Comments: Offshore Emerging Upbeat
Authors: Donnelly John 
Published: June 2018

Editor's column

Cost containment, digital technology’s impact on the industry, and cautious optimism permeated discussion and technical and panel sessions during last month’s Offshore Technology Conference (OTC).

The conference, a bellwether for the health of the offshore sector, presented a more positive front this year as the industry emerges from one of the worst downturns in its history. Although the offshore sector is not as buoyant as the onshore, primarily unconventional, business, the mood was decidedly more upbeat than at any time since 2014.

The downturn put increased emphasis on cost containment, efficiency, and how to harness the digital revolution to do things better and cheaper. “In the lower-for-longer market, the continuous seeking of productivity improvement is the new reality,” said Rustom Mody, vice president of technical excellence for Baker Hughes, during a luncheon speech. “Innovation will be what brings us (forward) by making us much smarter about how we do business.”

Panelists at a session on oil prices said they were not yet convinced that the recent rise in prices will be lasting and could largely be a factor of geopolitical events. They stressed that the offshore business should continue to make structural cost savings permanent while continuing to look for efficiencies and innovation. Many industry practices in procurement and the supply chain remain cumbersome and unsustainable.

Chevron touted its efforts to lower costs in the US Gulf of Mexico, including at the new Anchor and Tigris projects, by leveraging data and working with suppliers to standardize equipment. The twin projects are in the pre-front end engineering and design stage and have seen cost estimates fall by a quarter from original estimates.

Lorenzo Simonelli, chief executive of Baker Hughes, a GE company, called on offshore operators and contractors to approach field development from an outcome-based perspective to keep costs down. “We are really only at the first inning of what is a series of steps that we as an industry have to take. We need to be outcome-based and then allow the inputs to be the right ones rather than operators telling you what to do,” he said. Shell said it cut costs by an estimated 70% at its recently sanctioned Vito project in the US Gulf of Mexico using a more collaborative approach with contractors.

The industry has made full-cycle cost reductions on projects of 45–50% since 2014, the start of the oil price downturn, IHS Markit said in a new study released at OTC. Some offshore projects have break-even costs as low as $40/bbl now.

From digital twin to artificial intelligence to machine learning, digital technology buzzwords dominated exhibitor booths and presentations throughout the conference. Digital technology is transforming how the industry works and improving margins and productivity, consultant Wood Mackenzie said in a presentation. Unconventional operators are already saving up to 10% on drilling and completions by employing sensor data, analytics, automation, and enterprise data management. This digital transformation will be much more than just adoption of some new software ideas; it will be a sea change that will affect company cultures and organization, according to Wood Mackenzie.