SINGAPORE – Offshore oil majors could shave nearly a third off their exploration and development costs by agreeing to industry-wide equipment standards, says Allen Leatt, chief executive of the International Marine Contractors Association (IMCA).
Rather than having big companies continue to go their own ways in ordering E&P equipment tailored for their individual needs, oil majors could take a leaf out of the US shale oil industry’s book, Leatt told Reuters in a recent interview.
US shale oil drillers, Leatt says, have halved their cost base to around $30-40/bbl, thanks in part to standardization of drilling equipment. “Oil companies could take out 30% of the cost using standardized specifications and ruthlessly pragmatic engineering,” Leatt was quoted to say.
In one of the most cost-intensive industries, cross-sector equipment standardization is rare. Most oil majors use in house-designed equipment to explore offshore for and produce oil.
Capital investment in exploration and offshore development is expected to have fallen by almost a quarter this year, to around $500 billion – the first time in three decades that budgets have been cut for three successive years, according to Norwegian offshore consultancy Rystad Energy.
“We haven't seen oil and gas companies work in a significant way to reduce their long-term cost base,” said Leatt. “They have delayed projects in the short-term, cut jobs and squeezed the supply chain.” He said that if oil companies “put more emphasis into sensible pragmatic specifications” that would “help bring stalled projects back to the market.”
The report noted that a group of 10 oil majors belonging to the International Oil and Gas Producers Association (IOGP), including BP, Royal Dutch Shell, Chevron, Saudi Aramco, and Statoil, have created a group that has prepared a handful of standard designs for electrical and pipework equipment.
“What we now call ‘IOGP specifications’ we hope will replace participating company specifications,” said Ian Cummins, chairman of the IOGP's steering committee focused on standardization. Cummins was also quoted in the Reuters report.