tce

OIL AND GAS

Oil change
In the face of challenging times, the oil and gas industry must
change if it is to survive. Amec Foster Wheelers CEO Samir Brikho
writes exclusively for tce

HE oil and gas industry is currently

operating in very challenging
circumstances, and nowhere
more so than in the United Kingdom
Continental Shelf (UKCS). Costs have
increased dramatically in the last ten years
while production rates have generally
fallen. Figure 1 shows the scale of the cost
escalation problem.
If we are to keep industry going and
continue to make the North Sea an
investment-worthy proposition, the supply
chain needs to respond and deliver solutions
to customers that are aligned to the economic
and technological landscape in which it exists
today we cant live in the past.

Our industry must aim to

deliver solutions at 50% of
the price and in half the time.
We need to prioritise standard, proven
solutions that are fit for easy construction
and avoid relying on the bespoke. Its time to
rewrite how services are delivered.

embracing late life

The UKCS faces several challenges, not least
that most of the UKCS oil and gas-production
assets are entering late life. In order to

Figure 1: Operating expenditure (opex)

breakdown of UKCS assets 20022013
Total opex breakdown of a
sample of UKCS assets1
million

Compound annual
growth rate of
expenditure

1,409

Source: Oil & Gas UK; Energy Insights, a McKinsey Solution

2.8x

467

200203
1

24

201213

Other

Logistics

10

Onshore support
to field
operations &
maintenance

10

Offshore
maintenance
staff and
materials

10

Offshore
operating &
processing
activities

10

Total

12

Based on a sample of 18 assets representing 20% of UKCS production in 2013.

www.tcetoday.com may 2015

achieve maximum economic recovery

of the oil and gas in those assets (as per
the Wood Report) we need to continue to
maintain and modify them until they stop
producing. However, we cant do this in
the way we did previously cost was often
not the key driver, but instead, schedule,
quality and conservative thinking
dominated. This is particularly true in
the way we deliver modifications: there is
little doubt that in the past our industry
has been guilty of over engineering ie
putting too much effort and resource into
non-complex facility changes. This has
resulted in unnecessary cost. A typical
example is over-specifying items such as a
plant storeroom that has a short required
life. Or over-specifying equipment such as
a control valve that is to be sited in a nonhazardous area. There are examples where
a 4,000 valve can cost over 30,000 once
installed.
Our industry must aim to deliver
solutions at 50% of the price and in half
the time. The solutions we generate
must recognise the remaining asset life
and we should not provide more than
the minimum needed, whilst retaining
integrity and safety. Further, I see the
industry often reinventing the wheel, using
bespoke engineering, when repeating
an earlier solution is adequate. A good
example is the design of pipe supports.
Typically, more than 80% can be a straight
copy of previous templates with only a few
requiring special attention.
The mindset applied to our engineering
solutions needs to change. We must ensure

By flipping the thinking

from an engineer-procureconstruct process to
construct-procure-engineer
we can focus on the minimum
required to build-and-buy
the required upgrade, rather
than engineering more than
we might need.

CAREERS
OIL AND GAS tce
Its time to rewrite
how services are
delivered

The UK industry must now

face up to the opportunity for
cost reduction by carrying
out some of the design work
in overseas locations, such
as India, where very high
levels of skill are available at
lower cost.
that engineering optimises procurement
and construction by focussing on simplicity
and standardisation. We need to prioritise
standard, proven solutions that are fit for
easy construction and avoid relying on
bespoke solutions. By flipping the thinking
from an engineer-procure-construct
process to a construct-procure-engineer
process we can focus on the minimum
required to build-and-buy the required
upgrade, rather than engineering more
than we might need. A good example here
is in the execution of oil platform flowlines
from the wellhead.
Construction managers need to drive
what they need, and demand like-for-like
components and supports. They must
only engineer to route the pipe and stress
engineer it accordingly. Procured items
should be copied from existing datasheets,
and renumbered to suit.
Figure 2 shows the the model we
apply in Amec Foster Wheeler to deliver
modifications in a scalable way. To
enhance modifications (not projects or
maintenance) the focus areas are the
three middle streams, where significant
savings can be achieved. In addition, it is
critical that we focus on efficient workflow
by creating only the deliverables needed;
aligning the level of risk assessment to the
work planned; matching project services
effort to the complexity; ensuring robust
work prioritisation and programming
methods; using slim construction work
packages; benchmarking against known
analogues; and having the right people.
Without the right people with the right
attitudes, minimum cost will not be
realised.
Clearly there are other focus areas, but
these examples come from modifications
undertaken in the Southern North Sea.
Savings of some 3040% on industry
norms have been achieved in the scalable
band allowing the operator to either defer
spending or to do more projects within
a fixed budget. An example here is some
recent asset simplification works where
the team managed a series of smaller
modifications including piping and
instrumentation changes without creating

Figure 2: A scalable model for providing

modificationsefficiently
Brownfield

Modification

Scalable
approach

Minor modification

Engineering
support to
maintenance

Increasing
technical and
commercial risk

Reducing project
management
and controls, and
fit-for-purpose
engineering in line
with the remaining
life of the field

