The economics of efficiency: offshore maintenance in the North Sea
Production efficiency is in decline in many regions of the North Sea, with planned and unplanned maintenance making up the lion’s share of costs. What technologies and techniques can offshore operators employ to improve maintenance in a challenging environment and help reverse a worrying trend?
For the UK and Norway, the North Sea offshore oil and gas basin has been an economic golden goose for decades, with combined total production of more than 80 billion barrels of oil equivalent (boe) to date. But the conversation between North Sea operators, national regulators and industry experts in recent years has been consumed by a trend for declining production efficiency, lost revenues and questions over the long-term sustainability of oil and gas operations as costs continue to rise in one of the world's most mature offshore regions. Every year, it seems, the North Sea's golden eggs become more and more expensive to produce.
A 2014 report published by consulting firm McKinsey & Company cited data from the UK Department of Energy and Climate Change showing that production efficiency on the UK Continental Shelf (UKCS) had declined from 81% in 2004 to 60% in 2012. The firm's own research pointed to an asset production efficiency drop of 1% a year since 2004, with efficiency levels falling to record lows on both the UKCS and the Norwegian Continental Shelf (NCS). Tension caused by this efficiency decline has been exacerbated by an oil price that has plunged by 75% over the past 18 months.
"This deterioration in asset production efficiency has cost the North Sea upstream industry over 900 million boe of production and $60bn in revenues since 2005," the study notes. "But we believe that this trend can be reversed."
McKinsey's belief is clearly reinforced by state authorities and industry bodies on both sides of the North Sea, which have been proactively discussing various means to improve the situation, including tweaks to tax regimes and fostering a more collaborative environment between operators, as exemplified by the UK's Production Efficiency Task Force.
The offshore maintenance challenge
While production efficiency could undoubtedly benefit from these sorts of high-level interventions, in the rough waters at the upstream end of the North Sea supply chain, the work required to maintain the effectiveness of ageing platforms - many of which have been operating far longer than their original design life - is key. This is especially true in the challenging conditions found in many parts of the North Sea.
"The weather conditions can be very difficult at times," says Craig Wiggins, head of UK maintenance, modifications and operations for oilfield services company Aker Solutions, which recently secured a five-year contract to conduct maintenance and modifications for all of BP's operations offshore Norway. "Poor weather often disrupts travel and causes logistical challenges as well as increasing HSE risks. These are all manageable, but it certainly adds to the complexity. In addition, the harshness of the weather often takes its toll on our customers' equipment, reducing reliability and increasing maintenance frequency."
The cost of maintaining safe operations under such conditions represents the lion's share of rising costs and declining efficiency. On the UKCS, data shows that plant failure and unplanned shutdowns account for nearly half of overall losses, with planned maintenance shutdowns representing another 25% of losses.
"Equipment breakdowns and maintenance interventions - both planned and unplanned - cost the industry dearly," the McKinsey study concludes.
The difference smart maintenance makes
In an editorial summarising Oil & Gas UK's annual conference in June 2015, the industry association's chief executive Deirdre Michie left no doubt about the vital role played by maintenance standards and practices in the production efficiency crisis.
"Howard Harte from the Health & Safety Executive discussed the importance of maintenance and how focus on this cannot be lost in the drive for cost efficiency," she wrote. "He noted a correlation between rising safety-critical maintenance backlog hours and declining production efficiency, which, he argued, demonstrated that a safe asset is usually an efficient asset."
But what is the tangible difference in results seen between offshore operators with exemplary approaches to maintenance and those without? The 2014 McKinsey report further emphasised the benefits of smart maintenance techniques, noting that some older operations were matching or even outperforming newer platforms on the UKCS. While some operators have found ways to improve production efficiency over the last decade, at the other end of the scale, "five operators accounted for over 80% of the decline in asset efficiency, despite operating just over a third of the production".
In other words, a few low-performing operators are having a disproportionate effect on the overall production efficiency of the entire continental shelf. The key question, therefore, is how to bring those operators who are lagging behind on maintenance costs up to speed with their better-performing counterparts. The report identified three main pillars that were central to the performance of more efficient operations.
The first is that efficient operators are far more likely to minimise planned downtime. While other operations might attempt to tick off a long list of tasks during a planned shutdown, more cost-efficient installations tend to strip back these tasks to the bare minimum, waiting for production to resume before moving on to less-essential jobs. The second and third factors are linked - the ongoing improvement of reliability by learning from mistakes, and fostering a culture of responsibility that encourages workers to take better care of the equipment they use daily.
"It is vital that we find ways to eliminate waste both within our own organisations and together with our customers," says Wiggins. "One example of how we can address this is by taking a more proactive approach to managing our customers' assets. Adopting condition-based maintenance strategies allows us to closely monitor key equipment without the need for invasive maintenance techniques. That saves time and cost and reduces risk to both people and operations."
Offshore maintenance market: competition drives innovation
The ongoing drive to improve efficiency through better maintenance is creating massive opportunities for the oilfield services sector - boosting efficiency and extending the life of assets has never been more important.
"There is no doubt that we operate in a highly competitive market," says Wiggins. "The current oil price has amplified that further. Our customers are very focused on finding ways to ensure that maintenance work is conducted at the lowest possible cost. The good news is that increased competition challenges the status quo and drives innovation. That provides an excellent opportunity for companies like Aker Solutions to work with our customers to add value by identifying waste, implementing LEAN processes and introducing technologies that enable a new way of working."
This push for more cost-effective upkeep techniques is creating more demand for advanced, data-driven software systems that facilitate predictive maintenance models, as well as new visualisation tools, and as Wiggins elaborates, service providers like Aker are responding to these opportunities.
"We have a number of innovative technologies that allow us to provide a more effective maintenance service," he explains. "Coabis, for example, is our integrity management planning application. It allows for more effective maintenance planning and has been widely adopted by our customers around the world. We have also recently introduced quantified visual integrity, which combines intelligent analytics with a full interactive 3D model of the assets, enabling a step change in predictive asset management."
Other emerging technologies that are helping to drive down maintenance include the use of unmanned aerial vehicles (UAVs) that have started to migrate from the defence sector to other industries, which are increasingly recognising the savings that they could potentially achieve. New technology players such as Cyberhawk and Sky-Futures have now been operating in the offshore sector for long enough to have proven the concept of cost-slashing UAV-enabled asset inspections that also reduce human exposure to risk in dangerous conditions.
While lowering the cost of maintenance against a backdrop of historically low oil prices is an existential challenge for the industry today, the silver lining, Wiggins believes, is the potential to create a lasting shift in the maintenance practices of the industry that will continue to improve even after the market gets back on its feet.
"Even for those fields which will still be at peak production in the next ten to 15 years, I believe that there will be a new approach to cost and efficiency following this market downturn."