Operators respond well to call for collaboration
North Sea operators have responded well to a new industry charter that urges them to abandon old practices and collaborate for the common good, two of the men behind the initiative have told Upstream Intelligence.
“What was traditionally seen as competitive advantage is now being seen as collaborative advantage,” said Mark Richardson, North Sea projects chief at Apache Corp, who led the push to create a charter. “The challenge is trying to unravel 40 years of doing business in a certain way. We’ve had price falls in the past and tried to introduce more collaboration and it hasn’t worked. But this time is different because there’s a realization that unless we help each other there won’t be a future for everyone.”
Oil & Gas UK’s Efficiency Task Force (ETF) launched the Industry Behaviours Charter at the trade association’s annual general meeting. The charter outlines five main principles for operators to follow: be early adopters of efficiency initiatives and new technology, share learning with others; provide access to decision makers; strengthen industry co-operation; contribute to performance improvement by ensuring transparent and time-bound legal, commercial and contractual engagements; commit to regular reviews of the charter’s delivery.
Penny dropped with oil price
If the high cost of doing business in the North Sea was the inspiration for such a charter, it was the steep fall in the price of oil that created the urgency for such action.
“It came out of the realization that we were inefficient even at $100 a barrel and needed to guarantee the long-term sustainability of the business,” said John Pearson, Europe chief of Amec Foster Wheeler and co-chairman of the ETF (alongside BP’s North Sea chief Trevor Garlick). “But if it was relevant at $100, it’s unbelievably relevant at $35 a barrel.”
Forty companies have already backed the charter, said Pearson, and that number is rising fast. Firms have begun sharing their cost-cutting initiatives under the Rapid Efficiency Exchange scheme, which Pearson described as “a kind of Trip Advisor for new ideas”. Companies can also use the scheme to appeal for solutions from their supply chains.
A second new initiative encourages companies to share their spare parts. Pearson said it seemed an obvious thing to do in the age of the sharing economy, but it has never happened before in the oil and gas sector. “We’re seeing a real appetite for sharing ideas now. Once you get that change in behavior, people will be able to figure out the answers to hundreds of questions,” he said.
Individual businesses are coming up with their own cost-cutting ideas. Amec Foster Wheeler has brought in a More for Less scheme to eradicate processes that are superfluous to final outcomes. Another Amec Foster Wheeler initiative, called Small Change Big Difference, asks employees to make a list of what frustrates them and wastes money. “In the first four weeks since launching that scheme we’ve had more than 600 ideas. Not all are implementable but many will save a bunch of money,” said Pearson.
Measuring the results
The ETF is measuring the success of the charter in two ways. First, it is monitoring the ‘outputs’ using Oil and Gas UK activity survey data. The figures make positive reading, Pearson said, with the industry on course to reduce costs by close to 30% by the end of 2016.
Meanwhile, the ETF has enlisted Deloitte to measure ‘inputs’. The Culture Sensing Index involves asking a wide range of companies to assess the quality of their dealings with British oil and gas businesses. Deloitte collects the comments and provides feedback to businesses.
“Company behaviors are often better judged by customers and other businesses. Knowing their reactions allows improvements to be made,” Pearson said.
The oil industry is not the first sector to be forced into a change of culture in response to a financial crisis. Pearson said both the automotive and the aviation industries have been through similar experiences. Industries that are forced to reassess normally go through three stages, he explained: the first is to cut costs; the second is to become more efficient with their supply chains; the third and most far-reaching is to transform the culture of the whole industry. The car sector, for example, introduced far greater cooperation between different brands.
Now it’s the turn of the oil industry in the UK and Pearson said that if it can embed the spirit of cooperation now, it will stand it in good stead once the oil price rises, as it inevitably will.
“The industry’s catchphrase at the moment is: ‘Don’t waste a crisis’. When you’re busy and making profits you can become slightly inefficient. There isn’t time to think about doing it better. Now we have the opportunity to transform the industry and made it much more resilient when we come out of the crisis,” he said.
David W. Smith