With the oil and gas industry facing an uncertain financial future, organizations are looking for any way to save costs. One way to achieving cost savings is through efficient planning in the construction and conversion of floating production, storage, and offloading (FPSO) units. In a technical session, “Practical Steps Towards FPSO Cost Reduction,” held Wednesday at the 2016 Offshore Technology Conference in Houston, a series of industry experts discussed the strategies organizations may take with FPSOs.
In one presentation, Bryan Kendig outlined the opportunities organizations have to lower costs in purchasing oil and gas production equipment and services for major offshore projects as described in OTC 27009. Kendig is a supply chain manager at SBM Offshore. In the paper, Kendig and co-author Jim Wodehouse, vice president of technology management at SBM Offshore, recommended strategies organizations should take to maximize cost reductions on future projects.
One recommendation is to use the procurement department in a strategic manner. Kendig and Wodehouse said organizations should devote a sufficient internal budget that is independent of a client’s project budget so that procurement methodologies can be developed and implemented.
Other recommendations focus on standardization. Kendig and Wodehouse suggested that the standardization of equipment, specifications, documentation, and working processes are good economic practices, and organizations should utilize them on offshore projects. They also recommended that any major cost reduction decisions with regards to equipment or key vendors should be made in a collaborative fashion, with a team of stakeholders representing an appropriate cross-section of functions within the organization.
Kendig said vendors should play a critical role in identifying cost-reduction opportunities. However, he also described the process of working with equipment vendors as “scattered” and that it is not realistic for companies to expect vendors to reduce their budgets by significant margins.
“Energy is feeling a transition, especially offshore,” he said. “We’re the first ones to feel the brunt. But, some of our vendors are catering to other markets, so the 50% reduction isn’t there for those vendors. I can tell you from previous experience putting together proposals that it’s been a long time since I’ve seen gross margins from vendors that were more than 20%.”
Technology development was another focus of Kendig’s presentation. In their paper, Kendig and Wodehouse recommend that project developers, vendors, and engineering, procurement, and construction (EPC) contractors should collaborate to identify and develop the technologies that will lead to cost reductions prior to the awarding of the EPC contract.
Kendig said he wants to see the industry approach cost reduction in the same manner in which it approaches technology development. He suggested the development of a joint-industry program targeting things like the creation of standards for documentation and certification.
“I am very passionate about improving costs and seeing what we can do within the industry from a supply chain perspective,” he said. “Let’s pull some things out we can repeat from one project to the next project. I would really like to see this stick to the wall. I’ve been in the industry for 27 years. I’ve seen the ups and the downs. The ups come around, and we tend to forget the things we were trying to do [during the down periods].”
Kendig was one of seven speakers to present a paper at Wednesday’s technical session. In another presentation, Kees van Roosmalen, a managing director at Nevesbu, discussed the lessons learned from his company’s experiences engineering FPSO conversions. In his paper, van Roosmalen said thorough preparation is key to cost-effective ship conversion.
“FPSO conversion requires that you know what you’re going to do when you start doing it,” van Roosmalen said. “You need to have phased growth. You need to know what you’re going to do in what sequence. You need to have good preparation and good [front-end engineering design]. You need to manage your subcontractors and vendors because many of them are delivering projects tailored to the FPSO you are looking at.”
Stephen Whitfield is a staff writer for Oil and Gas Facilities.