Industry cautioned against overdoing cuts to maintenance budgets

Over-aggressive cuts to maintenance budgets will eventually return to hurt the industry, senior consultants have warned in interviews with Upstream Intelligence.

Cuts to maintenance budgets put equipment at risk, according to experts (Image credit: Maersk Drilling)

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Cost-cutting has been at the forefront of the global industry-survival strategy since the oil price began to fall in mid-2014. Operators in the Gulf of Mexico and the North Sea have reported wholesale operational expenditure reductions. In the North Sea, opex fell from £9.7 billion ($14 billion) to £8.2 billion in 2015, with unit operating costs slashed by a total of 42% in the last two years, according to Oil & Gas UK.

According to Fernando Vicente, Senior Asset Integrity Management Consultant at ABB, reduced spending on equipment maintenance and integrity is a popular approach to cutting operating costs. In an article co-written by Vicente for Inspectioneering Journal in December, he explained that the short-term satisfaction of cutting the maintenance budget should not be overshadowed by the potentially disastrous safety and financial long-term consequences.

He argued that cutting the maintenance budget would not necessarily reduce operating costs, but would instead shift accrued costs to a future date. He said, “Thinking like this is not a sustainable business strategy – it is dangerous and costs will rise exponentially over time as a result.”

While maintenance and inspection are core operating activities, questions remain regarding whether assets are being compromised to coincide with low oil prices and subsequent budget reductions. There is no straightforward answer, as John Strutt, Technical Director at Astrimar, an engineering consultancy, explained. He said that while operators will always comply with both legislative and corporate requirements, the current oil price is forcing a number of cost-reduction measures which may affect frequency and scope of maintenance and inspection.

Drifting into 'reactive' mode

Maintenance delays or cancelations and infrequent inspection programs will eventually expose the industry to increased downtime and cost spikes, Vicente told Upstream Intelligence. He said the industry typically holds a reactive stance which leads it to consider maintenance as a process undertaken in response to a failure or incident rather than as a proactive strategy.

“Nobody is consciously sitting and waiting for an incident, but subconsciously the reactive culture surrounding process and equipment reliability suggests otherwise,” he said.

As with many industries, employment cuts are a well-known cost-reduction strategy and often the first sign of companies suffering from troubled finances. This significant headcount reduction facing the industry is a concern for both Vicente and Strutt. ABB’s own analysis has identified people as one of the three causes of pan-industry failures, at 38%, with procedures/processes and equipment failures at 34% and 28% respectively.

People are a greater cause of industry failures than equipment itself (Image credit: ABB / Inspectioneering Journal)

Strutt said that after the 2010 BP oil spill in the Gulf of Mexico, the industry expanded its workforce, particularly in relation to blowout-preventer expertise. As companies now downsize as part of the current cost reduction measures, technical expertise will inevitably be lost.

Both men agreed that investments in skilled professionals and in processes such as sensing and predictive technologies would pull the industry out of reactive mode and put it in good stead to tackle the future.

A shift in long term proactivity can be achieved through a culture that prioritizes reliability, Vicente said. Reliable equipment and processes will stand the test of time regardless of oil price, and will require less unplanned maintenance. Establishing a culture of reliability is over time “guaranteed” to achieve a sustainable cost reduction, he explained.

Know your assets

Maintenance and inspection decisions are largely misunderstood, according to Strutt and Vicente. Strutt said that in some instances, a more detailed understanding about why equipment fails is required to enable more efficient management of failure prevention activities. The industry needs to make more use of "good science" as part of its approach to maintenance and inspection activities, he said.

Risk-based inspection involves the quantitative assessment of the probability of failure and the consequences of failure, and leads to companies prioritizing inspection activities based on their risk profile. API 580 and 581, the American Petroleum Institute’s recommended risk-based practices, are used as a framework to support inspection and maintenance decisions although Strutt said they tend to be more applicable to topsides than to subsea equipment.


Risk-based inspection sets out that the greater the probability and/or consequence of failure, the more inspection must be conducted (Image credit: Oil & Gas Corrosion)

It is often difficult to measure the actual condition of subsea equipment before estimating failure probabilities, and Strutt is working with the clients and the API to address this. However, new measurement and sensor-technology developments are enabling operators to get a much better understanding of equipment condition and, from these measurements, forecasts can be calculated to predict how fast equipment is degrading and how much inspection must be done to maintain the integrity of the asset, he explained.

“Our big hope and push for the industry moving forward is to know our assets better and use more predictive tools with self-learning capabilities for maintenance and inspection,” he said.

Although Vicente takes a less scientific approach, he does believe companies are taking “shots in the dark” with the way in which cuts are being carried out. Random cuts to maintenance and integrity activities without information and insight will result in over-inspection of low-risk assets and potential under-inspection of high risk assets.

“You will be lucky to have no accidents and you can’t forecast luck,” he said.

With 43% of North Sea operators still unable to cover their costs this year despite cost-reduction efforts, it is not difficult to understand why brash cuts and potentially short-sighted decisions are being made. But a 2016 PwC report warned operators, “No matter how difficult things get, avoid arbitrary cost cutting, which can leave your organization ill-prepared for an uncertain future.”

By Sayo Rotimi