As oil price remains stagnant and offshore operating costs apparently rise relentlessly, there is an enormous pressure, and incentive, to reduce the costs of various services, including underwater services, and to improve the value of such services. Part of this trend will be to reduce the number of contracts awarded, ie larger packages, and to transfer responsibility and accountability, ie greater risk, to the contracting and service industry, perhaps in some form of Partnership. As a result there is likely to be an increase in the use of lead or prime contractors, and an increase in the number and size of those integrated contractors who can provide packages of services largely from their own resources.
This must pose a threat to smaller and more specialist service providers, and they will need to seek ways of remaining not only competitive, but also involved with the larger packages that are likely to be required. Multi-company alliances or joint ventures offer a possible solution for particular types of contracts and indeed may give advantages over lead and prime contractors. Companies working with each other, rather than one for another, would be more of a team more innovative, more capable of dealing with risk, and better able to deliver value.
The changing demands on the underwater services industry, in the UK and elsewhere, will require greater co-operation, by Partnership or whatever means, and it would seem that multi-company joint ventures may offer a very effective mechanism.
With the drive for efficiency and the development of new contracting strategies by the major oil companies, it is clear that at least in the North Sea, a new environment is being created, which seems to have four main thrusts :-
Simplify contracting procedures.
Transfer responsibility to the Contractor(s).
Transfer some financial risk to the Contractor(s).
Each of these brings potential benefits to the oil companies, which respectively include :-
Reduction in Oil Company staff
- Reduction in overheads.
Further reductions in staff and overheads.
- Concentration on core activities, more focussed asset management.
Simpler budgetting and planning process.
- Removal of "contingency" tie-up of funds
Innovative thinking and new technology introduced by contractors.
- Reduced costs and better project returns.
In terms of the contractors however, in spite of the talk of Partnership, these raise rather different issues in each of the points (1) to (4) above :-
Oil companies will be dealing with fewer contractors, so what happens to other, particularly smaller, contractors?
Contractors will have to acquire new skills, and possibly accept greater overheads.
The whole tendering process will have to change as it moves from "cost plus" to "lump sum" or equivalent.
Improved performance can mean higher risk.
The intention of this paper is to consider briefly some of the threats and opportunities in these new developments.