The control and reduction of operating costs is the most serious management issue facing the oil and gas industry at present, particularly in mature provinces such as the North Sea.

The development and application of the concept of a contract logistics service (CLS) has been timely and pertinent to this need. CLS transfers responsibility for the provision of logistics support from an oil company department to a contractor. The contractor provides a managed logistics service in which resources are shared across its customers and performance measurement is focussed on total operating cost. CLS has now been shown to deliver cost savings in this industry just as it has in others beforehand.

Logistics costs account for about 16% of total operating spend, thus making the field a significant one for generating useful savings.

CLS achieves this through addressing the structure of costs rather than unit costs alone. In doing so it raises issues affecting the current relationships and future structure of major elements of the industry.

CLS has been achieved through a partnering approach involving the creation of an alliance of contractors and operators by the definition of mutual objectives. The experience involved forms a model for cost reduction in the industry that may be more directly comparable to the introduction of partnering in other parts of the supply and service sector than the acknowledged alternatives of offshore maintenance or accounting.

This paper aims to describe the concept and application of CLS; examine the model and discuss the implications.

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