Collaborative solutions in OmanSeptember 25, 2018
Zeinoun Klink, vice-president of Halliburton in Oman, talks to TOGY about how the rise in oil prices has impacted activity and training in the oilfield services sector and the country’s implementation of integrated project management (IPM) contracts. Halliburton is involved in the majority of Oman’s heavy oil and tight gas projects.
• On revising pricing: “Commodity prices have started to rise and inflationary cost is on the rise; all of this will have a negative impact on these fixed-pricing long-term contracts. At some point in time, if oil prices continue to rise, stabilising above USD 75 per barrel, both operators and service companies will have to sit down and have the tough talk about revising pricing, similar to what happened when the oil price dropped.”
• On the IPM model: “Risk management and efficiency improvement are key pillars of the IPM model. The main contractor takes/underwrites certain defined risks as per the project scope and is positioned as the single source for project delivery. […] The IPM contractor is expected to account for all operational requirements and deliver the project as per requirements under the stipulated KPI [key performance indicators] and is liable for any deviations and associated costs.”
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Has the oilfield services sector changed now that oil prices have begun to recover?
When oil prices are going up, the revenue stream of operators strengthens proportionally; however, it isn’t the same story for the service providers. We, like others, have signed long-term contracts during the downturn which will have a significant negative impact on profitability of the service sector in general for few years to come.
Commodity prices have started to rise and inflationary cost is on the rise; all of this will have a negative impact on these fixed-pricing long-term contracts. At some point in time, if the oil price continues to rise, stabilising above USD 75 per barrel, both operators and service companies will have to sit down and have the tough talk about revising pricing, similar to what happened when the oil price dropped.
Has the fluctuation in oil prices affected training and development of the local workforce?
When the oil price went up to USD 100 per barrel, there was a lot of movement of personnel in the oilfields. We had very high voluntary attrition during this period because people wanted to go to other companies or sectors. Many moved to operators or governmental sectors. Movement was also observed towards higher education as many saw value in getting advanced degrees.
This slowed down significantly as the oil price dropped. With high attrition comes higher spending on training and development, and we have had a huge share of that. With the drop in oil price, tighter budgets for training were needed, and with cost saving in mind, only must-have training activities took place.
What strategy has Halliburton adopted to stay afloat as the market balances?
Over the last couple of years, we have focused on streamlining the cost elements of the organisation. We have become leaner and more efficient and have incorporated continuous improvement processes (such as digital initiatives) in our project execution and delivery of services, whether directly from our subcontractors or from internal product lines.
Additionally, we have been focused on aligning our solutions to deliver cost savings and improved recovery, which are in line with our customers’ strategic goals throughout the down cycle and the current phase.
The integration model, such as IPM, is a key enabler to deliver cost effective and collaborative solutions for our customers. We see increased adoption of the IPM model in Saudi Arabia, Iraq and now Oman, and expect other GCC countries to follow soon.
What are the main risks in pursuing IPM projects?
Risk management and efficiency improvement are key pillars of the IPM model. The main contractor takes/underwrites certain defined risks as per the project scope and is positioned as the single source for project delivery. Under the traditional model, operational liabilities such as NPT [non-productive time], production delays, etc., lie with the concession holder. However, under a lump-sum turnkey IPM contract, it is one fixed price for the project scope.
The IPM contractor is expected to account for all operational requirements and deliver the project as per requirements under the stipulated KPI [key performance indicators] and is liable for any deviations and associated costs.
Subcontractor management from an operational and service quality perspective is a critical risk element of the IPM domain. The main contractor is responsible for internal collaboration in order to ensure highest-quality service in terms of operations and HSE segments and that the quality of deliverables is on par with the project.
Standardising work standards and processes within the service providers and the existing policies of the operator is also key. Non-alignment is a high risk as it leads to project delays. Operators expect higher efficiencies in all aspects of a project under the IPM model and that is the motivation for embracing it. Hence, a high level of collaboration is needed to align both organisations involved to deliver on the expectations.
What are the main challenges facing the implementation of IPM?
The challenge is going to be around adaptation of the IPM model among operators, better understanding of the key elements (operations, decision-making processes, contract management and resource management) and alignment around expected benefits of integrating the abovementioned elements into their ongoing or upcoming activities.
Another key challenge is ensuring effective collaboration between concession holders and service provider groups in order to integrate learnings (sub-surface, engineering facilities, etc.) across the project lifecycle, which is crucial for the success of IPM projects.
How can the industry push for greater efficiency?
The mentality needs to change or adapt so that operators share the upside of efficiencies generated throughout the oilfield lifecycle. Our service company’s performance should be linked to the project’s production output, especially for mature field assets. If I had key performance indicators related to the production of the asset instead of focusing only on NPT or other metrics, we could put emphasis on those extra barrels of oil.
This mentality has to change in Oman in order for its mature fields to be unlocked. The risk/reward [should be] based on enhanced productivity from existing assets.
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