Reorganization impacts upstream technology

Bil Loth
W.D. Loth & Co. Ltd.
London
Nigel P. Brown
U.K. Health & Safety Executive
London
Guus Glass
U.K. Health & Safety Executive
Aberdeen

Industry reorganization has negatively affected upstream research-and-development (R&D) activities and human-resource availability.

Currently, there are no visible solutions to these problems and it may be some time before the industry comes up with viable solutions.

A series of studies has recently been conducted on behalf of the U.K. Health & Safety Executive (HSE) concerning organizational and technical trends in the upstream oil industry. These were initiated to assist deliberations on the direction of HSE's long-term research needs in the topic area of well engineering and operations.

A factor prompting this work, and article, is recent industry experience. This has been documented through interviews conducted with leading industry professionals, in both Europe and the U.S. Recently within the industry, some highly visible equipment failures in U.K. oil field developments have resulted in production delays and elevated costs. Problems have also been noted in promoting long-range, safety-related research.

In the U.K., the health and safety regime has changed considerably since the HSE took direct enforcement responsibility in 1992. Duty holders (responsible parties) that according to circumstances can include traditional operators and service providers, have a clear obligation to ensure the safety of offshore personnel.

In the recent past, the Offshore Safety Division of the HSE spent about £5.6 million ($9.4 million) annually on research. The allocation of these funds was determined through a number of routes including the studies on which this article is based and on intelligence gathered through the HSE's unique position created through Duty Holder interaction.

An important function undertaken by the HSE is the dissemination of information concerning hazards and risks. This information arises from many sources including the research program and statistical information collected from the industry. The primary purpose of this is to guide and inform operators in discharging their safety responsibilities.

It is not HSE's role to offer prescriptive solutions to these issues or to set guidelines to avoid the problems, but wherever possible, the HSE, through the activities mentioned above, will endeavor to facilitate their solution.

Downsizing

The most obvious change in the offshore industry is operator downsizing. This process, which has been ongoing since the mid-1980s, has had as its most visible effect a significant reduction in staff numbers.

There is a widespread awareness that there is a substantially reduced base of older, more experienced technical personnel (OGJ, Apr. 29, 1996, pp. 63-64). The shift of engineering functions from operators to contractors and manufacturers has had, and is continuing to have, a major impact on industry personnel.

At one time it was assumed that expertise would simply relocate from the operators to the "outsourced" suppliers. However, relatively few senior technical people have remained in the industry.¹ In many cases, senior people left, especially in the earlier days, with substantial benefits in which to pursue alternative careers or personal interests.

The working environment, outside that of the operator, is different. This can adversely affect experienced people who do make the shift. Career paths for contractors and manufacturers are significantly different than that which operator personnel had become used to.

The work structure of outside operators also tends to be different. The learning experiences tend to be less varied and personnel are often, out of commercial necessity, restricted to applying their expertise to a relatively narrow segment of the business.

Contractors, and to a lesser extent, manufacturing personnel, are much more transient than operator personnel. The transient nature of workers, and severe competitive pressure, normally leads to substantially reduced training opportunities.

The more restricted business activities of most contractors and manufacturers, as compared to an operator, means that the opportunity for employees to develop a very broad experience base simply does not exist.

For personnel remaining with operators, work environments have often deteriorated.² Disenchanted workers faced with continuing change are subjected to not only the stress associated with personnel reductions but also increased work loads accompanied by "self prioritization."

Asset-based organizations

A second major change in operators' structures is that some have been transformed into asset-based organizations. This has reduced the size of central engineering departments and materially affected the skill base and mix of people in the more-segregated organizations.

Just as important, the objectives of many individuals have been modified. The asset-based organization is necessarily more centered on local problems rather than the long-term strategy of the parent company.

A third very visible change is the manner in which projects are executed. Alliancing, in one form or another, has become a common mode of undertaking project work. The personnel charged with execution often do not have as wide a range of experience as do the operator personnel they replace.

Almost always, the personnel executing the project are operating under a different, perhaps more commercial set of restraints. As a natural result of these arrangements, competition is more clearly focused on commercial factors such as price and fitness-for-purpose concerns, than on the application of new technologies. While this cannot be an entirely negative factor, longer-term functional requirements of equipment may have been compromised in order to achieve capital cost savings.

Undoubtedly, significant savings have been achieved by switching to alliance-type arrangements. In many cases, however, the bulk of savings have been achieved on the initial project, while additional cost savings, of similar magnitude, are unlikely to materialize since most procedural savings have been achieved in the initial endeavor.

New technology

Further significant cost savings are most likely to arise from the implementation of a new technology. Unfortunately, with reduced emphasis on long-range research-and-development (R&D) activities, this new technology may not be readily accessible. The immediate effects of industry reorganization are summarized in Fig. 1 [72,570 bytes].

