Collaboration, Early-Engagement, & New Business Models

Challenges & Opportunities To Stimulate Industry Growth

We are seeing changing business models to boost the industry. Our panelists shared views on how we will sustain activity with collaborative arrangements between the many different players involved in projects. Participants learned more about how to manage complex projects, in particular the growing role that early engagement and the adoption of innovative business models play.

What are you doing differently and wanted to learn about working with partners in the supply chain?
Kirk: We spend a lot of time being very clear about our objectives—whether safety, environmental, production, or maintenance. I’ve been pleasantly surprised with how few arguments we’ve had internally, and we do concentrate on dealing with people in a nice way that we would prefer to be dealt with ourselves. That also relates to when we’re talking to the supply chain. We have a great relationship with BHGE and other suppliers that’s based on talking at a very early stage about what we would like to achieve, and what is important to us in terms of how we would like to achieve it. Because it’s not just about where you’re going, it’s about how you get there, the journey. And that enables people to contribute much earlier than in the traditional bid-and-tender and operator we-know-best approach. We have a little saying internally that we’re very happy to delegate, but we never abrogate. It’s very important that the company understands what it’s passing on to the supply chain, and what’s expected. And then both parts of the relationship can work for the best.

What have you seen in terms of how you work with the supply chain? What works, what doesn’t work?
Frommer: We are in an old oil field that’s being re-generated with horizontal drilling. So we are in full factory mode, and it’s really critical that we have the supplies and chemicals and support personnel needed as we need it, because that’s what drives our efficiency. So how we’ve challenged ourselves is to instill in our people a mentality of constant improvement, and we force that to our vendors as well.

How do you work differently with your supply chain, and what have you seen in the last couple of years as your bear the new strategy down?
Gilmour: we are involved in a transformation at the moment in Shell, that stands on three pillars. The world class investment case where we preferentially attract capital, the societal license to operate where indeed we’re under more and more scrutiny, and also thriving through the energy transition where we are really shifting the company to adapt to climate change and a new reality. At the core of all of these, we’ve got suppliers. They do the vast majority of our work. And we really want to reset the way we work with them. That means working with fewer suppliers. I want to work with enlightened suppliers who’ve got the same safety values as us, who’ve got a continuous improvement mindset… operating like that with deeper, longer relationships, where we keep each other on our toes, is the right way to go.

If you step back a little bit, what are you seeing in the changes of the business models, how collaboration works, mainly from the key supplier/contractor perspective?
Dyson: There is a desire, both from independents and super majors, to try to do things differently, and to engage with strategic partners much earlier in the lifecycle of the project. There’s recognition perhaps that, prior to the oil price crashing, the industry had a pretty bad record in terms of outcomes. And trying to understand why that was the case is part of why we’re seeing some of these new approaches being taken. What we definitely see is a desire from independents to engage with entities that can actually work as a development partner and deliver the project from start to finish, and build these long-term relationships, and hopefully then move on to project after project. We’re also seeing the benefits that come from that. The supply-chain entities that are involved are incentivized or rewarded in a way that’s based on the outcomes rather than just a transactional relationship. And you start to see supplier insight embedded much earlier, and you get a much more certain project definition. And that can bring speed and much more value to the project.

Over the next five or six years, how do you see this collaboration model evolving?
Gilmour: I think the opportunity over and over again is how do you build this end-to-end team? How do we understand each other fundamentally really well? How to be very honest with each other about what the desired outcomes are, and how do we make sure the values we both bring to the party are mutually beneficial. Digital and technological advances will be incredibly important but we cannot do that as an end in itself. It’s a means for these amazing teams to do amazing things.

Frommer: I think about where we were five years ago and where we are today, and the amazing technological improvements and efficiencies that have come out. It’s really hard to envision where we are going to be in the next five years. I just see us getting better and better and really more efficient. But it starts with the C suite, the CEOs. We have a set the strategy. We’re striving for safety. We’re striving for higher efficiency. And we’re striving for a smaller footprint. We have to put the organizational structure in place so we can actually implement these changes. For me, it’s really important that we get our people involved very early so that they embrace those changes.

