A bright future in QatarJuly 29, 2020
Gregory Mauduit, Qatar country manager of SPIE Oil & Gas Services, talks to The Energy Year about how the company has responded to the dual requirement to sustain its onsite operations while providing rate reductions to clients. SPIE Oil & Gas Services provides services in the hydrocarbons industry with a focus on operation and maintenance for facilities.
How has the dual shock of Covid-19 and the oil price crash affected your operations?
In 2019, we finally had a good year and the forecast for 2020, 2021 and 2022 was good as well. There are many big projects coming in Qatar and the biggest is the North Field Expansion (NFE), which aims to double the LNG production capacity. It will represent billions of dollars in capex. Around NFE, there are many additional projects, offshore and downstream as well. Globally speaking, the future of Qatar is bright. We can be quite confident about opportunities in the coming years.
We started the year with a good forecast and thought we were over the worst already, and then the outbreak happened. However, at the beginning we were able to maintain good communication with our clients and finally the objective was set to keep working on the site. Therefore, SPIE put in place a business continuity plan which includes a commitment to do our best to cover additional costs.
Things were good, and discussions were quite positive. Now, for us the biggest problem is definitely the oil price. It may be a consequence of this outbreak, but some experts say the main problem was the oversupply of oil, which started earlier. Of course, with the outbreak, the demand has dropped drastically. Here in Qatar, most of the oil and gas companies plan to reduce their opex by up to 30%.
We were in a cost cutting process and we hope to be close to the end of it. We started receiving letters from clients asking for discounts and demobilisation of people in May 2020. As per the last news, there is no problem with the future of the NFE project. We recently talked with some EPC contractors regarding NFE and from the construction side they are quite confident on an award by the end of the year.
These opex reductions impact the contractors a lot and it is difficult to know what is going to happen. Of course, we have to stay positive, but for me the situation has changed massively in the last few weeks and we have some question marks regarding the future. The plan for us is to stay resilient until the end of the year and see what happens in 2021. However, everybody believes the oil price should not go back to USD 60-70 soon.
Is there any more room for rate reductions?
The last crisis was in 2014 and 2015 and at the time we were obliged to reduce our costs and opex, but since then, we have not increased the price. When a client asks for a 30% price reduction, of course we just don’t have a 30% margin to cut from and our margins were already squeezed seriously during the previous oil price crisis. The only way to reduce 30% is to reduce cost and about 80% of the cost is salaries. So basically, we would have to reduce employee salaries by 30%.
We have hit a bottom line and it is difficult to ask our staff to cut their salaries more. All of the workers are expatriates who leave home to stay 28 days offshore, or now more than 28 days as they cannot go back home. And when you ask these people to work for a decreased salary, that is difficult to hear. This is where we have to find a way to work differently. We have to think not in terms of unit rate, but globally.
If we want to reduce the cost, then we need to reshuffle our strategy completely. Let’s think about what we have to do, and do it more efficiently. So if today we have 100 people and we need a 20% reduction, let’s see if we can operate with 80. But let’s not reduce the salary of those 100 people any more, which is already very low.
This is a mindset that we have to pass on to our clients: not to think in unit rates or number of people, but to think about how to work differently. For example, when we do maintenance, let’s see how we can challenge and improve the strategy, how we can optimise the preventive maintenance to optimise the cost and reduce the number of hours it takes. If we can reduce the hours of maintenance, we can reduce the number of people and it will reduce the costs.
In terms of opportunities, there are some, but the problem is that the only thing clients have in mind now is the 30% reduction. When we receive such enquiries, our strategy is to sit down with the client and try to change the focus of the discussion.
How can you embrace digitalisation as a way to enhance efficiency?
This pandemic has shown us that we can work differently. Digitalisation is one of the solutions and this is something we push. We have internal solutions for the digitalisation of our system to create more mobility of our people, to optimise the reports and to review our clients’ maintenance strategies. We may have some good opportunities by approaching our clients with these types of solutions. We expect that this new situation should speed up the change of the mindset.