Substantial advances are being evidenced in drilling technology in high-pressure, high-temperature wells, underbalanced drilling, slim-hole, and other advanced drilling techniques. Completion technology is also evolving rapidly with multilaterals and intelligent completions becoming realities.

The use of subsea technology is being rapidly extended and will probably incorporate subsea processing sometime in the near future. The obvious health and safety concern is not the development of improved technology, but whether or not the necessary work to understand the safety implications of this work is being competently pursued.

Personnel concerns

There is a growing recognition that the industry is faced with a shortage of skilled personnel. Broadly experienced engineers, highly experienced engineers, and a cross-section of drilling personnel are currently in limited supply (OGJ, Jan. 19, 1998, pp. 28-30).

Undoubtedly, these shortages will be rectified in time although the mechanism for replacement has been weakened. Training is only part of the background needed. Individuals learn while organizations will not, unless dedicated experience and knowledge transfer programs are put into place. Some programs are being initiated but there is little evidence that these programs are widespread.¹

The importance of teamwork in offshore operations cannot be underestimated. Drilling crews can require high levels of teamwork in critical situations. This teamwork is only fostered by extended personal relationships.

The change in staffing between operators and contractors has also reduced the accessibility of professionals to one another. In general, company personnel are more accessible than those outside. Ready, short-duration contacts can be useful but there is a natural reluctance to go outside the company for brief enquiries.

Operator personnel appreciate that the casual consultancy formerly provided by company personnel must become more formal and equitably compensated when similar consultation is desired from outside. Communication lines are becoming extended, and in many cases, are generally more difficult across company borders.

In all categories, the sorts of skills that are endangered are those that provide a broad systems overview, the maturity that comes from being involved in critical situations a number of times, and the historical hindsight which can be so valuable in the appraisal of operational risks.

There is very visible evidence of this personnel-skill shortage.¹³ Early failures in installed systems are almost certainly not a case of widespread incompetence on the part of the project execution staff.⁴⁵ Most often, failures result from competently designed equipment that has been crippled because one or two small points or flaws have been overlooked.

It is unlikely that this can be traced to any negligence on the part of the contractors' staff. It is equally likely that a continuing overview by the variety of specialists, which were once available, could have avoided these problems.

Sometimes the equipment is in entire conformance with the specifications, but a less-than-perfect understanding of the intent has led to selection of incorrect equipment.⁶ At other times, systems have been optimized for cost and performance features but less so for intervention features.

Too often the mistakes are recognizable as having happened in the past, indicating knowledge that has been poorly communicated or utilized. There is some evidence that paper-driven designs and guidelines are at times substituted for site-specific, occasionally unique conditions.

Traditional industry approaches are not always well founded and detailed appraisal often indicates that alternatives are superior.⁷ Furthermore, functional specifications do not always incorporate the unique features expected of offshore or subsea equipment.

Research and development

It has become apparent that long-range R&D activities have been affected. There are a number of reasons for this. There are far fewer operator-run test facilities than before industry reorganization. Testing is often delegated to equipment suppliers who may not have comparable facilities and are too often driven by delivery commitments.

The concern here is that more "development" work may end up being performed on the rig floor. This is an unsatisfactory and potentially dangerous place to conduct such work. Additionally, new completion technology, such as smart wells, will require more equipment run in the hole and more technical specialists on the rig floor. These specialists are unlikely to be as aware of the hazards involved in drilling and completion operations as compared to more-experienced drilling personnel.

Involvement and costs

Funding levels have also been affected. Joint industry projects (JIP) lead to knowledge sharing with added benefits. The barriers to participation are low, and there is widespread acceptance that no competitive advantage is sacrificed by participation. This is because competitive advantages arise from the aggressive application of project deliverables rather than hiding the results.

Accordingly, JIP trends provide a useful indicator of R&D activity.

In order to better understand the trends, a number of aspects of European exploration and production JIPs have been examined.⁸ Levels of participation, topics of study, costs, duration, number of new starts, and other elements were reviewed. Fig. 2 [85,318 bytes] illustrates the number of project starts per year.

It appears there were substantial increases during times of industry duress, most probably because of the desire to leverage funding. This seems to be supported by the increased number of participating companies, which closely parallels the trend of project starts (Fig. 3 [86,122 bytes]).

The average length of projects, as shown in Fig. 4 [84,233 bytes], does not vary as dramatically. The average total cost decreases (Fig. 5 [90,582 bytes]), but in itself, could not be seen as overly worrisome. What is of concern is that the combination of fewer project starts and lower average project costs indicate materially reduced R&D expenditures.

The JIP trends might not be as worrisome if other areas of R&D were growing to maintain progress. There is little to indicate this is the case. It appears that operator funding has been substantially reduced.⁹

Part of the rationale for this has been that the rewards of equipment development would accrue to manufacturers and suppliers so that it would be more rational for them to make the necessary investment.

