The oil and gas supply chain distribution network collapsed over the course of two years. Here are five ways oilfield service and equipment companies are adapting to changing conditions.
In less than two years, oil and gas supply chain companies moved from booming to crumbling. Operators invested less in the supply chain when oil prices fell.
Enterprises in the OFSE sector are experiencing a decline in sales. As a result, they’ve cut expenses and changed the way they do business.
Operators and OFSE corporations are working together to save costs and boost short- and long-term profits. OFSE enterprises are investigating new revenue models, vertical integration, consolidation, and new equipment and service models in response to the changing climate.
What Is the Oil and Gas Supply Chain?
In the oil and gas industry, a global supply chain integration process is utilized to carry commodities, transact business, ship goods, take orders, monitor inventory, and manage supplies.
Import and export facilities, as well as the distribution of refined energy products, are all part of the supply chain.
Three components make up the majority of supply networks. The upstream oil and gas supply chain is taken from the ground. In the middle stream, energy products are processed, stored, and transmitted. Oil refineries, oil dealers, and gas wholesalers all fall within this group.
What Are the Business Benefits of the Oil and Gas Supply Chain?
The supply chain process improvement is complicated by the way energy is handled, transmitted, and stored. Supply chain adjustments are crucial and cost-effective as global competition heats up.
Using the cloud, IoT, collaboration, and blockchain technologies, improved value chains might lower costs and increase oil and gas output.
Using digital technologies, you may be able to reduce risk, manage inventory in warehouses, track transportation logistics, improve customer experience, and guarantee best procurement practices are followed.
Steps of How the Oil and Gas Supply Chain Works
Cutting the operational costs and other expenses
The sector was accustomed to high pricing, so the need to decrease costs was unexpected.
Every year since 2009, the price of a barrel has risen by 5 to 15%. The costs of profiting from offshore resources were astronomically high. The price of a barrel of oil equivalent in the North Sea rose from $8 to $17 in three years.
With so much fat to contend with, it’s possible to lose weight while still saving money.
Operators get a decent return on their investment. Using enhanced horizontal drilling techniques, longer wells with more frac stages, and “super fracking,” in which drillers employ more proppant, onshore US independent operators have lowered costs per barrel while boosting output (sand).
In 2015, the cost of the North Sea was finally decreased. North Sea lifting expenses decreased by 20% in 2015, according to McKinsey’s benchmark.
Vertical collaboration improvement
It is less expensive and easier to manage contractors when you partner with other firms. The advantages of merging hardware, software, and engineering may be calculated.
Purchasing a variety of services and equipment from third-party providers adds to the fragmentation and complexity of the oil and gas industry report.
Because of the large number of OFSE firms that provide integrated services, coordination costs may now be reduced. There will be a 30% discount as a result of this.
Petrel-based software supports Schlumberger’s SIS. This method may be used to analyze a reservoir’s oil and gas potential and simulate the field prior to well planning and construction.
To expand their product and service offerings, an increasing number of enterprises are combining or merging.
SLB’s reservoir technology and CAM’s wellhead and surface technologies (sensors, controls, software, and analytics) were merged to create whole drilling and production systems to provide reservoir-to-surface services, resulting in annual cost/revenue synergies of $600 million. Cameron was recently bought by Schlumberger.
FMC Technology and Technip have teamed together to improve the design, delivery, and management of subsea oil and gas projects. Technip’s Genesis EPCI and SURF systems, as well as FMC’s, can deliver a wide range of subsea equipment.
Firms are predicted to save $200 million in 2018 and $400 million in 2019. Supply chain, real estate, and organizational efficiency are expected to save businesses $200 million in 2018 and $400 million in 2019.
Reducing risks and redundancies
New revenue streams, such as performance-based contracts and project finance, have been established by OFSE (equity in exchange for equipment and service).
By cutting expenditures and investment requirements, OFSE businesses allow operators more operational freedom. OFSE providers will incur greater upfront costs, but their long-term earnings will be more predictable.
Through payments tied to rig activities and BOP performance, GE and Diamond Offshore will maintain and guarantee the operation of eight Blow Out Preventers (BOPs). This structure favors capital expenditures, adding to GE’s burden.
Due to a lack of financial modeling and collaboration, some companies have been unable to adopt this strategy. In April 2016, Fortuna LNG and Ophir, an oil and gas exploration and production business, announced the end of their relationship.
Ophir invested $600 million before SLB paid $450 million for a 40% interest in first gas. The two corporations were unable to complete the purchase, according to Ophir.
The Nabors and C&J oil-field service operations, as well as Schlumberger and FMC’s merger with Technip, are examples of M&A activity in the OFSE business that focuses on the consolidation and integration of related enterprises along the field life cycle.
As oil prices stabilize, McKinsey expects the OFSE industry to decrease even further.
Because many organizations have shrunk to a fraction of their previous size, merging with another may be a good way to save money. Companies that drill for oil and gas are combining their operations.
The first quarter comes to a close with a ray of optimism for the future.
Advanced services and models
Businesses that spend a lot of money on cutting-edge technology usually do well. Because oil costs are low, low-cost, creative technologies are gaining popularity.
Upstream operators can take use of advanced services like as logging while drilling (LWD), rotary steerable drilling (RSD), and smart (offshore) finishing (SOC).
To increase efficiency, attract new clients, and establish new income streams, businesses in the OFSE market should invest in digital technology. In the United States, digital technology, which is extensively used in other countries, might be used.
Drilling and completions automation reduce the amount of employees needed while improving information flow.
To save money, a number of OFSEs are modifying their equipment. TCO, which stands for “total cost of ownership,” was not considered in the manufacturing of many things. With a cost-conscious design, you may save anywhere from 15% to 30%.
Without modular design, purchasing and production will be unable to expand. Schlumberger created the Rig of the Future to help them implement their integrated drilling and completion services strategy.
There aren’t many methods to enhance the OFSE at the moment. Businesses that put off dealing with inefficiencies will lose money in the long run. To live, some patients may require shock therapy.
Businesses in the OFSE sector should think about how prepared they are to face an uncertain and turbulent future in the coming years. Individuals should ask themselves the following questions to evaluate if they are on the right track:
You should be realistic if you expect oil prices will fall soon. Customers are enraged, afraid, and dissatisfied on social media as gas prices rise and Middle Eastern governments refuse to allow them to pump more oil.
Crude oil and natural gas are in high demand due to the war between Russia and Ukraine. Renewable energy sources cannot meet all of humanity’s needs.
Global markets have been actively monitoring oil and gas activity, as well as global energy demand, to avoid supply chain disruption solutions and difficulties. The Middle East has never backed down from its policy of not producing more oil in order to lower oil and gas prices.