Operators, EPC contractors face hurdles in tight market
With an influx of construction projects along the Gulf Coast and the pace of building not slowing down, operators will have to continually evolve, finding better and faster ways of managing the many resources required to support this changing environment, and create an EPC strategy to stay competitive in this ever-growing market.
“Productivity is down,” commented Adrian Bregnard, Shell projects and technology manager, contracts and procurement. “Projects cost more and are not on time.”
“Here are a few questions that all operators must ask even before the project starts: Is it a cost-driven project? What are we trying to achieve? And how fast can we get from discovery to first oil?” he asked.
Cost, regulatory hurdles, affordability, schedule and production are the key elements of most construction projects. By pinpointing these hurdles early on, many can avoid the pitfalls that inadvertently arise as projects progress. While most project managers want to accelerate the process and avoid delays, this mindset yields little success. Many desire greater cost certainty and control, but if they avoid several key phases during the process, this desired outcome will not come to fruition.
- Scope allocation. There are several scope developments one must consider. Historically, “Shell has done more in-house work, but that’s changing,” Bregnard said at the Economic Alliance Houston Port Region and BIC Alliance Industrial Procurement Forum held recently in Pasadena, Texas. “We’re now looking at you guys in the marketplace to bring your capabilities so we can rely on your expertise instead of us designing and developing the project. We want your ideas and thoughts early in the process so we can take advantage of the collective wisdom and experience in this room.”
- Risk allocation. Fundamentally, risk allocation means determining the risk between the owner and the contractors, which plays a huge role in how successful a project can be but also in the relationship between the operator and the various contractors.
“This can either be a very collaborative relationship built on a firm contract of the project, or it can be completely adversarial, where third parties will get involved at the very end of the project, ending in a demise of the relationship,” stated Bregnard.
- Low market conditions. The market conditions on the Gulf Coast are very different than on the West Coast or in Pennsylvania, Bregnard commented.
“These locations have very different markets, very different contractor bases, a heavy influence of union organizations and different regulatory governments,” he explained. “And if we’re having this conversation in a place like the Middle East, we’d be having a totally different presentation because of how they view how to do contracts and how they approach the market.”
Contract availability within the market is another factor to consider. The swelling demand for materials and labor erodes most projects, Bregnard commented.
“The inability to attract and train new talent is a big part of the productivity problem,” he said. “We all saw what happened in Louisiana; it fundamentally changed what is available from an operator standpoint.”
- Technical vs. nontechnical risks. Almost half of construction projects are delayed, with 81 percent of delayed projects having one or more nontechnical causes, according to ERM Analysis. If you evaluate the nontechnical risks, then the business of sustainability can be achieved. Here are four steps to help guide during the process: 1. Understand the project context, 2. Generate options and future scenarios, 3. Quantify sustainability value at stake, and 4. Select and communicate preferred options.
- Joint venture (JV) contractors. JVs and consortiums serve as an important medium through which contractors can undertake significant projects. As producers, traders and owners seek to expand their infrastructure assets, there is an increased need to consider engaging or partnering with a JV or consortium contractor to tap into a particular expertise, or work with companies active within a particular geographical location.
This could be a useful way of gaining the benefits of collaboration between a range of experience and expertise while avoiding the risk concentration of reliance on a single company, Bregnard concluded.
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