ABERDEEN, SCOTLAND—Scott Hamilton, executive engineering director for Baker Hughes, a GE company (NYSE: BHGE), spoke about driving down capital costs and selecting solutions for operational efficiency of subsea production facilities at the recent Subsea Expo in Aberdeen.
Hart Energy caught up with Hamilton after his presentation to delve deeper into BHGE’s plans.
Hart Energy: You said in your presentation that there is no silver bullet. Does that mean the approach to reducing capex and opex is incremental?
Hamilton: It’s about studying everything. What we deliver is so complex that if you look at everything from the wellhead system to the tree system to the manifold systems, the jumpers, the umbilicals, risers, control systems, top size equipment, it’s so diverse and complex that we have to tackle all of it. You can’t just focus on one item and try and save some money. To get the cost savings that the market and clients require, we must be holistic; we have to go after all the products.
Hart Energy: What are the key elements and targets for reducing costs?
Hamilton: The key message I was getting across was [that] it’s several items. At the high level, it’s commercially how do we get organized? What are we offering? How do we get the overall installed cost down for the client to get over financial hurdles? There are the softer things around finance and then what is it the client needs to help this project go forward?
The second thing is how do we execute projects? So internally be more efficient, be more productive, and use technology to drive cost down internally.
The third one is the products themselves. Wherever possible, try and sell repeat equipment, try and sell the same thing repeatedly. Something I didn’t mention in the presentation is we also have an extensive stocking program now, so once the project has been awarded, we’re pulling equipment straight from stock, very minor modifications and then it’s being delivered to the client.
Hart Energy: You mentioned reuse and standardization. How important is that to reducing capex costs for the sector?
Hamilton: For us it was firstly standardize, the database was extensive. So standardize, pick the best solutions as standard base case products and then optimize those standards. Don’t just pick something that’s been supplied before and then keep supplying it. So we say ‘this is now the standard; let’s invest some time in optimizing that design, getting the cost out of that design. Why does that frame need to be as big and heavy? What material are we making that out of? Why kind of cladding is on that surface?’
The standard may have been delivered for clients’ expectations 10 years ago, but today let’s challenge all of those expensive features that are in those standards. Standardize, optimize, and at the same time, look at technology step changes. How can we jump on from here with solutions that are significantly lighter and cheaper?
Hart Energy: Another point you raised in your presentation was getting early engagement with clients. How important is your partnership with McDermott in this area?
Hamilton: It’s not just McDermott. We have a relationship with McDermott. We’re working with them where it makes sense, and we also saw the benefits in jointly supporting the development of IO [integrated operations] and offering that to the market very early on.
IO tends to get involved very early at concept stage in the valuation of various concepts. Then ideally, if the project’s moving forward, they’ll pull in ourselves if possible, but we’re also partnering with other soft companies depending on the location, dependent on the project, the client, the specific requirements of that job. We’ve got other partnerships other than just McDermott.
Hart Energy: When it comes to influencing the client to accept an “off-the-shelf” alternative that may be more cost effective, how easy is that?
Hamilton: There are still major projects now where if you’re not compliant, you’re excluded. What that’s led to is us submitting a bid compliant proposal that focuses on driving the cost down as much as possible but then we offer some options.
We have an example right now where we’ve done just that. We’ve offered a bid compliant solution. We were awarded the contract. We offered two or three major cost reduction options, and now the contract’s moving. We’re now going back and looking at that cost reduction option as a potential change on the project.
Hart Energy: You spoke about an important element of reducing costs: reducing engineering and utilizing more systems engineering. Can you elaborate on that?
Hamilton: The key thing is talking about early engagement and providing the best solution for each job. It’s not one size fits all. On some of the projects we’re still offering bespoke, specialized client specific equipment for major projects, but we’re seeing more and more swing toward clients asking for the standard, asking for something that’s been delivered previously.
In that case, there’s less detailed engineering because obviously that design exists, that product exists, but in the new collaboration models in the paralleling models and the risk reward models that we’re engaging in where we’re taking more risk over installation. We need to put more system engineering in to make sure that we manage the risks between each of the partners and that we ensure that the whole system, not just the subsea system, but the whole development goes offshore and gets installed and commissioned within the project.
Hart Energy: Does that require a new skill set from your delivery team?
Hamilton: We have always done systems engineering. It was interesting to hear a comment earlier from the Fraser Nash speaker about MOD-based system engineering. My global head of system engineering is an ex-defense industry person, and it’s all about requirements for management and making sure the requirements between us and the client are frozen. Then those requirements, how they’re driven down in the rest of the organization to make sure what we designed meets what we sold.
It’s kind of basic, but what I’m saying is the detailed engineering gets less because we’re reusing standard equipment and the partnering options get brought up where we’re responsible for installation. We need more of that system engineering at the top and less of the detailed engineering at the bottom.
Hart Energy: How far can the oil and gas sector go in mirroring sectors such as automotive and aerospace with greater industrialization, stock parts and stock products?
Hamilton: There are various clients driving this. There is discussion about standardizing interfaces that are coming from some of the major clients. I think there still has to be some level of wiggle room for the small companies to be able to optimize their own solutions. We are going to move in that direction. The tricky bit is defining the interfaces.
I’m not sure what direction it’s going to take. Some clients want to bring the system engineering in-house and commoditize each of the building blocks. It’s a bit like a step back in time, to be honest, where they go and buy one piece of kit from one person and one piece of kit from another person. But is that an optimized system? I’m not convinced.
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