Soaring costs have plagued many large projects in the oil and gas industry for years, with some developments failing to get the green light for fear of overruns. One way to control costs on big budget projects is to streamline contract management and improve communication between the operator and the many contractors often involved such projects. 8over8’s ProCon helps address the chaos in the way IOC’s engage with their contractors.
The numerous parties involved in large-scale developments means there is a wider margin for error in contract management, and mistakes are often paid for with cash.
Large independent oil companies (IOCs) often juggle all sorts of communications from many companies, and keeping a tight control of these is not always easy, especially if the system being used is not capable of coping with the data effectively.
Clare Colhoun, CEO of contract management software solutions company 8over8, said the company’s ProCon software helps “address the chaos in the way that IOCs engage with contractors.”
For example, when an oil and gas major works with a large service company, there are numerous employees from all sides involved including engineers and project managers who deal with the technology or construction side. But in most cases the commercial managers of oil companies are left to deal with multimillion or billion dollar projects with old systems such as a spreadsheet or a palm-held device, Colhoun said.
This means there is often great potential for inefficiency, delays, administration oversights, and lack of communication between the oil company and the engineering, procurement, and construction (EPC) contractors. These issues can all lead to cost overruns, Colhoun said.
Eight or nine years ago 8over8, which is based in Derry, Northern Ireland, developed its ProCon software that allowed customers to address this chaos, Colhoun said. The software allows parties working on a project to log all items, such as contract orders and progress reports, on the system so everyone can see how a project is progressing, help keep track of events, and highlight areas needing improvement.
This helps to keep the project on time and within budget because there are fewer blind spots and less room for confusion when all sides have the same data.
On average 40% of mega projects exceed budget and cycle time by 10%. These overruns lead to a 2% to 3% movement in a capital contract, which can easily equate to hundreds of millions of dollars.
Colhoun gave an example of working with “an IOC in Angola” on a US $2 billion project that yielded savings of some $320 million due to enhanced governance and faster decision making between the IOC and the eight contractors involved.
“Before solutions like ours technical advances for engineers, such as seismic interpretation and drilling techniques, made it easier to find oil and gas but the commercial activity side was left behind,” Colhoun said.
When this technology was applied to mega projects, such as huge LNG developments in Australia, communication between operators, contractors, and sub-contractors escalated “beyond belief” and this created the need to develop a better platform to manage projects, Colhoun noted.
“The typical volumes of communications between an oil company and its contractors, e.g. the project to build the North Sea Buzzard field, involved 100,000 e-mails with contractors.”
ProCon utilizes Cloud technology to organize the large volumes of data. The software keeps an online record of what has been agreed upon with suppliers, including costs, milestones, communications, and agreed deviation requests, “so that everybody involved in the contract, both financial and operations people, can understand how projects are progressing.”
In essence it helps to clarify who is responsible for which part of the work program at any given time. As Colhoun said,
One client estimated that it saved 1% of project costs from using ProCon, on a $30 billion project, mostly from avoiding legal costs, because the usual post project conflicts with suppliers did not arise.
Colhoun also added that “Commercial management is not just a back room activity anymore.”
One major area to focus on to keep projects running smoothly is the gap between the FEED and EPC stages.
For instance if a project engineer sees a gap between the FEED work and the EPC stage, he or she has to issue a change order. All sides then need to resolve the issue within a certain agreed time frame or face delays and cost overruns. On a large project change orders can come through thick and fast and need to be managed well. 8over8’s ProCon solution tracks changes to increase visibility for all parties and avoid confusion.
8over8 has grown around 40% a year recently as it builds its client base. Colhoun said it works for “three of the top IOCs” in the world.
The company is also keen to crack the South American market, especially Brazil and its state-owned operator Petrobras, which works on some massive presalt development projects. 8over8 has teamed up with Portugal’s Critical Software to produce a Portuguese/Brazil language version of ProCon that it hopes will attract big hitters like Petrobras. Colhoun said Petrobras has to deal with significant local content issues and has suffered some delays in this respect recently and believes ProCon could help.
Another big market 8over8 is looking at is Russia, recently joining forces with consulting firms in the country to try and attract business from the top Russian operators.
8over 8 is also keen to expand in vertical markets, such as the LNG tankers market and GTL contracts.
First printed at E&P magazine. To find the story online, click here
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