HOUSTON– John Westwood, chairman of Douglas-Westwood, discussed rising capex costs and the impact on the industry during a topical luncheon on Monday at the Offshore Technology Conference in Houston.
His presentation,Capex Compression and the Impact on the Offshore Services Community, revealed that, in the last 13 years, capex has increased 374%. He pointed out the increase is the result of demand for products and services exceeding supply, increasing technical challenges, over engineering, project management issues, skills shortage, and local content requirements.
To manage the rising costs, Westwood said, “business as usual is not an option.”
He said operators must understand the supply chain in order to determine the likely future supply and demand and how this will impact individual projects. He also said operators must develop long-term relationships with suppliers.
Westwood said the industry should return to fit-for-purpose engineering and to look at ways for standardization. To meet increasing technical challenges such as deepwater, new approaches and technologies are needed and the industry must share the results.
“New incentives are needed to get new technologies across the R&D ‘valley of death,’” he said.
The industry must address the skills shortage – recruit, train, and retain – because the limited skills pool has driven up costs. To boost recruiting, Westwood said the external perception of the oil and gas industry must change. To train and retain, the industry must effectively capture existing knowledge.
Westwood noted that governments must address corruption, adopt realistic local content requirements, and adopt long-term E&P taxation policies. “The industry needs fiscal stability,” he said.
Douglas-Westwood predicts that deepwater capex is expected to grow by almost 130% to $260 billion in the next five years.
Westwood said the long-term outlook for the industry remains good and that he believes the industry will become capital efficient, and that capex growth rates will reduce and not collapse. He said the industry needs to have new ideas, and to apply new technology and improve communication.