Oil Majors Seek To Claw Back Costs From Service Firms

Reuters via Rig Zone ^ | January 22, 2015 | Dmitry Zhdannikov

[thackney]

Global oil majors say they are demanding cheaper but better services from engineering and service companies, or simply taking work back in-house, after losing hundreds of billions on cost overruns in the last five years.

Cost overruns and delays were the main reason why oil majors generated less cash than shareholders expected when oil was over $100 per barrel....

While keen to avoid accusations of ganging up to force terms on suppliers, they are exploring measures that are likely to put further pressure on services companies such as Schlumberger and Halliburton, which have already cut thousands of jobs as business shrinks.

"In the 80s and 90s, we were very close to the projects and controlled costs and execution. In 2000s, when we became rich, we became less cost-efficient," said Claudio Descalzi, chief executive of Italy's ENI, one of the oil majors that meet in Switzerland every year on the sidelines of the World Economic Forum in Davos.

The group includes the listed BP, Royal Dutch Shell , Total, Chevron and Statoil and state giants Sinopec from China, Pemex from Mexico and Aramco from Saudi Arabia, making it the world's most powerful gathering of oil companies.

The boss of Aramco, Khalid Falih, said the group had held a closed-door meeting to discuss how to change the nature of relationships with oilfield services and engineering firms to deliver projects on time and on budget....

Emilio Lozoya, head of the Mexican oil giant Pemex, said: "We simply need to bring costs down in line with the current lower oil prices."

Participants in the meetings said a range of ways to collaborate had been suggested, including having a shared database that would list the best and worst service companies by region, and a 'rule book' for systems and components.

[CedarDave]

Our company received a 20% cost reduction requirement this morning from one of the major service companies mentioned in the article.

[thackney]

So far, we have had the Overtime mostly eliminated from engineering and design. Not sure how they think that will work with no change in the schedules so far.

[catfish1957]

Our company received a 20% cost reduction requirement this morning from one of the major service companies mentioned in the article

As a retired manager from a "major", I can guarantee that internal budgets are going to be cut even more. Pain for a all as they used to say.

[T-Bird45]

Job shops throughout OK doing machining work for the various service outfits and completion equipment manufacturers are receiving 25% reduction requirements from their customers.