The numbers are staggering. At US$50/bbl, at least 20% of production in the North Sea is loss making, an industry event was told last week.
And that is likely to be a conservative estimate. Faced with what has been called “a perfect storm” by many – high operating costs, low production and production efficiency, and for the past year, low oil prices – the industry has been working hard to reduce its costs.
According to estimates, anywhere between 10,000 direct and 65,000 direct and indirect jobs have already been lost in the industry in the UK North Sea, with more expected.
But, it’s not just about cutting jobs, operators have been seeking other ways to reduce costs, from encouraging staff to put forward ideas to holding so-called “Hackathons,” an IT industry term, to bring together the supply chain and operators to find joint solutions.
At the Oil & Gas UK-run Share Fair in Aberdeen last week, operators focused on what they were doing to reduce costs.
While some rather poor behaviors were revealed – allowing hired equipment to sit, unused, offshore, still on contract, for months and even years – the good news is that this means there is fat to be cut.
Operators and the supply chain are also looking closely at their behaviors, contracts and who takes on risk, in some cases taking responsibility back in house (at majors) but in others letting contractors get on with what they do best, reshaping how the business operates.
Common themes include operators now sharing or reducing the number of helicopters they use, maximizing seat utilization on them, as well as sharing platform supply vessels and spares inventory.
Shell
Shell has above average operating costs, "so we have an opportunity to make changes," its spokesman told the Share Fair. “It is a critical time for us all and fully aware this doesn't just effect operators,” he said, highlighting the broader impact the industry has on the economy, including hoteliers and taxi drivers.
To reduce its costs, Shell has been running a "Fit for purpose" program for the last six months, with the ambition of making the business more affordable and efficient, with a "bottom up" holistic approach. Shell is looking at "should cost" modelling, and "spend it as if you own it," he says.
Some of the program goes beyond sound bites. The firm has joined an inventory sharing program, which means some 165,000 line items it has are listed and shared with 10 other operators.
There area also areas where planning could be improved, so that an engineer isn’t waiting on standby for 21 days because a project can't start yet, for example.
Shell has also been looking at how it sources items, such as mooring lines, and used used other parts of the business, in that case shipping, to get better costs.
Integrated contracts are being brought back in house and the operator says it is challenging how it interacts with the supply chain.
Shell is also looking to reduce the engineering load, by designing parts for five years not 25, when the part isn’t needed for 25 years, for example.
ConocoPhillips
ConocoPhillips says it has been through a paradigm shift over the past 12 months, as it has reorganized its business, with an integrated operating model instead of separate teams, and rolled out various initiatives across the business aimed at better planning and execution offshore, with more rigorous planning and fit-for-purpose work scopes.
“Tool time,” similar to wrench time, was put under close scrutiny using a tracking tool to measure productivity and identify processes that impact productive time. "This has seen the [work] back-log decrease," said a spokesman for ConocoPhillips.
Through a 15 well plugging and abandonment (P&A) campaign over 15 months, the firm reduced P&A costs and time by working with a group of 10 suppliers. But, more could be done in P&A as well as in other parts of the business. "The challenge is to continue to rationalize cost and productivity,"
Conoco is also eying its future decommissioning liability, with some 133 wells, 38 platforms, the spokesman said.
New technology will also play a part, the firm says, listing areas it's keen to look at, from seismic to blue tooth.
In seismic, the firm wants to see better sub-chalk imaging. For extended reach wells, up to 26,000ft-long they want to see improved coiled tubing tractor technology for perforating and stimulation etc. These exist, but they need to be upgraded to deal with heavier coil and higher pressures and temperatures, says the spokesman. Blue tooth data collectors would help the firm better monitor and manage its assets by quickly collecting data from instruments. But, also once the data is collected analytics and information management tools will be needed to the firm can plan ahead.
Nexen
Nexen has been focusing on marginal gains and efficiencies, which has helped it save £22 million on drilling alone on its Golden Eagle facility. The new development, which came onstream in 2014, on time and under budget, will now be subject to a debottlenecking study to optimize production.
Golden Eagle achieved plateau production at 76,000 b/d early. It has 21 drilling slots and 16 of those are due to be online by 2017 end.
As well as optimizing helicopter use, Nexen, which relies heavily on contractors, is due to take more integrated contract work back in house, a theme echoed by other operators including Shell.
But, it’s not all about reducing costs. Nexen is looking to take advantage of low rig rates by doing some plugging and abandonment work on Ettrick, says the spokesman.
EnQuest
EnQuest operates a fleet of mature assets in the North Sea and has been focusing on reducing its lifting costs. This dropped from an average U$42/bbl in 2014 to $38 in 2015, and the firm is looking to decrease this further. To put this into perspective, average basin costs are $17/bbl.
EnQuest has also been working hard to reduce drilling costs, which has meant a drilling campaign was able to go ahead on the Thistle platform, where it hadn’t previously been budgeted. This has since been extended due to good results.
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