Now that BP Exploration Operating Co. Ltd. has placed North Sea Andrew field on stream £83 million under budget, the contractors' alliance in the project will be paid 54% of this sum by the license partners.
BP said the savings in development costs were possible only because contractors were tied into an agreement under which they shared the risks and potential rewards of the project (see related story, p. 22).
This type of gain sharing contract alliance is now common throughout the North Sea and is helping cut field development costs by 30% compared with conventional contracts.
Britain's downstream operators aim to get a piece of the cost cutting action, under an initiative launched by U.K. Department of Trade & Industry (DTI) June 27.
Active plan
DTI's action plan is called Achieving Competitiveness Through Innovation and Value Engineering, or Active for short. It seems the prerequisite for any initiative is a snappy acronym.
Active is supported by DTI and the European Construction Institute. It aims to lop 30% off process plant construction costs in U.K.'s onshore oil and gas, refining, petrochemicals and power generation industries.
DTI said U.K process industries are expected to invest £40 billion ($60 billion) during the next 3 years. Government wants low project costs to encourage other European companies to build plants in Britain.
So far, 30 companies have joined the Active initiative. They include BP, Conoco (U.K.) Ltd., Exxon Chemical Co., Shell Chemicals Ltd., Texaco Ltd., Bechtel Ltd., Fluor Daniel Ltd., Foster Wheeler Energy Ltd., John Brown Engineers & Constructors Ltd., M.W. Kellogg Ltd., and Stone & Webster Engineering Ltd.
DTI said Active will work by "eliminating unnecessary costs." The Active group identified three areas in which major changes will lead to major cost reductions.
"Our industry must change its culture and move from confrontation to collaboration," Active said. "We must eliminate the inefficient business processes that have grown up over the years, and we must identify, codify, and implement best practice in handling projects from concept to commissioning."
In practice this is likely to lead to involvement of downstream contractors in alliances similar to BP's Andrew arrangement.
John Martin, Andrew development project manager, said, "There has got to be something in it for the contractors for gain sharing to work. There wouldn't be any progress if budgets were squeezed so tight that contractors did not stay enthusiastic."
Hunger the key
Nonconfrontational relationships with contractors and eliminating unnecessary costs would seem to be obvious aims. Why then has so much of Europe's onshore and offshore infrastructure been built under contracts that achieved the opposite?
Ten or 15 years ago U.K. fabrication yards could afford to turn away work, but now they are largely underutilized or shut down. Today's downstream contractors are in a lean spell after long being in demand.
There would have been no chance 10 years ago of interesting a U.K. contractor in the risk part of gain sharing. The prerequisite for Active and the Cost Reduction Initiative for the New Era (Crine) program of U.K. offshore operators on which it is modeled, appears to be hungry contractors.
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