Subsea industry leaders were told not to "waste a good crisis" today (February 11), with simplified engineering, a calibration of costs and better collaboration key focus areas.
A sense of urgency is needed to re-baseline costs, which should have been addressed already years ago, said a senior Apache executive.
Mark Richardson, projects group manager, Apache North Sea, said costs have risen for a number of years due to operator culture driving contractors to "gold plate" everything. The high recent oil prices have just exacerbated the issue - but the horse has already bolted he said.
"I believe we are over-manned and overpaid in this industry," he told Subsea Expo in Aberdeen this morning, saying that costs should have been re-baselined some years ago.
Giving an example, he said a project, put through a contractor, came out at US$500,000 to deliver - two months behind when Apache wanted it. The firm went to another contractor, which provided a simpler solution, capable of being deployed in conditions the first solution couldn't, for $50,000.
"The first contractor had been schooled too long by other operators to good plate things, which means projects are no longer fit for purpose," he said, adding that cultures, including where responsibility and decision making lays, to free the experts to do their best work.
Meanwhile, oil prices are not likely to hit US$100/bbl again for some time, he said.
"I think this low cost environment will last for some time. It replicates the problems we saw in 1986, where we saw over supply, and that's going to slat some time. Stock tanks in China and America are filling up, drilling is continuing in the States but they are not completing wells."
David Lamont, CEO of Proserv, said: "While the oil price has us all concerned, the benefit of getting older is we have seen these cycles before. If anything, this cycle excites me because what will come out of it will be a leaner and stronger as an industry."
He said engineering was being duplicated, due to brining contractors in too late and complexity and cost had been brought into an environment that can no longer support it. Rather than blanket standardization, a "pragmatic product" ethos should be taken.
However, it wasn't all doom and gloom. Neil McCulloch, from UK independent EnQuest, which has the record for being the second most efficient operator in the basin, said while the drop in the oil price "plunged us (the industry) into an unprecedented existential crisis'" the North Sea was "blessed with a huge treasure chest." "We should see this as a defining opportunity to redefine how we work individually and collectively. It has been a year since the Wood Review and we need to show evidence that we stand behind it."
He said he believed a drop in exploration drilling in the North Sea was because that subsea tie backs had become over engineered and too expensive. "There are 300 marginal or sub-marginal discoveries in the North Sea, who wants to find the 301st?" he asked. "We need to collectively stop tinkering and work to our strengths."
Richardson was also positive about the future of the North Sea. "It isn't all dead, there are still opportunities. There are still prospects and it isn't all dead and buried at $50/bbl. it does make it harder but we can get there." But, he also said subsea projects had become too expensive. Apache's approach was to have "agricultural" projects which even Victorian engineers would be able to understand.
While Apache will cut its 2015 capital budget, projects would continue, including an exploration well on a Tertiary prospect which could become a subsea tie-back or an FPSO development, said Richardson.
"We need to work on assumptions, understand it's not a perfect world and move forward and behold," he added.
Subsea UK CEO Neil Gordon said: "We have been here before. We don't need to panic. This is a long term industry. For us this represents an opportunity. But we have to recalibrate our costs, take a greater look at efficiency and how we deliver projects. We need to be bold and ambitious and not tempted to get in to this retrenching mode."
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