Are North Sea operators walking the talk on supply chain collaboration?

By Morten Kelstrup, CCIO of Maersk Drilling on 12/11/2018

LYNGBY, Denmark -- Last week, I was in London at the Oil & Gas Council World Energy Capital Assembly (WECA), speaking on a panel about collaboration and capital efficiency in a new oil world.
 
With Brent dropping back to around $60bbl, I was looking forward to a lively discussion at WECA.
 
Since 2015, there’s been a lot of talk in offshore oil and gas about the potential savings from supply chain collaboration and integrated services. Ahead of the WECA panel, I wanted to find out if North Sea operators really were walking the talk. So, we ran some numbers at Maersk Drilling using industry databases and publicly available information to analyse the 101 drilling contracts signed in the North Sea during 2018.
 
A billion left on the table in the North Sea
 
The results speak for themselves. As an industry, we are not walking the talk on supply chain collaboration and have left over $1.1 billion on the table in potential savings so far in 2018.
 
How did we arrive at that figure? Time and money savings can of course vary widely from campaign to campaign, and depend significantly on the nature of the integration. But it’s safe to assume that integrated services contracts can save 5% to 15% of the drilling- and logistics-related costs in a typical campaign. That is a conservative estimate. And this even excludes the value of earlier production through faster wells.
 
That $1.1 billion could have been used to fund growth in the North Sea or elsewhere, or returned to investors. It’s equivalent to another 40 to 50 wells in the North Sea.
 
Few operators using integrated services
 
Around 20% of drilling contracts signed in the North Sea in 2018 can be firmly identified as including integrated services — that’s actually more than we expected and not a bad effort on face value. But digging further into the data, we found that only a small handful of companies were responsible for those contracts with integrated services, out of 40 oil and gas companies signing drilling contracts in the North Sea in 2018.
 
Even more at stake
 
Looking out to 2019–2021, we estimate there’s another $3.3 billion in potential savings at stake in the North Sea. This assumes that the uptake of integrated services contracts will increase by 25% in each of those years through to 2021.
 
With so much at stake the offshore oil and gas industry needs broad-based structural change across the value chain. Drillers and service companies need to transform their value propositions and operators will need to reward quality and the end result, not time spent on the well. It’s time to change our ways of working together. It’s time to walk the talk on supply chain collaboration.
 
At Maersk Drilling, we are determined to pursue innovative business models in order to stimulate this change. That is why we have formed alliances with strategic partners who are willing to challenge the status quo.
 
The latest example is our alliance agreement with Seapulse, formed around a global exploration drilling program for which Maersk Drilling will be supplying fully integrated drilling and well services. The alliance is supported by a new business model in which Maersk Drilling will take responsibility for total well costs, combined with an incentive payment scheme to drive performance and provide potential upside for all parties involved. In that way, we are willing to put skin in the game, but also expect to take part in the rewards.

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