WATCHING THE WORLD OPERATORS TARGET U.K. COST CUTS

Oil prices are expected to remain low for some time. Capital and operating costs continue to rise. The 230 undeveloped U.K. oil and gas fields are estimated to contain an average of less than 50 million bbl of oil equivalent.

Operators keen to keep U.K. North Sea oil and gas viable have responded to those threats by developing Crine: Cost Reduction Initiative for the New Era.

Crine was nurtured through the U.K. Offshore Operators Association, which brought together operators, contractors, manufacturers, and service companies that share one aim: survival.

"North Sea development costs can be four to six times greater than their counterparts in other oil and gas provinces such as the Gulf of Mexico and Pacific Rim," said the report of the Crine working group.

"In contrast with engineering practice in other areas, North Sea projects are founded on highly complex specifications and use nonstandard materials and procedures."

CIRCLE OF DISTRUST

The group also said, "Documentation and overall certification costs have not been controlled and add significantly to the cost base. Contractual verbiage, indemnities, large client project teams, and unbalanced risk structures all contribute to the circle of distrust and adversarial contracting relationships."

Earlier this year, John Browne, managing director of BP Exploration Operating Co. Ltd., said a 30% cut in capital costs and 50% reduction in operating costs were needed to maintain U.K. North Sea activity (OGJ, Sept. 13, p. 43).

Crine's working groups have identified a number of ways they believe can reduce North Sea development costs by 30%. At the same time, project completion times can be reduced by 4-6 months.

STANDARDIZATION

"North Sea operators have tended to do everything differently for each platform," said Gordon Coulson, project manager at Marathon Oil U.K. Ltd. "They have often opted for complex facilities designed to be all things to all men at all times-and all horribly expensive."

By simplifying concepts, using standard equipment where appropriate, working with contractors earlier in the development, and avoiding work duplication, development costs can be cut dramatically, Coulson said.

The development strategy proposed by Crine will not lead to "look alike" developments. Project size and nearness to infrastructure will continue to be the main influences on choice of development method.

"Whatever the development, though, something out of the Crine methodology will be applicable," said Coulson, chairman of the Crine technical standardization work group.

Coulson believes increasing standardization will not stifle experimentation. "If we avoid over-complexity, we can concentrate on areas where experimentation will result in benefits."