Nevertheless, manufacturer R&D funding remains at traditionally modest levels and largely directed at product refinement and reduced production cost. This attitude also has the unfortunate effect of depressing the efforts of smaller companies with limited internal resources who have often been the source of improved technology. Contractor investment in R&D has never been high and remains at traditionally low levels.

Directional guidance of research has become less available. Remaining operator staffs tend to be fully occupied with day-to-day operations and may not have enough time to participate in, or coordinate R&D functions, even if funds are made available.

Promoters of research are finding it increasingly difficult, when approaching fragmented organizations, to isolate the "product champion" necessary to support and promote external work.

Long-run, industry-wide research may be marginalized in favor of provincial or populist projects that are diminished by either least common denominator approaches or targeted on an unrealistic amalgam of problems. It appears that R&D activities are being focused on relatively short-term cost savings rather than longer-term, safety-related issues.

Risk aversion

The motivation for long-range research has changed. Asset-based organizations tend to work on asset-based problems that tend to be relatively specific to the assets' interests and not necessarily industry-based needs which can be longer-range. Moreover, alliances tend to reduce risk taking and hence the introduction of new technology.

The risk aversion associated with alliances stems from a number of reasons. Operators will often ask for new technology in the form of alternative proposals, but the very real risks associated with introduction of untried approaches tends to outweigh the attractions of premiums for under-budget and ahead-of-schedule completion.

The relatively short duration of many oil field alliances, often for a single project, can work against the commercial requirements of the contractors (OGJ, Apr. 7, 1997, pp. 25-27).¹⁰ Moreover, the rewards of risk taking tend to accrue to the operator rather than the contractor.¹¹

There is a persuasive argument that the operator takes the larger share of the risk in the early stages of the project and that the upside reward remains with the operator rather than sharing it with the contractor. However, the contractor should be pleased that the downside risk is capped.

Nevertheless, this risk/reward disparity works against the introduction of new technology. Furthermore, the alliance is often composed of a number of partners. The smaller companies can suffer disproportionately, in regards to the potential reward, if new technology, perhaps not even their own, compromises project execution.

The final element of the R&D challenge is that as the industry moves to deeper waters, information on new operating situations may not be as well developed as it might be to optimize safe operations. The impact of industry reorganization, on long-term R&D is summarized in Fig. 6 [74,389 bytes].

Impact on offshore safety

Several problem areas impact offshore safety. The added cost and production delays caused by additional start-up failures do not necessarily form a legitimate health and safety concern. However, the incremental interventions, which are traditionally the more risky aspect of offshore operations, do.

There is often the temptation for these interventions to be performed from temporary work platforms, which in themselves tend to be more hazardous workplaces. Finally, these early failures increase the stress on project staff, a well known contributor to safety incidents.

Reduced staff levels also lead to increased concerns. Engineering personnel often need to prioritize their own work. It is unlikely that a major problem would not receive attention, but there is worry that many small problems suffer from oversight or may have to be neglected.

A number of these seemingly unimportant small problems could aggregate to an unforeseen major incident. In addition, extended chains of communication can result in dangerous miscommunications, often leading to unfortunate incidents.

The final concern is that the significant cost savings that have been achieved from new contractual arrangements, or achieved from underdeveloped new technology, cannot be indefinitely repeated. Sooner, or later, additional cost savings, if they cannot be achieved from new technology, may lead to a temptation to "cut corners" with attendant safety concerns.

Acknowledgment

The authors gratefully acknowledge the generous provision of information, by colleagues and offshore industry personnel, to the studies on which this article is based.

References

1. "The Skilling Fields," Offshore Engineer, March 1998, pp. 51-54.
2. Eisenberg, H., "Reengineering and Dumbsizing Mismanagement of the Knowledge Resource," Quality Progress, May 1997, Vol. 30, No. 5, pp. 57-64.
3. "The Personnel Shortage is Limiting the Pace of Development," Hart's Petroleum Engineer International, December 1997, p. 7.
4. Thomas, M., "Trials and Tribulations," Euroil, January 1998, pp. 14-15, 18-19.
5. "Atlantic Project Grinds to a Halt," Euroil, June 1997, p. 15.
6. "An Alliance That Never Took Off," Offshore Engineer, March 1998, pp. 22-24.
7. Grepinet, M., "The Shallow Gas Threat: A Multiple Challenge," 4th IADC European Well Control Conference, Paris, June 2-4, 1993.
8. "Trends in Joint Industry Projects," OTN 97215, HSE, 1997.
9. Economides, M.J., "The State of R&D in the Petroleum Industry," Journal of Petroleum Technology, July 1995, Vol. 47, No. 7, pp. 586-88.
10. Gooch, S.G., "Drilling Contracts and Alliances: The Pendulum Swings," Journal of Petroleum Technology, June 1997, pp. 76-581.
11. Terry, J., "Goal Alignment to Develop Technology Helps both Operator and Service Firm," Drilling Contractor, July 1997, p. 39.

The Authors