24 Offshore February 2018 •
OFFSHORE LEADERSHIP FORUM
Industry executives offer sustainable development
strategies at second Offshore Leadership Forum
Speakers and attendees at the recent Offshore Leadership Forum had a cau- tious but unmistakable air of optimism about the outlook for offshore business and new asset developments.
Sponsored by Offshore and Independent
Project Analysis (IPA), the second annual
meeting featured presentations by executives from IPA, Inc., Talos Energy LLC, LLOG
Exploration Co., Chevron, and Mexico’s National Hydrocarbons Commission (Comisión
Nacional de Hidrocarburos-CNH).
At the same event a year earlier, oil and
gas companies were bracing themselves for
another difficult year of lower oil prices, proj-
ect cancellations, and workforce reductions.
Although some companies in the oil and gas
sector fared better than others during the
downturn, the feeling among offshore leaders
attending the Dec. 5, 2017, event in Houston
was that the offshore industry is entering a pe-
riod of relative stability, if not growth, in 2018.
Speakers at the Offshore Leadership Fo-
rum urged attendees to think hard about the
direction the industr y is headed in delivering
scope and cost-efficient and value-generating
assets. To survive the lower oil price environ-
ment in recent years, most owners downsized
and restructured their project organizations
to better reflect smaller portfolios. Their aim
was to reduce the cost of offshore developments. However, most of the cost reductions
they achieved came from the high-grading
of project portfolios, as a means of dropping
costly opportunities. Other reductions resulted from the supply chain giving back rents
and suppliers operating on lower cost curves.
But these lower costs may be temporary and
should be expected to change as the industr y
gets back on its feet.
IPA President Edward Merrow offered the
opening presentation. He said that now is a
good time to assess whether the industry can
deliver cost-efficient, schedule-advantaged,
and better producing offshore assets in a
sustainable manner. Data drawn from IPA’s
upstream database show the industry has
done little to fundamentally improve asset
outcomes. “Where is there improvement to
be had? Almost everywhere,” Merrow said.
One way E&P companies can attain sustainable asset development costs reductions is
by “going where the money is.” The industry
has had a difficult time getting to where the
money is, though.
During the 1990s and through the mid-
2000s, the industry emphasized schedule-
driven projects. Companies rushed projects
through the Front-End Loading (FEL) process
to meet aggressive schedule targets. As a
consequence, the capital effectiveness and
performance of these assets suffered. Beginning around 2006, however, the pendulum had
begun to swing in the opposite direction. Asset
development durations started getting longer.
Unfortunately, as data in IPA’s upstream
database show, some companies are now
spending an entire decade going from reserve
discovery to selecting a project. The earn-
ing capacity of sanctioned capital diminishes
significantly in that time. The solution to this
problem is not once again setting aggressive
schedule-driven targets for developments,
IPA has concluded. The solution is to deliver
smart fast projects. For a project to go fast,
a comprehensive and holistic assessment of
the development process must be conducted.
The standard aggressive schedule or lean
playbook strategy will not suffice. Efficien-
cies are gained by fully understanding and
correcting process workflows.
Production attainment is another problem
the oil and gas sector must address head on.
“The elephant standing in the corner is that
we are not getting the barrels we say we’ll
deliver,” Merrow said. “The money has got to
be in the barrels,” he added. “The economics
of our production is killing projects.”
According to data in IPA’s upstream data-
base, companies are failing to deliver their
production plans for as much as six to 10 years
after startup. The average field only achieves
about 70% of planned plateau capacity. Making
matters worse is inefficient scoping resulting
in extra capacity; this is often twice as much as
needed. Industr y leaders must ask themselves
why reservoir predictability is systematically
exaggerated, Merrow observed.
The state of the industry remains fragile
as owners, contractors, and vendors figure
out how to survive in a much lower oil price
environment for the long term. Some compa-
nies have made meaningful changes that IPA
believes should secure their long-term future.
But the industry as a whole has not made
significant inroads to addressing stubborn
planning and execution inefficiencies. IPA
evaluations continue to identify critical weak-
nesses in project controls, construction man-
agement, and contracting functions. These