Energy producers share spare parts, plans amid oil slump

The Shell logo above the forecourt of a Royal Dutch Shell petrol station in Hook, England.
The Shell logo above the forecourt of a Royal Dutch Shell petrol station in Hook, England.PHOTO: AFP

LONDON (Bloomberg) - The biggest oil-industry downturn in a generation has companies collaborating in ways they never thought possible.

In this global effort, one of the world's most expensive oil regions intends to lead the way. Last month companies operating in the North Sea started pooling spare parts and tools, and they are even sharing plans on how to drill wells so they can work faster and cheaper, said Paul Goodfellow, Royal Dutch Shell's vice president for the UK and Ireland.

This is a big change from oil's boom, when costs weren't such an issue as long as US$100-a-barrel crude kept flowing.

As companies focus on adapting to prices closer to US$50 (S$67.14) by making their spending less wasteful, they also aim to boost profitability for years to come by keeping costs low as markets recover.

"We didn't particularly focus with the same urgency on costs when oil and gas prices were high," said Colette Cohen, senior vice president of UK and the Netherlands for Centrica, a natural gas supplier.

"Now it's about coming in every day and thinking how can I do that better, or how can I reduce costs," but it's "very difficult" to keep this going when prices recover, she said.

Companies responded to the price slump by reducing spending, potentially cutting as much as US$1 trillion by 2020. The industry has reduced costs by 10 per cent to 15 per cent overall, but in the UK about three-quarters of these savings are linked to things like rig-rental rates, which typically go back up when oil prices rise, said Malcolm Dickson, principal analyst at consulting firm Wood Mackenzie.

The Shell-led initiative in the North Sea aims to avoid that.

"You can sit there in a world of US$100 and think all is good and not maybe realize how fragile the system is," Goodfellow said in an interview in Aberdeen, Scotland, the center of the UK oil industry. "You've had the shock and that's illuminated the problem."

Shell and partners including EnQuest, Marathon Oil, Apache, Centrica and Repsol's Talisman started talking last year about setting up a pool of spare parts, ranging from nuts and screws to valves and compressors, Goodfellow said. 

They formed a group to manage the inventory, contributed their excess equipment, cataloged it and found a warehouse in Aberdeen to store more than 200,000 parts.

The system, which is managed by a company called Ampelius Trading, came online a few weeks ago. So now, for example, if Shell needs a valve for a North Sea facility, it can log on to the system, go through the catalog, place an order and have the part delivered the next day instead of waiting "six weeks, six months," Goodfellow said. 

Shell is also leading a group called the Wells Forum, which asked members to share their drilling plans so others could give their opinion and experience on how to reduce costs, Goodfellow said.

Shell, BP and France's Engie were the first to put up their well plans and seven others followed, helping cut costs by at least 10 per cent, he said. Overall, operating costs in the area have fallen as much as 40 per cent in the past two years, Goodfellow said.