OTC: Collaboration in deepwater projects raises issues

May 11, 2005
The increased complexity of deepwater operations, coupled with continued downsizing by operators, has boosted the role of contractors in the development of deepwater and ultradeepwater projects.

Sam Fletcher
Senior Writer

HOUSTON, May 11 -- The increased complexity of deepwater operations, coupled with continued downsizing by operators, has boosted the role of contractors in the development of deepwater and ultradeepwater projects, said a panel of industry executives at the recent Offshore Technology Conference in Houston.

That has led to talk of greater collaboration between operators and contractors on those projects.

"One definition of collaboration is 'to cooperate with or willingly assist an enemy,'" quipped Mark McCurley, vice-president of global projects for Halliburton Co. at the May 3 OTC session. "It seems that in several of our attempts to 'align our goals' we have actually found new ways to shift risks and in turn unleashed the spirit of combative relationships."

However, he said, "Even if we are using the 'enemy' version of the definition, both parties have to believe they will benefit for the collaboration to be successful."

Randall K. Kubota, general manager of drilling and production systems for Chevron Energy Co., pointed to a "natural conflict between oil companies and contractors," both focused on business performance.

"For the oil company, the focus is on reducing costs and improving operational reliability," he said. "For the contractor, the focus is on maximizing sales and revenue from their equipment and services."

He said, "One contractor summed it up very well to me one day when I was told, 'My job is to take as much money as possible that is in your pocket and put it into my pocket.'"

Moreover, Kubota said, "In deepwater [development], the understanding and identification of the risks is not fully matured. Some contractors cannot financially accept some of the risks due to this lack of understanding. One mistake or major impact from a project could place the contractor in financial risk."

Traditional relations
John Huff, chairman and chief executive of Oceaneering International Inc., said, "The trend over the past years has been toward traditional relations vs. collaboration. Additionally, most operators have successfully implemented a long-term agenda to shift more capital cost and contractual risk to the contractors."

Huff noted "unprecedented disparity" between the financial performances of operators and contractors.

"Operators are reaping the benefits of high energy prices and higher productivity from the contractors, while many contractors are struggling to remain solvent," he said.

In competition for jobs, some contractors have sacrificed safety, quality, and execution "to unacceptable levels," he said.

"We wonder if some of the operators are truly committed to the high safety standards they state are a prime objective," Huff said. "Several contractors have been driven out of business or into bankruptcy because of these practices. Many have reduced their staffs to a point where the services provided are marginal."

Nonetheless, said R. Don Vardeman, vice-president of marine engineering for Kerr McGee Oil & Gas Corp., "Collaboration has been the key to our success in the Gulf of Mexico," primarily because of his company's small staff size.

In its collaboration efforts, Kerr-McGee often looks for a specific technology.

"Technology ownership is what we expect contractors to have," he said. "The key to collaboration is keeping a healthy relationship. Both operator and contractor personnel have to understand where they can add value and where they cannot and trust their counterpart to address an issue."

A major test, said Vardeman, is how the team reacts to problems. "If the first reaction is to assign fault, team members will react accordingly. If, however, the first reaction is to get the correct technical answer, team members will react with more openness and creativity."

Working repeatedly with the same contractors and personnel also helps build the trust necessary for collaboration.

"We go into each deal anticipating another deal [with that contractor] in the future," Vardeman said. Use of standard components and systems helps promote both safety and good relationships while assuring better supply chain management, he said.

The main thing that company executives can do is to empower the collaboration team to make the best use of its talents while avoiding costly "top-management meddling," said Vardeman.

However, Kubota advised, "Do not empower and put total trust in the contractors. The contractors must be actively managed to achieve the best result for a deepwater project."

Speed vs. perfection
The most value for a deepwater project is most likely to be obtained if a producer can balance the obsession to perfect a project with the need to bring it on stream as quickly as possible, said Bart Heijermans, senior vice-president of offshore and gas storage, Enterprise Products Partners LP.

"The high number of upstream projects with cost overruns has resulted in a longer and bureaucratic presanctioning period dominated by new and improved processes such as toll-gating, staged-gating, chip-dip, etc.," he said. "It is important to have some of these systems in place, but the industry is going down the wrong path since these processes often result in a significant increase in the presanctioning process, which destroys value instead of creating value."

Accelerating development of a deepwater field "requires an organization where value creation is preferred over risk mitigation, where job security is not at stake if a project takes only half the time," he said. "It also requires oversizing instead of right-sizing to capture the higher end of the range of uncertainties funded by the budget created by the acceleration."

Heijermans claimed, "Too many platforms in the deepwater trend of the Gulf of Mexico are right-sized." The extra payload and buoyancy capacity of an oversized platform "would not be very costly and would allow stranded fields to be developed, increasing the supply and the production the industry and the market need," he said. "Overcapacity, if not used by owners, can be monetized and can create value as long as the owner understands this value and is capable of contracting third-party production."

Kubota, however, said quality construction is "essential" for deepwater development because "the risks and the costs are too great."

Contact Sam Fletcher at [email protected]