Oil & gas industry needs to ‘reimagine’ its business and models to maximise energy transition opportunities | Deloitte UK has been saved
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The oil and gas industry experienced an extraordinarily challenging year in 2020 for more reasons than one. True to form, however, collaborative spirit proved a major factor in overcoming some of the challenges – reinforcing how the ability to work closely with suppliers and/or customers to support one another is crucial, particularly in extremely difficult environments.
As the industry looks at the year ahead and assesses new opportunities and challenges, it is vital that businesses heighten their focus on the right set of collaborative behaviours.
The importance of supply chain collaboration within the offshore oil and gas industry is key to not only maximising the potential of its existing world class supply chain but to unlocking future activity in the UK Continental Shelf (UKCS) and working towards delivering a successful net-zero future.
This strategic approach is underlined by the findings in the latest UKCS Upstream Supply Chain Collaboration survey, which Deloitte and OGUK produce annually. While there is no accepted definition of what collaboration is, this survey provides a unique framework to identify behaviours associated with successful collaboration in an oil and gas context - a framework that helps measure and analyse the change in attitudes over time.
Deloitte and OGUK’s industry-wide Collaboration Index (CI), which measures the effectiveness of companies as partners in projects, is part of the survey for 2020 and showed a slight increase in the collaboration index to 7.1 last year from 7.0 in 2019, highlighting the flexibility and support the supply chain showed during an unprecedented year.
Further to this, collaboration success rates hit a record high in 2020 with more than 50 per cent of survey respondents saying over half of their efforts were successful. In what also marked a first in the survey’s six-year history, the overall proportion of ‘successful’ efforts was higher than ‘unsuccessful’ ones.
While these are encouraging signals that the industry is leaving old approaches behind and embracing the expertise which exists within the supply chain in a collaborative manner, there is still room for improvement.
Many survey respondents said the pandemic and consequent economic downturn also led to disadvantageous commercial behaviours such as cancelled or modified contracts. This underpins the urgent need to re-energise collaboration by improving commercial models which support cost reduction whilst incentivising the supply chain.
Organisations need to reimagine their businesses and models and focus on the right set of collaborative behaviours. This includes finding innovative ways of working that deliver value for both sides, ensuring that industry has the skills and resources needed when activity rebounds, as well as using the Supply Chain Principles as a mechanism to improve behaviours.
The combination of OGUK’s industry engagement and Deloitte’s analytics capability ensures that this project provides the industry with fresh, actionable insight. To this end, new themes explored in the 2020 survey included the Supply Chain Principles, energy transition and internal collaboration.
Almost two-thirds of operator respondents said they were making some progress to meet their energy transition objectives - in line with the OGUK’s Roadmap 2035: a blueprint for net zero - compared with 49 per cent of suppliers.
Back to collaboration and while some operators showed best practice in sharing the risks and rewards of working relationships appropriately, there was a clear indication that there are still opportunities to improve.
OGUK will be issuing a call to action to promote adherence to its Supply Chain Principles and to communicate the benefits.
Supporting the Principles is Deloitte’s Framework for Action which details six building blocks that organisations should consider helping develop and continue building successful collaborative relationships - ones which deliver greater value for both operators and suppliers.
These building blocks focus on mindset, goals, value, ownership, readiness, and momentum. Together, with the Supply Chain Principles and Framework for Action, they will be fundamental to stimulating collaborative behaviours – and realising the bold aspirations for the industry’s long-term future.
Graham is an Audit & Advisory partner in Aberdeen and leads our upstream audit and advisory practice in Scotland. Graham has over nineteen years’ experience in the provision of audit and advisory services to a number of listed upstream oil and gas and oilfield service clients in the UK and internationally. He has significant experience in capital markets transactions and the provision of complex accounting advice within the sector under IFRS, UK GAAP and US GAAP.