Getting engineering back to basics isn’t just about standardization anymore. Industry executives at the annual GE Oil & Gas summit in Florence advocated for simplicity in order to keep costs low and get projects done right. Elaine Maslin reports.
Neil Duffin, President ExxonMobil Development Co.
Back in the first half of 2014, capital discipline was a big fixture on the tables of oil executives globally. Then, over a period of six months, the oil price fell to its lowest in nearly six years.
The reasons for the fall in oil prices have already been well aired and the responses rapid – job cuts, swift and deep, running into the thousands, at operators and contractors.
Downturns have become a cyclical feature of the industry. So, many have been asking, how can the industry address this latest down turn in a way that means it comes out the other side stronger and more resilient – and not simply primed for the next cycle?
Engineering has come under the spot light as one of the areas that could be addressed, and it’s not just about standardization. Neil Duffin, President ExxonMobil Development Co., says the industry needs to get its engineering “get back to basics” and get it right, up front. Engineering, he says, has been allowed to do its own thing too much.
Turning the tide around at ExxonMobil has involved a discussion around “minimum kit,” but also around, where possible, designing one to build multiple, instead of re-engineering the latest design, he says. Re-calibrating how the industry engineers its projects will have the greatest impact on capital costs, he told GE Oil & Gas’ annual meeting in Florence, early February.
How did we get here?
“When you look at how much money has been spent in our industry, the numbers are staggering,” Duffin told the event – over US$800 billion was spent in 2014 in the upstream industry. As spending increased, so did engineering, procurement and construction (EPC) backlogs. “This has meant the industry has been struggling to keep up with demand,” he says. “In some cases, industry has not enable to pull it off and costs have got out of control.”
Also speaking at the event, Rod Christie, CEO Subsea Systems, GE Oil & Gas, cited figures published before the oil price plummet which say 64% of oil and gas upstream projects were facing cost overruns and 73% were running over schedule. As well as increasing costs, big back logs led to “softer issues,” such as staff tending to move around companies a lot, creating “mismatched cultures,” leading to projects that are not ready to execute when they come off the drawing board, Duffin says.
“There’s nothing worse than a whole bunch of engineers who have never worked together before and who have all got their own ideas trying to work on an integrated plan and what you can end up is with a product you just can’t execute,” he says.
“It’s not just engineering,” he adds. “It’s having people with execution capability sitting in the upfront piece in concept select and design so that what comes off the drawing board is actually something you can execute. That’s not just our industry, look at car manufacturing. You don’t just let the car designer design a car and send it to the marketer. I think we’ve slipped too far into letting engineering do its own thing.”
Duffin also says there’s been a tendency to take the last design and work from it for the next project, building in more space for safety reasons, adding addition equipment, more alarm systems, monitoring, etc.
“Before you know where you are you’ve added weight because you’ve got more cable trays running all over the platform and people forget that it doesn’t take much so say you now need more people to work because you’ve got more equipment,” he says. “You would think, because of advanced technologies, you would be going down in number of people, not up, but the more complexity you take offshore the higher the risk you are running.”
Bernard Looney, chief operating officer production, BP
“What can the industry do? We can simplify it (engineering), get to the minimum kit and work it from there. I can’t belabor enough the importance of up front end engineering and getting it right. Sometimes there’s a rush to get from engineering to execution. Where the industry has done that, in general, they’ve paid a very hefty price, particularly the more complex projects.
“If you get into execution and for whatever reason, whether it for socio-economic reasons, whether the engineering is just not the quality you are looking for and you have to re-engineer as you are construction, or civics works not right or environmental factors have changed the original principles design.
“Upfront engineering and concept select, if we as an industry can recalibrate that, back to the expertise we had before, we could make a big difference on our capital cost structure.”
Duffin also says the industry needs to change its mindset towards engineering. “Within Exxon, we’ve got a discussion around minimum kit,” he says. “Start with minimum kit and then justify what you have to add, not start with what you’ve got and tell me it’s not economic then tell me what you are taking off, because in many cases it’s not economics with what has been designed and I think we all know that. It’s takes a different mindset.”
Exxon has also been looking at a “design one build many” concept. “We’ve had opportunities where we are working with industry to say, if we spend the time up front, because we know we have multiples coming, let’s deign that first piece of kit really well, get the engineering done, then get into execution so we can repeat it, and train the work force so that in the third and fourth cases the costs are drastically less,” Duffin says.
Another area which has seen costs increasing is where developments are in remote locations, which see costs in mobilization, logistics, but also training at remote sites. Duffin suggests modularizing projects so that work can be taken to a site more hook-up ready, reducing complexities, manpower needs and training requirements on site.
Bernard Looney, chief operating officer production, BP, says the industry needs to focus on more collaboration “with a purpose.” “The cost structure of this industry I believe was too high at $100/bbl, let alone at $50/bbl,” he told the annual GE Oil & Gas meeting.
“That is calling for some radical changes in the way we do our business and the way we do that is around how we work with our suppliers.”
Looney gave an example of where BP had worked with GE Oil & Gas to reduce down time on its deepwater drilling rig fleet. BP has about 16 deepwater drilling units globally, says Looney. “In 2012, we along with many in our industry suffered a lot of downtime from the blow out presenter,” he told the event. “In 2012, we suffered about 600 days of downtime in our 16 rig fleet, the equivalent to two rigs being out of action for the entire year. We sat down with GE to try and halve that within two years. By working with GE we took that 600-day number down to 200 days. That’s still too much, but that 400-day saving of waste is worth about half a billion dollars. Ideas like this will last a lot longer than sending you a letter asking you to take 10% out of your cost base.”