Collaboration seems to work really well in the downcycle, but is that sustainable?
Kirk: Traditionally, it isn’t sustainable. The operator-supplier relationship is superimposed in the opposite way to the commodity cycle. But I see more effort being put into breaking that. It won’t be entirely successful, but if you can carry the relationships you’ve built through the bad times, and are seen to have supported elements of the supply chain, you can only hope that as activity picks up, having those relationships and keeping those people close to you, we can continue through the next cycle without the suppliers thinking it’s time to have a different way of working with the operators. But that is difficult, and we’ll only achieve it by people talking to each other. It goes to the top, it goes to how the leadership acts in good times and bad and demonstrating that your relationships are for the long-term. There are going to be some good days and some bad days performance-wise and commercially, but trying to understand what people need to be successful.

Dyson: I entered the industry in ‘85 when we had the previous long-term low, and some of the behaviors that we now have in terms of relationships were developed back then. And they fell away as a commodity price came back. So we have to be wary of the fact that that could again happen. But I don’t think it will entirely, and I think there is value in these relationships. The supply chain understands this, that there’s real value in understanding what really makes a project work, and working to a shared success. And that’s what we are seeing right now with the kind of contracting models that have now developed. So I’m actually optimistic. I think we spent a lot of time during the downturn thinking about how other industries like aerospace and car manufacturing are successful, and they understand that you need to form strong tier 1 relationships. There are some things you can buy on a transactional basis, but the real value-add, you have to buy that on a relationship basis. Building a long-term relationship with a development partner is absolutely where we can unlock value and move away from this discussion about lowest cost. It’s not about lowest cost, it’s about maximum value.

What’s your trip of the Trip Advisor evaluation (1-5 stars) for how the industry is doing with collaboration?
Kirk: there are some that are 5, and there are unfortunately some that are still 2. I would hope the gap closes and moves closer to 5. I still don’t see a consistent approach in senior leadership, but I do see desire.

Gilmour: there’s a spread, but I would say we are systemically moving closer to 5 than 1. A lot of that was people in organizations like mine that had to change the type of people we had working in the supply chain. We’ve had deep conversations about relationship management. We got much more curious about the outside world and benchmarking.

Frommer: I think it has a lot to do with resources. We can all strive to be 5s, but there are some guys who just don’t have the resources to measure up. They need to start to do that, but it just takes time.

Dyson: coming into the downturn, relationships with independents were much more symbiotic and natural because the resources just don’t exist, so it’s always been a strong relationship, pretty well all 5. With super majors and NOCs, it really was a 1 or 0, because they have their own problems to solve and the supply chain became starved of work. But as we’ve come through it with this understanding relationships, that’s now starting to improve, and were probably at 3.

How does your organization stay on top of all the changes that are happening, and how do you know you have the right business model?

Dyson: There’s this idea of being a lean start-up. You have to constantly evolve. You have to be dynamic all the time. Contracting strategies could change again and we need to react to that. It’s in flux all the time.

Kirk: one thing we’ve done that has made a difference is that we have a suite of technical authorities. We have a rigorous set of standards despite being medium or smaller company, and our TAs enforce those. But they’re also responsible for bringing in innovation, and questioning the way we do things.

The retail industry has done something quite dramatic with Amazon. Do you think there is a space for an Amazon look-alike in the oil and gas industry?

Frommer: I think is more of an Uber for me. We’re trying to do things just in time.

Quickfire: what are the one or two big opportunities in 2019?

Kirk: stopping price increases, how long-term relationships

Frommer: efficiency and continued collaboration

Gilmour: amazing people and amazing teams

Dyson: recognizing that the suppliers need some margin to return would improve the health of the relationships

Optimist, pessimist, realist, pragmatist?

Gilmour: optimist

Dyson: hopeful

Frommer: cautiously optimistic

Kirk: optimistic realist

One big take away from this conference:
Kirk: Continued openness, looking to the future together.

Frommer: We see a lot of great technologies here, but I still need a metric that tells me I’m going to get a return on that investment.

Gilmour: Working with fewer enlightened suppliers in deeper partnerships. At the core will be continuous improvement together

Dyson: I applaud the energy forward theme of the conference; we have to understand the carbon intensity of our operations, and make sure we are responsible.

If you had to advise someone about joining the industry, what would you tell them?
Frommer: Be an ACE (attention to detail, constant learning, and enthusiasm), and you’ll be successful.

Gilmour: It’s a great industry to be in, and it’ll be great for a long Time if we do what we’ve been talking about.

Kirk: Be enthusiastic and work hard. There’s lots of opportunity, you make it yourself.

Dyson: I think it’s the rise of the data scientist.

Collaboration, Early-Engagement, & New Business Models

Collaboration, Early-Engagement, & New Business Models

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