Operations and maintenance contractors expand role from support to overall operations management.

Of all the activities oil producers have learned to outsource over the past two decades - accounting, information technology, training, human resources management - the activity one might least expect to find handed over to a contractor would be... production. That's what producers do, right? Of course, contract labor and logistics have always played a part in oilfield operations, but often in a supporting role to company personnel. Not any more. After taking a careful look at core competencies and the changing economics of the "P" half of E&P, producers are finding that in certain cases and places, outsourcing production operations for whole fields or groups of fields can make sense. A number of companies are hoping to help them take this step. Two examples are Baker Energy and Wood Group, each of which has a distinctive approach to the marketplace.

Optimization model guides service

Baker Energy is a unit of Michael Baker Corp. (www.mbakercorp.com), a company that has provided engineering expertise (engineering design for the transportation and civil infrastructure markets, architecture, environmental services and construction management for building and transportation projects) for more than 60 years. The company has offices in 25 states and foreign locations including Abu Dhabi, Bangkok, Mexico City, Caracas, London and Lagos.

Baker Energy sees opportunity in helping oil and gas producers improve the efficiency and profitability of their producing operations, particularly mature assets. In some cases, managing the entire production operations function is the best option for the client. A key part of their approach is their operations consolidation model, OPCO. Baker uses this approach to evaluate a client's (or client group's) entire production process, creating a new, optimized operating model based on key decision points. By bringing together production operations among a network of participants, with Baker responsible for personnel recruitment and training, operations, maintenance, safety and environmental compliance, and supply chain management (logistics and procurement), Baker feels they can add value that results in savings for the producer or producers.

"We see a lot of opportunity in both onshore and offshore locations, domestically and internationally," said Richard Gifforn, president of Baker Energy. "In the Gulf of Mexico for example, where there are a lot of properties changing hands, and we see the opportunity to apply our model to help improve profitability on both ends of the transaction, for the acquiring as well as the divesting companies." Gifforn acknowledges that the model is not applicable to all situations. "We are able to have the greatest impact with high concentrations of wells, with multiple companies, where we can consolidate activities for a group of producers, platforms or fields."

For example, Baker Energy implemented it's OPCO model for a major operator in the Gulf of Mexico's Main Pass area, where the company's production volume had declined to only 30% of its late 1970's peak. At the same time, total operating cost had not been reduced, causing lifting costs to increase appreciably. The challenge was to develop a method for increasing production efficiencies while reducing production costs, without compromising safety, regulatory compliance or environmental responsibility.

Following a thorough review of the field's operations and establishment of performance benchmarks, Baker Energy and the producer together determined the redesigns that could best lower costs and improve efficiency. In a pilot test of the methodology, the producer outsourced field operations to Baker Energy in July of 1998.

In addition to delivering an immediate and sustained 30% reduction in operating cost, production efficiency improved by 12% while reducing volume variance, with no compromise to safety, compliance or environmental responsibility. The implementation of the OPCO model resulted in an annual improvement in client operating income of $7 million to $9 million per year.

Single source synergies

In the maturing fields of the North Sea, perhaps more than in the Gulf of Mexico, operating companies progressively have elected to outsource more and more operations, maintenance and engineering support activities to contractors. Wood Group has been an active partner with many major North Sea operating companies, providing a wide range of "life of field" services. The company sees opportunity in the increasing number of mature producing provinces around the world where there is a significant focus on minimizing operating and maintenance costs and enhancing production. According to Derrick Blackwood, president of Wood Group Engineering and Production Facilities, a key aspect of their business model is matching a fairly broad range of Wood Group capabilities to the specific needs of their clients. "Because we have a number of operating groups with specific technology expertise, we can package an approach that fits... we have perhaps 18 different approaches that can be applied to the unique needs of 100 different clients. The key is recognizing that different clients have different needs and that the needs vary with location and maturity of the facilities"

For example, Wood Group Production Services (WGPS) provides operational, technical and maintenance support services to platforms in the Gulf of Mexico and inland waters. But the parent company includes businesses that supply valves, pressure control equipment, connectors, SCADA systems, slickline well intervention services and cased hole logging services. In addition, Wood Group Production Technology specializes in reservoir data acquisition and data management, including permanent, continuous downhole monitoring systems. "We feel this gives us an advantage in offering an O&M services package that meets particular needs," says Rod Prinsep, executive vice president of WGPS. "These niche technology providers within our company allow us to provide unique O&M services." For example, Wood Group recently worked with one Gulf of Mexico client to obtain MMS approval to maintain production from unmanned platforms during a hurricane evacuation. "Our system is designed to continue operating as long as an active comlink is maintained with the shore. If the link is broken for a specified period of time, the automatic shutdown equipment shuts in the platform," says Prinsep. "But as long as we can maintain a link, the field keeps producing." Wood Group's expertise with the design and operation of these equipment systems makes it easier for them to help their O&M clients maintain production in the face of extreme weather conditions.

The larger portion of Wood Group companies provide topsides process design engineering, life-of-field engineering (modifying existing platforms to accommodate reservoir changes), and subsea and pipeline engineering. This business is a portal for the eventual contracting for overall O&M responsibility. For example, a South American client hired the company 6 years ago to engineer and commission new facilities, including the recruitment, hiring and training of 200 employees from the local population. Their incentive was based on their effectiveness in developing the local workforce and maintaining high health and safety performance levels. Then, their role shifted to helping the client optimize the operation of both new and existing facilities. They were rewarded for reducing costs by sharing in the cost savings. Now, responsible for the entire O&M operation, Wood Group is paid a fee based on the throughput of the plant.

Recruitment a challenge

Both companies pride themselves on being able to attract, train and develop operations employees in the face of a very tight market for such people in the US. In some respects, the turnover makes the relative stability and good benefits of their companies very attractive. The flexibility of multiple clients and field locations within a region allows them to optimize personnel usage and maintain staff levels. Some individuals can find themselves working on the same platforms where they used to be company employees, but without the uncertainty of M&A-driven layoffs. The companies recognize that with an average age of about 45-48 years, the US operations labor pool will need an influx of new people. Stealing from the "other guy" is no longer an option. Both companies are looking at similar industries (power plants, gas processing plants, etc.) as potential sources of employees. Both also see the importance of a "well put together" in-house training and competency assurance program.

Internationally, the challenge of finding O&M staff is not so great, but many clients are required to hire and train local employees. This makes the recruitment and training functions even more important.
At Chevron's operations in the Gulf of Thailand (Tantawan and Benchamas fields), there are four fixed platforms flowing to an FPSO in one field and five fixed platforms and an FSO in the second. Baker Energy organized a 5-year plan for the deployment of a fully trained workforce composed of at least 90% Thai national employees. The Thai national workers were in training and working in operations within 3 months. This project is the largest and most comprehensive O&M contract assignment in the Gulf of Thailand.

As producing regions mature around the world, both offshore and onshore, opportunities for operations outsourcing will grow. Venezuela and Colombia, UK North Sea, Trinidad, Brazil and Asia Pacific are all areas with potential for more of these sorts of partnerships. Working up the value chain from traditionally outsourced functions to a total O&M function will require that the service companies build relationships with producers that highlight the service companies' unique capability for optimizing production as well as reducing costs.

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