New Solutions for Cost Challenges in the Oil & Gas Industry

Transcription

1 OIL & GAS New Solutions for Cost Challenges in the Oil & Gas Industry Norwegian Business Delegation to Australia Etienne Romsom February SAFER, SMARTER, GREENER

2 The market trends for the oil and gas sector Lower oil & gas prices due to structural oversupply & weak demand Rising capex and falling capex productivity capex per barrel increasing 10.9% CAGR ( ) Shift to higher cost resources and uneven project execution Oil & gas company-level cash returns below 30-year averages (US$100/b) Cost control & capital discipline Vulnerability to volatility in oil prices, cost inflation, exchange rates Project execution technical risk to rise to never-before-seen levels Geopolitical risks resume a prominent role in world oil markets Russia, Kurdistan, Argentina, Kazakhstan, Nigeria, Angola 2

3 Our industry benchmark study The outlook for the oil and gas sector in Top three barriers to growth? Based on a global survey of more than 360 senior industry professionals and executives, along with 18 in-depth interviews conducted in the week of 19 January 3

4 Only half of the cost increase is due to market cyclicality; the other half is structural scope increase Exploration and Production Capex per barrel x2 x2 Scope inflation Core IEA cost inflation Oil price inflation $100/b x3 Source: Baclays Research based on IEA data 4

5 The oil cost curve has widened further, but has deteriorated... Breakeven of non-plateau oil assets Source: Goldman Sachs Global Investment Research 5

6 Majors being hit by rising costs $100/b Cash Return On Cash Invested (CROCI) of The Global Supermajors vs. Real Oil Price Source: Douglas Westwood, Graph from Goldman Sachs 6

7 Industry cost challenges require new approaches Improve performance on cost and quality and schedule Increased project complexity requires cooperation and alignment across supply chain versus slicing-and-dicing contracting strategy Reduction of interfaces in projects, focus on Technical Partners Risk based selection of corporate standards tailored to project scope and context From corporate standards to global standards Project replication and repeat-execution learning Collaboration and sharing across companies, e.g. Cost learnings from shipping & other industries Cost Zero Sum Gain? Simplification of internal processes Schedule Quality 7

8 Cost learning example Oil & Gas versus Maritime Cost X4 QA/QC 80%, Doc 20% Cost X1.5 Doc 100% Generator Engine Supporting Frame Cost X10 QA/QC 30% Doc 70% 8

9 Maritime Specification of equipment to save costs A major Korean yard expects the cost saving to be in the range from 30% to 50% from offshore projects equipment being ordered to Maritime Specification. 9

10 Expand the application envelope for standard materials Steel plates for an Australian Offshore Floating Unit: steel was ordered to DNV rules spec. The Company spec was different, and more stringent with respect to weld-ability (carbon equivalent values). DNV GL materials experts concluded that the DNV steel was fit for purpose, saving the project millions of dollars. Special steel grades means that the mill must shut down and adjust to new grade before starting up again, with a standardized grade production runs as normal. 10

11 Benefits of a Maritime Execution Model Standardized material specification. Steel mills do not have to adjust production line. Welders do not have to be re-qualified for specific projects Standardized equipment/packages specification. Vendors understand what they are biding for, and do not have to tailor products to specific projects Facilitate a lean project supervision. Some operators use the Class approach as the spine in a lean site/projects team approach. 11

12 The value of standards Consequence of requirements on design and operation Whatisthevalue of astandard? In some areas, standards provide valuable guidance to design and contribute to cost reductions, e.g. within pipelines, flexible pipelines and risers. Limitations call for additional requirements to ensure sufficient guidance to design work. These requirements may be company and country/ area specific. The standards typically represent consensus as a result of committee based standard development. Two undesirable outcomes Exceeding design requirements Customised requirements from TQ-process Company Specific Requirements Independent standards (DNV GL) International committee standards (ISO, IEC) Design does not meet requirements Industry standards (API, NORSOK) Regulatory requirements (PSA, HSE) 12

13 Relationship between Specification /Cost and Risk Risk Delivering the basic specification for a project is essential to reducing key risks and is hugely valuable but beyond a certain point, additional specifications do little to reduce risks further. However, they continue to add cost, erode value and can even start to increase risks as more specifications dilute focus, introduce needless complexity, limit supplychain efficiency or increase exposure during project execution and/or operations ALARP ALARP = as low as reasonably practicable Specification / Cost 13

14 Risk Based Application of Standards, an example Gap analysis on standards for offshore rig in harsh environment Objective: to eliminate company specific requirements where prudent and practicable Method: to compare each of the applicable company specifications against Class rules and Voluntary Notations. No Gap Gap Not Applicable Class rules hold an equivalent standard of safety; Company spec could be eliminated with no impact on risk the criticality of each gap was rated and its estimated design impact many Company specs focus on process requirements that are unnecessary on a drilling unit Application of Class rules provide a cost reduction over Company specs Decision making process needed to evaluate risk tolerance and cost Opportunity to eliminate costs 14

15 Gap analysis on standards for offshore rig in harsh environment Gap Decision making process needed to evaluate risk tolerance and cost Total Gaps = Opportunities to reduce cost

16 Next step: Seek alternative solutions for high design impact/safety critical gaps Potential solutions to address the gap Maintain ALARP design principle 16

17 Cost comparison harsh environment rig: Risk-based standards versus Company specifications Cost x2 Example: Gap analysis rig specifications for harsh environment Company specifications DNV GL specifications 17

18 Conclusions Oil prices are cyclical Project complexity and scope inflation are non-cyclical and increasing Don t scrimp on quality you get what you pay for - squeezing suppliers and tolerating lower quality is not advisable Address the cost challenge through: Standardisation, Simplification and Innovation Adopt smart solutions to reduce costs (e.g. risk-based application of standards) Oil and gas companies will have to work with their supply chain as technical partners to increase the size-of-the-pie. Supply chain management behaviours to be adapted accordingly. 18

19 Thank you SAFER, SMARTER, GREENER 19