Who is the true competition?

Who is the true competition?

Posted: February 6, 2017

The subsea sector is possibly under greater pressure than any other producing sector, be that land, offshore or shale. This is even more apparent in mature basins such as the UK where great opportunities still exist but the combination of ageing infrastructure, lower productivity and more marginal upside opportunities challenge the sector as never before.

Innovation and teamwork (I am purposefully not using the word collaboration!) is needed more than ever, but our commercial structure actively discourages them. We still see the competition threat as being between the subsea players rather than between the subsea sector and others.

There is no doubt that innovation has a very important part to play. We must also however leverage the excellent knowledge and skill base we have from across the sector. However this should be in an aligned manner rather than as opposing teams. Boundaries between supply chain and operators need to blur. In short, we need to work as a unified sector to create the best commercial outcomes for all.

The rise of US Shale

We have seen great shifts in oil and gas over the past five to ten years. The phenomena of US Shale has been incredible. The sector’s ability to use technology and innovation to drive down their cost base has been its single most outstanding achievement. Every decision is driven by commercial considerations. This process never ends, with the incremental benefits gained locked into all future projects. This has resulted in a truly innovative and lean approach to field development and management. Commercially-driven innovations spread like wildfire. Any operational advantage is very short lived before its quickly embraced as common best practice.

We have not seen this approach taken with subsea. The reason cited is that the risks or cost of failure are too great to allow compromise. Rather than rachet down costs, as in the case of US Shale, this ‘no compromise’ approach has seen relative costs rachet up over the decades as designs become more complex, heavier and more expensive.

According to Calash data, the capex cost of a shallow subsea well (less than 500 metres) increased by 43% between 2012 and 2016. With a CAGR of 9.4%, this far outstrips well productivity gains. As such the commercial trends in the subsea sector suggest we are becoming less competitive compared with other sectors such as US Shale.

There are a number of industry wide initiatives being implemented to address this, including standardising protocols. However, are we commercially tough enough to compete with the likes of US Shale?

It’s not only during the initial design or construction phase that we must adopt a harder edge, lean approach. At Proserv, ‘ingenious simplicity’ is our company philosophy and at the core of all that we do. To remain true to our unique brand ethos, we continually challenge ourselves. This is not just in the design of new equipment or technical solutions, but in the way we conduct our business overall.

Challenging convention

‘Life of field’ solutions for our clients are similarly challenged. The risk and cost of failure will always be high. However, this should never give us the excuse to be lazy and conservative in our innovation.

In a recent example, we were approached by a client who was frustrated with the OEM’s classically conservative solution to an ageing equipment challenge. They had purchased a subsea controls system that included pipeline subsea safety isolation valves (SSIVs). A field ready spare was also purchased to provide contingency and the decision was taken to re-FAT the spare to check its serviceability. The client’s controls supplier was unable to support this valve, or offer a replacement for the obsolete parts. Instead, their proposal was to sell a new electro-hydraulic SSIV, which would not have been compatible with the installed system. They would also have had to replace a 400 metre umbilical and upgrade the existing controls system to operate the new electro-hydraulic SSIV.

The complete refurbishment and testing solution provided by Proserv saved the client from spending many millions to replace the existing subsea system and the cost of lost production. Furthermore, we were able to offer a future-proof component obsolescence management plan.

Another example involved a remote, unmanned platform in the North Sea. The subsea control system was over 20 years old. It suffered from repeated failures and unscheduled shutdowns. This lead to significant loss of production. Furthermore, it was unsupported by the OEM.

Proserv provided a retrofit solution. They used the existing subsea control module (SCM) hydraulic and mechanical hardware but replaced the subsea electronic module (SEM) for a more reliable and fully supported unit. This provided a replacement solution with the incumbent SCMs and therefore an upgrade path to improve availability, support and system capability.

Aligning for success

Optimising field development and life extension solutions can only occur with true collaboration. This will involve one team sitting with the commercial model to understand the options and implications of multiple scenarios. The conservative approach we continue to see is where we, as technology providers, are called into bid only after the design is virtually complete. Driven by the ‘need’ of supply chain for a competitive environment, a common and generally conservative design is sent out for tender. The process excludes the technical experts from the design discussion. This results in a ‘cut and paste’ solution, and puts the need of a competitive tender before commercially astute innovation. We have seen many cases where an innovative alternative has been kicked out as ‘not conforming’ despite being technically and commercially superior.

So who is the real competition? Like two dogs fighting over one bone, can we afford the expensive and wasteful beauty pageant we know as our bid process; a system based on the fundamental belief that we are not to be trusted and will take commercial advantage at the first opportunity? Or do we recognise that the true subsea competition is outside our sector? Unless we unite and align our commercial interests in a truly trusting manner, we will simply be overrun by sectors that continually challenge, improve and innovate.

Originally appeared in Subsea UK News January 2017 edition.


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