Cutting costs offshore

Between 2010 and 2014, 75% of large exploration and production projects exceeded budget by 50% on average; 50% of projects exceeded schedule by almost 40%. Even when oil prices were high, rising project costs were putting companies under pressure. Simply put, it was unsustainable.

That’s why, in 2015, a group of oil and gas operators launched the Joint industry Project for Standardisation of Equipment Specifications for Procurement (JIP33).

Creating value

Its objective was simple: to drive a structural reduction in upstream project costs and schedule improvement with a focus on industry-wide, non-competitive collaboration and standardisation. This would allow for a ‘win-win’ outcome for operators, engineering contractors and suppliers through improved cost, schedule, quality, safety and reliability.

Richard Mortimer, Vice President, Engineering, Global Projects Organisation at BP, and one of JIP33’s leaders, says, ‘By creating bespoke components in each of our projects, the industry erodes value and in doing so, misses the opportunity to leverage industry-level standardisation. It is a key lever we can pull as an industry to structurally reduce large capital project lifecycle costs.’

‘It creates benefits in any price environment and is critical for the economic viability of major projects,’ adds Gerry Gabriel, Vice President, Upstream Engineering, ExxonMobil.

The concept is not unique to the oil and gas industry. Other sectors have successfully launched standardisation initiatives in challenging times. An initiative in the semiconductor industry generated over 60 standard specifications, resulting in 50% cost reductions in certain components. Five automakers responded to rising costs from bespoke electronics solutions and declining profitability by creating standardised software testing and interoperability methods. It resulted in an industry-wide reduction in testing costs per vehicle. And the data server industry shared specifications to reduce rising CAPEX and OPEX on server facilities. Between 2011 and 2014, Facebook alone saved US$2bn.

Driving efficiency

JIP33 estimates that the oil and gas industry could see improvements in many areas. Safety will benefit as well, through familiarity with designs over time and safety transfers between projects. Millions of dollars in savings can be captured by minimising or eliminating time spent rewriting specifications for major projects. This reduces costs associated with preferential engineering. Other benefits include fewer fabrication defects, reduced risk, improved and predictable schedules and greater capital efficiency. The improvements in quality enable projects to start-up on time and stay up, thereby increasing operating efficiency and operating cash flow.

Suppliers also gain from the ability to deliver more efficiently thanks to time saved interpreting specifications, simpler bid processes and greater standardisation in production lines for fabrication, testing and documentation.

Making it happen

Initially, JIP33 focused on proving the concept by publishing specifications on ball valves, subsea xmas trees and low voltage switchgear. In 2016, it published specification S-560, the first of its proposed specifications. It covered equipment related to low voltage switchgear. Now in Phase 2, it is working to embed the specifications within operator companies, raise awareness of the project within the industry, facilitate culture change and continue to publish additional equipment and package procurement specifications. These may include an air compressor package, centrifugal pumps, gate/check valves, heat exchangers, HV switchgear, linepipe for critical services, offshore cranes, pressure vessels and subsea tree ‘top downs’.

Facilitated by the International Association of Oil & Gas Producers (IOGP), the JIP33 has nine funding members and is supported by the World Economic Forum Capital Project Complexity workstream. Aker Solutions Ltd is providing project management and lead subject matter expert services. 

For further information: Search ‘Jip33’ or visit www.iogp.org/jip33