Insulation, scaffolding and surface treatment (ISS) companies are among the first to feel the effect of cut-backs and cost savings. So a long-term contract is worth its weight in gold.
The PSA’s main issue for 2021 is "side by side with the suppliers". In a series of articles and reports, we explain the background for this main issue and examine the role played by the suppliers in the petroleum industry.
The workforce at Kaefer Energy, based in Forus outside Stavanger, totalled 2 150 people in the second week of March. A week later, that figure had slumped to 500.
Nine months after the coronavirus hit Norway, a 40-strong shift is working to prefabricate components to insulate piping and valves for projects offshore and on land.
And a 17-metre-high scaffolding tower outside the workshop is the tangible result of a five-week course for 14 participants under an agreement with Norway’s Labour and Welfare Service (NAV).
“These are the next generation of scaffolders,” observes Thorbjørn Jensen, Kaefer’s human resources vice president. He worked in that trade himself during the 1990s.
The bulk of the workshop team are Poles. They wear red, green or blue pullovers to show which of them work closely together on the shift, and who live and travel together – to avoid Covid-19.
Kaefer issued layoff notices to virtually all its employees in March, and about 50 have still not returned to work – primarily because they live in a red zone and want to avoid quarantine.
“We’ve been back to 75-80 per cent of our pre-March level of activity this autumn,” says Jensen, who is also a long-serving member of the Safety Forum.
Chaired by the PSA, this serves as the central arena for HSE collaboration between companies, unions and government in the petroleum sector.
The ISS business to which Kaefer belongs is well-known for being one of the first segments to be hit when cut-backs and cost savings are on the agenda.
Services for the petroleum sector, including the onshore plants at Kårstø and Mongstad, account for 98 per cent of its activity in Norway.
That makes its mark when oil prices fall – and when the country shuts down. The company chalked up peak revenues in 2019 – but will not be overturning that record this year.
“The spotlight has been on cutting costs for as long as I can remember, and we’ve been pursuing continuous improvements for many years,” says Kaefer CEO Bård Bjørshol.
However, he says much has got better in recent years and notes that customers and their representatives are facilitating more collaboration and development than before.
A typical contract earlier would run for three years, with opportunities to extended it for a further two. Then Kaefer entered into a 15-year agreement with Equinor in 2015.
“That was quite new, and made a dramatic difference,” Bjørshol says. “It gives us assurance that we can benefit from an improvement initiative over time and along with the customer. It’s not just money out of the window.”
This frame contract gave Kaefer responsibility for several large NCS facilities, initially Troll A, B and C, Åsgard A and B, and Kristin.
The company also had the prospect of more assignments if the customer was pleased, although Bjørshol emphasises that it has no assurance of retaining even the scope it has today.
“If we’re not among the best performers, we’ll very probably see our responsibilities reduced. It’s what we deliver every day which adds up to a result.”
Jensen compares this to a football league table. Some teams face relegation, while others are promoted – as Kaefer has been by having Martin Linge and Johan Sverdrup added to its scope of work.
“When contracts are long, everyone concerned displays much more willingness and acceptance for investment in better and more intelligent solutions,” he says.
“With short-term jobs, it’s easier to think they need to be completed as quickly and efficiently as possible. But we find that the more familiar we get with the work, the better we do it.
“Once we’ve clarified the expectations we have of each other and know where we’re headed, everything becomes much easier. That’s been our experience during long contracts.”
But he adds: “A proportion of a service company’s assignments are always unpredictable. The goal is to obtain greater predictability for short jobs as well.”
Bjørshol believes suppliers have secured greater freedom and the right to participate in decision-making. That occurred particularly after the 2014 oil price slump.
The operators wanted to get costs down, and one way to achieve that was to collaborate with the suppliers in order to come up jointly with new and better solutions.
“We’ve been put in the driving seat more often than before in the search for novel approaches,” Bjørshol says.
Nevertheless, he fears that good new ideas fail to be adopted because certain customer representatives are unable to see their long-term benefits and prefer to make immediate cost savings.
“We’re a guest at the customer’s facility and, if it doesn’t want to adopt our innovation, this will get shelved. So when we invest in better solutions, the customer must be involved to see that they are used.”
The operator is invited to contribute financial support and technical expertise, but Bjørshol wants to ensure that the intellectual property rights remain with the supplier.
Both he and Jensen also point to another improvement in the relationship between customer and supplier.
“Customers used to send us their programme for next year’s work as late as December,” says Bjørshol. “That meant management lacked the time to prepare assignments the way it wanted.
“We now get the annual programme the summer before. That lets us plan and seek to keep workforce numbers as stable as possible – which also achieves predictability for employees.”
Read more: Supplying safer outcomes
Supplying safer outcomesThe PSA’s main issue for 2021 emphasises the great significance of the supplier companies for safety in Norway’s petroleum industry.
One team, shared responsibilityEach company has an independent responsibility for safety, but the operators must make it possible for suppliers to work safely in a good manner.
Contractor and collaboratorNew forms of contract are emerging in the oil sector, where the concept of “one team” has also been spreading. The question is how these work in practice.