Yesterday we reported that America beat the forecasts in delivering an increased supply in the first quarter of 2015, despite reducing the number of operational drilling rigs to their lowest level for five years.
Yesterday BG Group announced – in revolutionary detail – its plans to make offshore production platforms more efficient.
Together these initiatives point to a major strategic address by the industry to a world, for the time being, of lower oil prices than those to which they have long been accustomed.
BG Group’s strategies could be described as holistic, in their overall reconfiguring of offshore operations.
An endemic inefficiency has been the tradition of commissioning the planning and scheduling of maintenance work from expensive onshore logistics coordinators. Too often this saw the workforce on the rigs unable to do the work because something had been missed out, with the absent kit seeing them sit around doing nothing until the missing link could be supplied and delivered.
With this avoidable ‘dead time’ inefficiency in mind, BG Group’s plan is to give the offshore workforce the authority to carry out its own logistics and planning. Shifting that responsibility offshore will reduce expensive and frustrating dead time and make work on the rigs a more holistic experience.
Where, generally, there is growing tension between industry employers and the sectoral trades unions – usually in moves to change shift patterns – in this instance BG Group’s strategy has found favour with one of the major Unions. Jake Molloy, from the RMT’s offshore branch has said: ‘It is refreshing to hear BG talk about reducing costs by tackling efficiency. I hear complaints from people who go offshore and sit around for two weeks because the kit isn’t around. There are a lot of savings to be made by what BG is doing and that is engaging with the workforce. You don’t deliver efficiency by just cutting jobs.’
This said, the inevitable consequence of greater efficiency is fewer jobs although, in this case, BG Group says that the numbers involved are small and mainly relate to external contracts.
Given that the North Sea is a maturing asset – meaning depleted wells and enhanced extraction methods – like injecting water to increase depleted pressure – it is interesting that BG is demonstrating and piloting its efficiency gains strategy in one of these elderly assets.
BG Group operates three North Sea infrastructural hubs – Armada, Everest and Lomond. The North Everest gas platform, 140 miles east of Aberdeen, began production in the early 1990s and has reached the end of its predicted life. It exports up to 135m cubic feet of gas per day and acts as a hub for CATS [Central Area Transmission System], a 250-mile pipeline to a processing terminal to the south, in Teesside.
BG Group is now to engage in the second phase of a £317m investment on platforms in two of its three North Sea hubs – Lomond and Everest, aimed to extend their production life by a decade. This enterprise can be profitable only through successful efficiency gains.
What the company is doing at North Everest is:
- positioning a flotel for up to 300 people alongside the platform, creating for a safe base for the work to be done;
- starting shut-down of the production facility in weeks;
- removing or replacing many miles of pipework caked over time in thick red rust.
Another major player, Apache – now selling its North Sea assets – invested £4.9 billion in a major and thorough renewal and repair programme of the infrastructure in the early and giant Forties Field. The BG Group initiative though is shifting responsibility for logistics planning and scheduling to the workforce out at the platforms.
Company engineer, Jessica Hallahan says: ‘If we focus on things like materials management and planning and scheduling then we should start to get better efficiency. We’ll be able to turn up to the job, we’ll know what we are going to do, we’ll have all the right kit, we’ll have the right people on board and we’ll be able to get on with the job rather than being stuck.’
Steven Cox, BG Group’s Vice President of Operated Assets, making it clear that without this work the platform would be decommissioning within a maximum of five years, says: ‘The efficiencies are really to make sure this platform remains economic for as long as possible. The case for change is very apparent and this is not just about a low oil environment, this is about these platforms no longer making as much money as they did at the height of their production.’
With a ten year increased lifespan projected for the Lomond and Everest infrastructure, this means that the efficiency gains resulting from BG Group’s new strategy will target generating profits in excess of the norm today on top of recovering the investment of £317M over that period. This is a modest enough sum for the oil and gas industry. The issue to follow is whether the efficiency gains achieved can squeeze this much more profit out of the ageing North Sea in today’s conditions.
