Time to eliminate barriers to collaboration in oil and gas
15 May 2017: A lack of trust and misalignment of expectations are the key factors creating roadblocks to successful collaboration in Australia’s oil and gas industry, according to a new Deloitte paper.
‘Committed to change: Driving true industry collaboration’ presents the findings of a survey of 96 individuals within Australian oil and gas operators and service companies and their views on achieving collaboration.
The importance of the ‘lack of trust’ factor is an outlier in Australia compared with results from recent surveys conducted in the UK and Netherlands on the more mature North Sea oil & gas industry. This could be explained by the limited shared working history operators and service companies have on Australian operational assets, and the negotiation power swing between the recent industry up-and down-cycle.
“The buyer-supplier tension inherent in collaboration will need to be taken seriously in order to increase the chances for collaboration effectiveness,” says Mike Lynn, Deloitte Asia Pacific Oil and Gas Consulting Lead Partner.
“The Australian oil and gas supply chain has a significant challenge in moving towards a more collaborative industry, but also a unique opportunity. With the project to operations transition of the large gas production and liquefied natural gas (LNG) facilities, asset management capability across operators and service companies will become key. The remoteness in the west and distributed coal seam gas (CSG) production wells in the east also impose a high level of interdependency on the sector and strong collaboration is critical for overall success.”
Operators indicated ‘reducing cost’ and ‘acquiring knowledge’ as clear top two attributes they are seeking from collaboration. Service companies were closely aligned and also provided high scores for ‘filling capability gaps’ and ‘increasing market access’.
When asked to identify which areas of the business they would prioritise for collaborative activities, responses were varied. While ‘major maintenance’ and ‘turnaround planning’ were consistently identified as high priorities by both segments, ‘logistics’ topped operator responses while ‘production operations’ and ‘plant maintenance’ were identified more often by service companies.
“The question remains around how to achieve the best outcome,” says Lynn. “From the UK and Netherlands surveys we learn more mature collaboration is characterised by having a clear business strategy, which encourages collaboration and is focussed on getting the capability in place which provides a more structural foundation for success, making it less dependent on individuals with existing trusted relationships.
“From our Australian survey we see some supporting signs for these structural measures. The vast majority of respondents from both operators (94%) and service companies (77%) agreed that many business processes typically considered confidential should be standardised to facilitate industry collaboration.”
How can Australian oil and gas companies unlock the value of collaboration?
The survey results suggest collaboration ingredients are adopted by companies inconsistently and an effective ecosystem does not just naturally evolve in the market landscape.
Lynn explains: “Similar to ecosystems in the natural world, an ecosystem in the business sphere involves multiple layers and stakeholders working together to respond quickly to a situation. Ecosystem thinking often comes up as the way forward for collaboration, though the million dollar question remains as to what that actually means and how to make it work in this context. Capturing the full value in a more holistic way, requires a clear purpose and deliberate design.”
Deloitte has structured a model which can help operators and service companies, who are willing to make a significant mind set change, to make that fundamental step change in creating value from collaboration.
The structured collaboration ecosystem is built up by its four Ps: Purpose, Participants, Platform and Performance, which in turn provide six key fundamental elements: definition, direction, enablement, transparency, trust and motivation, which make collaboration an effective and preferred modus operandi in a sustainable way.
Lynn says there are ultimately five fundamental issues that operators and supply chains must keep top of mind:
- The power to drive fundamental change sits with operators as owner of the overall business value and the ultimate client and buyer of supply chain services
- Make collaboration an explicit part of your business strategy and ‘business as usual’ in your operations. Leaving it to individual relationships and evolutionary processes does not suffice. These are inconsistent and too slow for Australia which cannot afford a long road to excellence
- Move on from the conventional time and materials contracting approach. Apply innovative commercial models that truly encourage collaboration and financially reward the service companies for overall value delivery
- Seek out specific opportunities for collaboration. Operators should consider establishing special purpose ecosystems with a high level of delivery interdependency for the longer term
- Actively solve the ‘lack of trust’ issue. This requires a fundamental mind shift in the world of oil and gas, dominated by engineering brains with a natural bias towards ‘mechanical’ solutions to make their business work.
Lynn concludes: “With the wave of LNG projects moving from development to production, Australia is experiencing a period of hyper growth with total production capacity increasing fourfold in just five years. Significant growing pains can therefore be expected in the asset management capability across operators and supply chain companies. Improved collaboration will be instrumental for accelerated operational excellence. It is encouraging to see the willingness in the Australian sector to embrace collaboration. Together with the learnings from other markets and a framework that provides guidance on structuring and implementing collaborative ecosystems, we have the ingredients in place to increase our global competitiveness through a highly productive supply chain.”