Maintenance

may 2015 www.tcetoday.com

25

tce

OIL AND GAS

Without the right people, with

the right attitudes, minimum
cost will not be realised.
a large project team which may have been
used in the past.
Undoubtedly, technology also has a role to
play in this new era. Investing in point-cloud
scanning can drastically reduce survey costs.
For example Amec Foster Wheeler recently
bought engineering and survey company
Scopus to enable greater use of technology
such as point-cloud to simplify and reduce
the cost of our services to customers.
Further, I expect simple CAD technology
such as Bluebeam will play a key role in
thefuture.
Furthermore, the UK industry must now
face up to the opportunity for cost reduction
by carrying out some of the design work in
overseas locations, such as India, where very
high skill levels are available at lower cost.
Considerable savings per man-hour are now
available, with a level of competence and
experience that makes it compelling for the
North Sea. This should not be thought of as
closing down onshore work in the UKCS it
is about complementing what we have and
making it a viable cost base in the medium
term. If we can manage the costs and attract
investment, then places like Aberdeen
could be long-term centres of excellence
for brownfield engineering, competing on a
global basis.
This cost-conscious approach must also
apply to maintaining assets. Maintaining
the assets that we work on is required to
ensure safe ongoing operations. In late life
this needs to be looked at with fresh eyes.
By applying risk-based techniques, legacy
maintenance routines can be eliminated,
or intervals extended. A recent critical
risked-based review of a Northern North
Sea oil facility showed 17,000 designated
safety-critical tagged items could be reduced
to 5,000, based upon the now relevant risk
profile of the facility. This included items
such as pressure and flow devices. Operators
and their supporting contractors need to
consider the benefits available in this area.
Further, where equipment is no longer
to be used, it needs to be safely taken from
service and no longer maintained for
ongoing operation. Successful projects have

There is a strong future still in

the UKCS and in time the oil
price will recover.
26

been delivered that simplified complex

assets for their new service requirements.
Again, as highlighted previously this has
been successfully achieved in Amec Foster
Wheeler in the Southern North Sea where
assets have been simplified to take vessels
and piping out of service while gas flows
at lower pressures. Maintenance can
be reduced to basic structural integrity
checksonly.

model can be much more aligned, with the

service provider having a long-term vested
interest in the performance of the asset and
the knowledge and understanding to take
more risk (such as margin or cost exposure)
for potentially greater rewards.
There is an opportunity to rewrite how
services are delivered to energy assets and
we should be open to learning from other
industries, such as the nuclear sector.

relationships and rewards

for services

the future

Fees for services in the North Sea oil

industry have been established on a mainly
reimbursable man-hours model, where
operators pay for the work done by service
providers. For each man-hour billed, a
nominal amount of profit is recovered,
usually as a percentage uplift. This approach
works, and is simple, but often neither the
operator nor the service provider feel they
do as well as they might. This is because the
operator often sees man-hours going up
for additional works and feels the service
provider is simply trying to increase revenue
(ie contractor wins and operator pays more).
Or the service provider is frustrated that
when it adds value it often means lower
revenue and similar nominal margins (ie
operator pays less and contractor earnsless).
An example of where value add is created
is when the contractor may do some process
analysis and show that, for example, a
piece of equipment is not required, such
as a new separator. In this scenario the
contractor would see reduced revenue and
proportionate profit reduction. A better
model would see an enhanced margin given
to the service provider for significantly
reducing the budget. Equally, the reverse
could be true, where the contractors early
engineering is proven wrong and more
engineering, equipment and construction
is then required to deliver a particular
opportunity. In both cases, the straight
reimbursable model feels substandard for
both parties.
In late life, being in it together is a better
model one where the service provider
does well when the operator haas done
well, and where value has been added (as
in the example above). Indicators such as
performance, trust and equality should
be assessed, a baseline agreed and then
the reward or penalty applied accordingly.
When you consider for example, unit
operating cost, which is a medium-term
driver, the contractor can influence this,
and should benefit if it does better than the
baseline or see its margin reduced if it does
worse. Its about getting true alignment on
risk and reward.
Where there is a deeper relationship the

www.tcetoday.com may 2015

There is a strong future still in the UKCS,

and in time the oil price will recover but
what should operators and the service
industry do now to ensure they are part
of that future? We are moving into a new
phase where efficiency is king and those
that can deliver services faster, leaner and
more cost effectively will flourish. Here I
have outlined some of the options available
to address the challenges ahead for mature
assets in the UKCS, namely: focusing on
fit-for-purpose delivery; using overseas
resources; and adopting a cost-conscious
approach to maintenance and relationship
building.
But this is only a starting point. These
examples can be expanded in scope, focus
and content to tackle other challenges, in
other areas across the oil and gas sector.
Our new service models should borrow
from other industries to enable a sensible
sharing of risks and rewards that deliver the
right outcome for the customer.
These challenging times require people
across the oil industry to challenge the
status quo. They must drive customer value,
rather than just carrying out business as
usual. tce
Samir Brikho is CEO of Amec Foster
Wheeler

Chemical Engineering Matters

The topics discussed in this article refer to the
following lines on the vistas of IChemEs technical
strategy document Chemical Engineering Matters:

Energy
Lines 1, 4, 20

Health and wellbeing

Lines 1, 8, 9

Visit www.icheme.org/vistas2 to discover where

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