As one of the largest and most challenging oil provinces in the world, the UK North Sea has been an experimental arena for innovation, strategies and technology since exploration began there in the 1960s.
An Important Element
A major independent review of E&P in the North Sea was commissioned by the UK government in 2013. Known as the Wood review after Sir Ian Wood, who led the study, its findings made several key recommendations to maximise economic recovery, as well as suggested strategies covering the sectors of exploration, asset stewardship, regional development, infrastructure, technology and decommissioning (see GEO ExPro Vol. 11, No. 2 -
Maximising Recovery). The review identified collaboration in the upstream supply chain as being an important element in the key aim of maximising recovery, as this should lower costs, increase margins, lessen project timescales and reduce risk, while allowing access to scarce skills and knowledge, thus increasing innovation.
It now appears that, partially spurred on by the depressed oil price and a ‘lower for longer’ scenario, the North Sea is showing real progress in this area, as a recently published report from Deloitte has shown. Its 2017 UKCS Upstream Supply Chain Collaboration Survey, undertaken in collaboration with Oil & Gas UK, sought the views of over 150 operators and suppliers across the UK Continental Shelf and found that 95% of them say that collaboration is an integral part of their day-to-day business, while 43% of them consider their collaborative engagements to have been successful in 2017.
Similar surveys were undertaken in 2015 and 2016 and a comparison of the results of the three surveys indicates that not only are companies showing increasing awareness of the importance of collaboration, they are also more prepared to act on this understanding, with a wider range of companies trying to work in a different way with their suppliers and clients. As Dr Mariesha Jaffray, Continuous Improvement Manager with Oil & Gas UK, said: “…. collaboration is shifting from being an aspiration to a reality.”
Cost Reduction Significant Driver
What is driving this development? Undoubtedly, cost reduction is a major factor, since after several years of cutting costs through more traditional methods such as reducing supplier costs, deferring spending on projects and reducing headcount, there is little room left to manoeuvre using standard reduction practices. The focus therefore appears to be shifting more towards sharing knowledge, ideas and solutions, particularly for operators, who need to find more innovative ways to increase production efficiency. The survey found that while 40% of the operators questioned cited reducing cost as their main reason for collaboration (up from 36% in 2016), sharing knowledge and learning has firmly overtaken risk reduction as the preferred mechanism by which this should be achieved. There appears to be increasing openness towards suppliers, and more companies are seeing how they can better financially incentivise collaboration. Engaging suppliers earlier in the project life cycle plans is also becoming more widespread.
The previous surveys predominantly reported successful collaborations between suppliers and small to medium-sized operators, but it is interesting to note that in 2017 some of the larger multinationals are challenging the traditional ways of working by using collaboration to drive supply chain performance improvement. Shell’s Upstream VP for the UK and Ireland, Steve Phimister, was quoted as saying that collaboration and competition could co-exist in the North Sea and that combining both will help companies develop small fields and come up with strong area plans in the basin. “Sharing rewards and upsides works,” he added.
Suppliers and operators in the North Sea oil industry are aware that collaboration is important – but not at any price. There must be mutual benefit and trust. Suppliers have found that doing things differently in order to reduce costs is becoming a necessity in order to successfully tender for new projects, but while welcoming the creative challenge, they are worried that this could expose them to a potential loss of intellectual property, particularly if they fail to win the tender. In fact, some suppliers said they prefer to not bid for projects which have particular requirements for new solutions, preferring to concentrate on solutions that they know they can provide profitably. From the operators’ point of view, it is important that cost and efficiency is embedded in working practices, with no danger of supply chain rates rising rapidly as oil prices improve; as Steve Phimister said: “A situation where costs go back up [with rising prices] does not work, so we need to think about how we structure our work in future.”
A Framework for Action
While the 2017 survey found that a lot of progress has been made in the past year and that awareness of the benefits and importance of supply chain collaboration is near-universal, Deloitte concludes that there is still a long way to go for the practice to become the industry norm. It has therefore developed a useful 4-step framework which companies can use to help them collaborate more effectively. This suggests that the first step is to ensure that change is led from the top, with leadership taking early responsibility by setting the overall direction and encouraging collaborative behaviours while focusing on long rather than short term results. Secondly, companies should initially pick a small but important project where the objectives of the collaboration are clear to all; once success has been demonstrated the project scope can be widened.
The third step is to identify how operations, processes and systems need to change to support the collaborative goal, using a small team with representatives from both supplier and operator, keeping things as simple as possible. Finally, the advice is to constantly analyse the results both during and at the end of the project to monitor progress, sharing data with all parties to ensure continuous improvement.
Momentum is Building
It appears that, egged on by industry-wide initiatives to promote performance improvement through cultural change, there is now much greater awareness of the usefulness of collaboration between suppliers and operators in developing cost-efficient projects across the whole exploration and production cycle.
As a mature basin striving to maintain exploration success, the North Sea can play a valuable role in demonstrating that supply chain collaboration is the way forward.