FLORENCE, Italy—The holy grail of reduced costs can be achieved in the oil and gas industry through simplification, standardization and collaboration, according to a message delivered during the GE Oil & Gas annual meeting in Florence.
Simplification of engineering and behaviors are a necessity in the sub-$40/bbl oil price environment, but the industry continues to fall short of achieving this goal, delegates were told.
“This is probably the worst crisis that our industry has known in a generation and maybe more,” Technip’s President and CEO Thierry Pilenko said during the meeting Feb. 2. “Most indicators are showing it is probably worse than in 1986.
“Nobody has a crystal ball, but we know what we can do and we know what we must do. We need to do something about costs and we need to do it now,” Pilenko added.
Cost cuts of 10% could be made fairly easily, he said, but in the short term contractors are being asked to make cuts as large as 30% to 50%, particularly for deepwater projects.
He said a number of things had conspired to raise costs over the years, including difficult geology and geography, national content, inflation, the increased cost of talent, productivity and regulations.
Pilenko pointed out that Total moved some of its engineering work to India to utilize the talent available there, but salaries rose 50% over the last five years.
“We measure the amount of man hours we spend engineering per piece of equipment such as compressors, and over the past 10 years we have gone from around 1,500 to 2,500 to 3,000,” he added.
On productivity, Pilenko said that on one of Total’s recent projects, about 35% of the pipeline welding had to be redone leading to lost time and higher costs.
He also called for simplification of behaviors, giving the example of having to move fire extinguishers by three inches on a platform under development for safety reasons. The chief engineer had to sign off on the move, leading to a three-day delay.
“This is what is killing us. We have thousands of ridiculous instances like that,” Pilenko said. “I’m not talking about changing the safety rules. We just need to use common sense.”Harry Brekelmans, project and technology director for Shell, echoed this, saying there had been a “shocking decline in construction productivity, which has led to an enormous increase in costs.”
He said oil and gas companies should look to other industries, such as automotive and aviation, to see how they turned around in previous crises. “We can find some hope in this low oil price,” he added.
Meanwhile, GE Oil and Gas President and CEO Lorenzo Simonelli called for the industry to pull together. “Only together will we manage through the current crisis. In an era of complexities we can drive productivity and return investment through innovation and partnership,” he said.
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