Some 40-50% of savings or efficiency gains need to be made if the industry is going to survive the low oil price regime we are in, an industry event was told in Aberdeen today.
"For us to survive this long-term, to get by on the oil price as it is, and right now two years is a life time, we need to take 40-50% cost out or efficiency up, and no industry has done that without transformation. It is not just cutting costs," said John Pearson, Group President Northern Europe and CIS, Amec Foster Wheeler.
"All are saying we have a problem,” he told the one-day Oil & Gas UK-run Share Fair event in Aberdeen. “We [in the North Sea] are spending more than we earn and we haven't seen that since the early days of the basin." But, he added: "I think it is an opportunity, if we grasp it. You can either surrender or get on with it and I don't fancy surrendering.”
The industry’s problems were highlighted by a staggering admission by a senior BP boss that on-hire equipment was left offshore for, “in some cases months and in some cases years,” still on hire, costing the operator how much it would have to pay for the equipment outright three times over.
A presenter from Shell said better planning and communication was a priority after admitting to incidents such as a contract engineer being kept on standby for 21 days, again at the cost of the operator.
As another example of inefficiency in the industry, the event heard some 22 MMboe is lost per year due to unplanned compressor shutdowns - an issue which is now being addressed.
Wood Mackenzie estimates US$1.5 trillion of investment does not break even at $50/bbl and says while exploration companies have been pushing supply the chain to reduce costs, additional measures will be needed to reset the cost base.
Opening the event, aimed at connecting the supply chain with operators, Oil & Gas UK CEO Dierdre Michie said the industry is going through a tough time, with high cost inflation and low efficiency compounded by low oil prices.
“Last year the basin spent more than it earned,” she said. “To turn things around we need to remind ourselves of Einstein's oft quoted wisdom - 'to keep doing things the same way and expect a different outcome is,' to paraphrase, hardly a good way of doing business.”
While the presentations given during the event gave plenty of examples of where industry was finding ways to cut costs and improve efficiencies, from making better use of helicopters, to sharing platform supply vessels and spare parts inventories, more would need to be done, she said.
"Given the position the industry finds itself in, we all need to do more," Michie said. "We have a limited window of opportunity to drive a different way or working. It's quiet simple, it's about better communication, about increasing transparency about issues and performance, and it’s about bringing the supply chain in early in project planning."
Oil & Gas UK is leading an initiative to help the industry make efficiencies. Pearson, who is leading the Efficiency Task Force, outlined some of the goals within the initiative, which covers three areas; business process, standardization and subsea.
In business process area, the group is looking at RB211 issues – i.e. the compressor shut downs losing 22 MMboe a year. Six operators are working together on this issue, says Pearson.
Under standardization, well plugging and abandonment, which is 40% of decommissioning costs on the UK Continental Shelf, are also being looked at, as well as valves.
“Valve repair is about half cost of replacement, yet only 25% are repaired,” says Pearson. “For one type of valve we found 250 specifications on the spindle size column. Could the industry have one size type of valve? Probably not. But if we narrowed that down a bit it would make an impact.”
Under cultures and behaviors - a behavioral charter for the industry is being drawn up. “It's about learning to trust each other,” says Pearson. “There's been a fall in trust in each other. It's opening our ears and listening and up-taking [ideas]. The flip is if promise something you can't deliver will set each other back.”
In addition, Andy Leadbetter, PSCM Regional Director – North Sea Region, BP, outlined the newly set up Rapid Efficiency Exchange, a portal for the supply chain to submit ideas which can be accessed by companies looking for solutions.
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