Reduce Cost whilst preserving Human Capital
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Our challenge: reduce costs while preserving human capital A service company perspective Thierry PILENKO Offshore Technology Conference, Houston, May 5 th 2009
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Transcript of Reduce Cost whilst preserving Human Capital
Our challenge:reduce costs while preserving human capital
A service company perspective
Thierry PILENKOOffshore Technology Conference, Houston, May 5th
2009
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A dramatically different context compared to last year
OTC 2008 OTC 2009
Crude oil price
Oil and gas demand
Economic growth
3
The financial impact on oil companies has been sudden and strong…
►Cash flow available to oil companies for their Capex programs is smaller than that anticipated a short while ago
► Funding of some projects is challenging
► Some companies, especially the small E&P independents, have difficulties
►Market capitalizations have sharply declined
►Q1 2009 results for our clients generally much lower than last year
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► Projects are postponed to improve economics •
Canadian oil sands
•
Ultra deepwater•
LNG
•
Petrochemicals
► Equipment stacked or taken away from the market•
Drilling: 22 out of 74 drilling Jackups
rig currently stacked in the Gulf of Mexico •
Seismic: a potential of 30 vessels (≤
6 streamers) and 50 “2D vessels”
converted to shooting vessels or retired
►Headcount reduction has started•
Lay off plans announced by certain operators and service companies
•
Massive reduction of construction workforce expected
… with first implications already visible in the service industry
Sources: Hercules Offshore, CGG Veritas
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History has shown that lower oil prices lead to lower Capex
Sources: IFP, EIA
$ in billion $/b
E&P Capex
E&P Capex vs. Oil and Gas Prices
0
50
100
150
200
250
300
350
400
1976 1980 1984 1988 1992 1996 2000 20042008 (f) 2009 (e)
0
15
30
45
60
75
90
105
120
0
15
30
45
60
75
90
105
120
WTI($/b)
Cost inflationsince 2000
$/Mbtu
0
2.5
5
7.5
10
Henry Hub
Current* price of Gas
Current* price of Oil
*: April, 29th
2009
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A lower oil price environment should also lead to lower project costs
*: IHS/CERA - Capital Cost Index
Project cost evolution *
- 10% ?
- 20% ?
240
220
200
180
160
140
120
100
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Q3 2008: 230
Index(2000 = 100)
Q3 2008: 187
Upstream
Downstream
- 10% ?
- 20% ?
Source: IHS / CERA
7
EPC project costs100%
Engineering + Project Management
Construction
Procurement
The required cost reduction implies that all cost items be optimized
8
Engineering + Project Management
A large share of the costs is directly driven by the performance of engineering and project management activities
EPC project costs100%
►
Need to be involved earlier in the project
►
New contract schemes (Ex: convertible)
►
Drive simplification and eliminate redundancies
►
Force standardization
►
Top down cost cutting implementation
Construction
Procurement
9
Engineering + Project Management
Significant savings on procurement must be targeted
EPC project costs100%
100
200
300
400
500
600
700
jan-03
jan-04
jan-05
jan-06
jan-07
jan-08
jan-09
NickelAluminum
CopperCarbon steelStainless steel
Raw materials prices (Index 100 in Jan. 2003)
Source: CRU Monitor
Construction
Procurement
10
Engineering + Project Management
Similarly, the current context should drive construction costs down and bring back productivity
EPC project costs100%
Construction productivity index *
0
1
0.66
* In Middle East (Technip estimates) Source: Technip
Construction
Procurement2003 2004 2005 2006 2007 2008 2009 2010 2011
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In most cost reduction initiatives, people are a key element
EPC project costs100%
Personnel costs
~ 40 to 50 % of costs in an EPC project relate to
personnel
Source: Technip estimate
Engineering + Project Management
Construction
Procurement
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Sources: Company reports, Technip* Based on a sample of Technip and 10 companies ; index 100 in 2004
The service industry has made a tremendous recruiting and training effort
External growth
~ 18 %/y
Annual recruiting effort
0
25
50
75
100
125
150
2004 2005 2006 2007 2008
►
Net Hiring ~ 6 %/y
►
Turnover ~ 10%/y
►
Retiring ~ 2%/y
Headcount growth estimate (Technip and main competitors) *
+45%
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Sources: SPE, Technip
SPE members 1998 SPE members 2008 Technip 2008
0%
5%
15%
25%
35%
40%
10%
20%
30%
But the overall HR age pyramid has generally shifted to the right
20-29 30-39 40-49 50-59 60+ 20-29 30-39 40-49 50-59 60+20-29 30-39 40-49 50-59 60+
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Complexity of projects is increasing: interpretation
Seismic interpretation and reservoir modeling
►
Deeper development (3000 m)
►
Sub-salt imaging
►
Increased reservoir complexity
St Malo, Gulf of Mexico Tupi, Brazil
Courtesy of CGGVeritas
Reservoir modeling
15
Complexity of projects is increasing: Subsea development
PAZFLOR
►
600 km2 at water depths between 600 to 1,200 meters (i.e. 6 times the area of Paris)
►
Extraction of heavy (17 to 22°API) and highly viscous oil
►
$ 1.7 bn (Subsea development)
►
175 km of flowlines and 90 km of umbilicals
Source: Technip
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Complexity of projects is increasing: Onshore
3 LNG Qatar
►
6 trains of 7.8 Mt/y
►
100,000 tons of steel (14 times the Eiffel tower)
►
75,000 people at peak
►
700 million construction man- hours
Source: Technip
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Lead times to build critical competencies
10 yearsManager – Small / mediumsize project
4 yearsInterpretation geoscientist /Process engineer
5 yearsConstruction site supervisor
15 yearsManager - Large size project
> 10 yearsTechnical experts
Competencies
6 months / 1 yearProcessor / Field engineer
Source: Technip
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What we need to do to deliver projects and mitigate HR impact
►As contractors and service companies•
Work the supply chain –
select the best (costs and competencies)•
Maintain R & D investment
•
Use spare capacity to re-think core processes and improve efficiency•
Invest in the development of competencies and lessons learnt
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►As Oil & Gas Operators•
Stay engaged on future projects (particularly large and complex projects)
•
Involve contractors and service companies earlier on in the projects•
Drive standardization
•
Drive simplification and eliminate redundancies
What we need to do to deliver projects and mitigate HR impact
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►As industry at large
•
Avoid the “Stop and Go”
attitude which is detrimental to our industry’s image•
Continue to hire university graduates to avoid future generation
gaps and maintain credibility
What we need to do to deliver projects and mitigate HR impact
THANK YOU
Offshore Technology Conference, Houston, May 5th
2009
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