Oil and gas industry needs to ‘reimagine’ its business and models to maximise energy transition opportunities

Enhancing a collaborative culture within the offshore oil and gas industry is not only key to maximising the potential of its existing world class supply chain but could also unlock future activity in the UK Continental Shelf (UKCS) and be key to delivering a successful net zero future. Furthermore, improving commercial models which support cost reduction whilst incentivising the supply chain could re-energise collaboration, according to the findings of the latest annual Deloitte and OGUK Collaboration Report.

Deloitte and OGUK’s industry-wide Collaboration Index (CI), which measures the effectiveness of companies as partners in projects, is part of their annual UKCS upstream supply chain collaboration survey. The report showed a slight increase in the collaboration index to 7.1 in 2020 from 7.0 in 2019, highlighting the flexibility and support the supply chain showed during an exceptionally challenging year. 

On top of this, collaboration success rates hit a record high in 2020, with more than 50% of survey respondents saying over half of their efforts were successful. In what also marked a first in the survey’s six-year history, the overall proportion of ‘successful’ efforts was higher than ‘unsuccessful’ ones.   

However, while COVID-19 saw many businesses work together to address the challenges, respondents said the pandemic and consequent economic downturn also led to disadvantageous commercial behaviours such as cancelled or modified contracts. 

OGUK Supply Chain and Operations Director, Katy Heidenreich, says: ‘OGUK has been encouraging industry to do business in a sustainable way to protect the supply chain. This includes finding innovative ways of working that deliver value for both sides, ensuring that industry has the skills and resources needed when activity rebounds, as well as using the Supply Chain Principles as a mechanism to improve behaviours.’

She continues: ‘Greater collaboration will be a key factor in unlocking future industry developments and to strengthening our basin, our versatility, and our resilience. The ability to work together well across companies, industry and the wider energy sector will be critical to delivering a successful energy transition which supports jobs and the communities we work in. Collaboration needs to be part of our DNA; while it is not a silver bullet, it is good for business.’

Deloitte’s Office Senior Partner (Aberdeen), Graham Hollis, adds: ‘In what is an extremely challenging environment, the industry must assess new opportunities and challenges as it addresses the year ahead. Organisations need to reimagine their businesses and models and focus on the right set of collaborative behaviours because as the report highlights, working closely with suppliers and customers to support one another will be vital.’

‘As part of this, Deloitte has produced a Framework for Action which details six building blocks that organisations should consider helping develop and continue building successful collaborative relationships –- ones which deliver greater value for both operators and suppliers.’

Deloitte’s Framework for Action supports the OGUK Supply Chain Principles, and both will be key to stimulating collaborative behaviours. 

With the Supply Chain Principles, energy transition and internal collaboration being new themes explored in this year’s survey, almost two-thirds of operator respondents said they were making some progress to meet their energy transition objectives – in line with the OGUK’s Roadmap 2035: a blueprint for net zero – compared with 49% of suppliers.  

While some operators showed best practice in sharing the risks and rewards of working relationships appropriately, there are still opportunities to improve.  

The Oil and Gas Authority’s (OGA) Head of Supply, Bill Cattanach, says: ‘Successful project delivery is more predictable where there is a fair and equitable partnership between operator and supplier. There are encouraging signals, as shown in the report, that the industry is leaving old approaches behind and embracing the expertise which exists within the supply chain in a collaborative manner. However, there is still room for improvement, and collaboration should remain a key focus for industry going forward.’