North Sea collaboration drive stalls amid oil and gas supply chain tension

The drive to increase collaboration in the North Sea oil and gas industry appears to have stalled amid concerns firms that operate fields are not sharing the benefits of increased crude prices fully with suppliers.

The reading on the index developed to measure the degree of collaboration in the area has fallen for the first time since it was introduced in 2015.

 The fall will be greeted with concern by industry watchers given the importance attached to collaboration in recent years.

 Experts warned that competitive ways of working that prevailed in good times or a rigid focus on cost reduction could slow any recovery from the deep downturn triggered by the crude price plunge from 2014.

The latest report on the success of the collaboration effort by Oil & Gas UK and accountancy giant Deloitte highlights big shortcomings in the responses by firms.

Its findings suggest that companies are increasingly keen on the idea of collaboration but many are struggling to put the idea into practice.

Graham Hollis, Office Senior Partner for Deloitte in Aberdeen, said: “While support for collaboration has increased over the past five years and there are some great examples of operators and supply chain finding more collaborative ways of operators working together, barriers remain to it being consistently applied across the United Kingdom Continental Shelf.”

The report notes that while the fall in the collaboration index, to 7 from 7.1 last year, was small it could be a worrying sign.

 The authors appear concerned the partial recovery in the crude price since late 2016 could encourage firms to ease up on the reform effort.

“As activity picks up across the basin it will be easy to slip back into the old ways of working,” says the report.

It adds: “If the industry wants to avoid a future skills crisis and equipment crunch and the subsequent price escalation companies need to find simpler and more effective ways of working together.”

 The report highlights industry-wide issues covering firms that operate oil and gas fields and the services businesses that support them.

But it also notes a marked difference between how operators and suppliers view collaborative efforts.

The contrast noted could stoke concern that the upturn in North Sea activity in recent months has not resulted in the pressure on the supply chain easing.

“Operators in general are more positive about collaboration,” says the report, adding: “It appears that the benefits of collaboration are not being shared equally with suppliers growing more frustrated and believing that operators are still retaining most of the benefits.”

 In its latest economic report in September Oil & Gas UK said the sector had seen a remarkable turnaround from one of the harshest declines in memory but significant parts of the supply chain remained in a fragile condition.

The report on collaboration highlights the potential for firms that have bought North Sea portfolios with private equity backing in recent years to encourage new ways of working. It says digital technology could also make a big difference.

Significantly more action is needed to improve legacy structures, outdated ways of working and bureaucratic and process complexity.

“Onerous and complex contracts and procurement processes in particular have been singled out by both operators and suppliers,” notes the report, which underlines the scale of the effort required. “Many of these barriers are difficult to overcome without major transformational programmes that can require substantial time and effort.”

 Company chiefs must provide strong leadership in support of the development of an open and collaborative business culture.

The report was based on a survey of industry participants that generated a record 206 responses.The index reading in 2015 was 6.1 out of 10. Deloitte said the new index measured the effectiveness of companies as partners in collaboration and could be used as a tool for measuring efficiency.

Source: The Herald