UKCS Collaboration Survey Finds Slightly Stronger Supply Chain Relations

Annual Deloitte/OGUK study highlights cost reduction, checks the role of the coronavirus and energy transition on collaboration bonds.

UKCS Collaboration Index.JPG
UKCS Collaboration

Flexibility and support from suppliers to operators during a tough 2020 was enough to nudge the annual Deloitte/Oil & Gas UK UK Continental Shelf (UKCS) supply chain collaboration index up 0.1 over the 2019 tally. The UK collaboration survey gauges the health of the upstream oil and gas supply chain and levels of cooperation between suppliers and operators.

The 2020 survey found that even though COVID-19 created a challenging environment via canceled or modified contracts, the willingness of suppliers to assist with the cost-reduction efforts of operators pushed the Industry Collaboration Index to 7.1 (out of 10). This matches the all-time high index of 7.1 seen in 2017 and 2018. The first survey was launched in 2014.

According to the survey, the slight improvement was entirely due to the higher scores suppliers received from operators.

“Although the score for providing financial incentives to collaborate hit a record high in 2020, it still remains the lowest factor in assessing collaborative relationships,” the survey said. “As a key factor for successful collaboration, this low score highlights how important it is to find commercial models that allow all parties to benefit from working better together. It is crucial for operators to find new, more collaborative ways

of working with suppliers to unlock projects and maximize the potential of the basin, ensuring that the UKCS remains attractive to investors.”

Cost reduction remained a robust driver for collaboration, according to the 2020 survey. Thirty percent of respondents, up from 26% in 2019, said they collaborated to reduce costs. The survey noted that the role of traditional cost-reduction methods—deferring spending on projects, freezing hiring/reducing the temporary workforce, and requesting basic unit cost reductions from suppliers—had also increased from last year.

“This emphasis on cost reduction can erode trust, reduce goodwill to collaborate, as well as limit suppliers’ ability to make contributions that would enhance the overall value of ownership of the project,” said the survey. “With so much pressure on companies to save costs, the survey data highlighted instances, where behaviors could, at best, be described as cooperative.”

Of the 345 responses received by the survey in 2020, 24% said reducing risk was a strong driver for cooperation, up from 18% in the 2019 survey, which attracted 451 responses. Seventeen percent of responses in the 2020 survey claimed shared knowledge/learning was a key driver, down from 24% in 2019. Increased market access was also down as a cooperation driver, from 17% in 2019 to 12% last year.

Energy transition was introduced as a new topic in the survey in 2020 to understand the progress companies are making to support the UK government’s net-zero emissions target. Three-quarters of operators in the survey said that operational efficiency improvements and carbon-emissions management are the two main areas where suppliers can help them reach their 2035 objectives.

Respondents said the overall impact of COVID-19 on cooperation was split. A third of suppliers surveyed said the virus had no impact, while another third said it impacted them negatively. Just over 30% said virus impacts were positive. On the operator side, 40% of respondents said it had a negative impact, while 35% claimed positive impacts and 20% claimed no impact at all.