“Collapsing Costs: Curing Procurement” by Rob West, Redburn

In November 2016, Redburn released a report “Collapsing Costs: Curing Procurement” written by Rob West on the need for cost reduction in the oil and gas economy, emphasizing opportunities in procurement. The research discusses cost reductions available through the use of digital platforms and highlights achievements of E&P companies, including BP, that use RigUp.

We’ve summarized the article, but please download the full report at the end of this post.

 Today’s Procurement Challenges:

  • The average Major manages relationships with 100,000+ suppliers.
  • Many oil industry buyers don’t have access to their suppliers’ financial reports or HSE records.
  • The size and complexity of the industry has resulted in an uncompetitive model of excessive sub-contracting.

Curing Procurement:

Digital procurement platforms are changing the oil and gas industry. RigUp connects 17,000 U.S. contractors with 150 E&Ps and raises bids-per-award from 2.3 to 7.1. Cost savings reach 30%, middlemen are dis-intermediated, and nimble E&Ps can run 20-30x smaller procurement teams than Majors.

BP is the only Super-Major using RigUp at this time. Contractor usage is down 30% since 2012. Conversely, Shell forces suppliers to pay a $1,700 – $3,285 fee to access its own bespoke pre-qualification system—it has half the supplier numbers of peers, yet the highest headcount in procurement.

Benefits of procuring via digital platforms, such as RigUp: 

Greater Reach. More bids can be surveyed in a shorter amount of time.

blog_redburn_002Contract Cost Savings. One E&P, Three Rivers, saved 30% on an Authorization for Expenditure (AFE) for a drilling program with savings on wellhead and cementing equipment as high as 44%.

Unbundling removes unnecessary layers of oil service margins.

Time savings: In another case study, E&P Ameredev onboarded 17 contractors in less than one week, with under 24-hours screening time per contractor.

Blog_Redburn_AvgProcurementCounts

G&A Savings. Major independents have 100-200 people dedicated to US unconventional purchasing, where smaller companies are running comparable rig crews with 4-5 people.

Benchmarking potential. Anonymized cost data is available for benchmarking from the RigUp platform.

Download the full report HERE.

And visit www.rigup.com and sign up for a free account.