operators for quality and assurance etc. We are not naïve, but don’t lean on us for quality systems.”
Jacobsen said: “It is a complex issue. We all agree more cooperation is needed.” But, he said: “We have been struggling with quality issues too much and too long. The implication of quality issues are huge and this influences cooperation and business models. There is talk about trust. Let’s recognize we have these issues in common and that we need to solve them. We are ready and willing to give more responsibility to suppliers,” but he said the issues around quality and also how to bring in incentives to be looked at. Contractors needed to carry the upside – but also the downside.
Indeed, Boston Consulting Group’s Carl Andreas Holm told the panel session that the greatest cost savings would only be made by fundamental change in the industry. Taking out cost only goes so far, he says. “What has been done is a lot of capacity reduction. It is difficult, it hurts, but it doesn’t take you to break even. So you need to get out the cost. The easy part is to do what you do already, but in a more clever way. Then do what you do in a different way.” But, to make fundamental changes, “you need a customer who wants this to happen,” he said. “Historically, oil companies have been volume drive, not value driven.” They have focused on hurdle rate and left value on the table.
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