Supply Chain Management of Rig & FPSO- Floating Production, Storage

and Offloading systems

Presented By: Tochukwu Ben Anozie 4th Annual Logistics in oil, gas & petrochemicals Summit15th April,2015

Oil & gas supply chain network & analysis

Rig supply chain network & process

FPSO Supply Chain Network

Rig and FPSO relationship

Lack of clarity relating to contract responsibilities leads to unwanted

surprises

The unwanted surprises in rig and FPSO supply chain

Reasons behind the ailing FPSO supply chain

Role of companies , development complexity, regulations and conflict of

interest within the value chain

OUTLINE

OIL & GAS SUPPLY CHAIN NETWORK & ANALYSIS

Upstream

Midstream Downstream

OEM

OEM Operators

3PL Rig location

Raw Material

Raw Material

Tier 1 supplier Tier 2 supplier Tier 3 supplier

Warehouse

RIG SUPPLY CHAIN NETWORK & PROCESS

3PL

•Planning •Vendor selection •PO creation and approval

•Engineering•Production

•Material handling•Logistics

•QC and QA•Inventory management

•Material handling•Logistics

Manufactured Transported Stored Delivered Ordered

Rig Supply Chain Process

Rig Supply Chain Network

Material & Product Flow

Information Flow &Cash Flow

OEM- Original equipment manufacturers

3PL- Third Party Logistics

EPC contractors

FPSO SUPPLY CHAIN NETWORK

Raw Material

Raw Material

Raw Material

FPSO builder

FPSO Contractors

Operator

FPSO Location

Material & Product Flow

Information Flow &Cash Flow

Typical FPSO Supply chain consist:•Raw Materials Suppliers, FPSO Builders•Oil Companies(operators), FPSO Contractors & EPC contractors•FPSO location

Tier 1 supplier Tier 2 supplier Tier 3 supplier

RIG & FPSO RELATIONSHIP

LACK OF CLARITY RELATING TO CONTRACT RESPONSIBILITIES LEAD TO UNWANTED SURPRISES

GUIDELINES FROM OPERATORS: There are many standards and requirements to

build one-off design that substantially increase the cost.

CONTRACTING CHALLENGE: EPC contractor don’t sign a long time contract any more

due to fluctuation in day rate.

POOR PRESENTATION OF SPECIFICATION BY OPERATOR: Standard & requirements

are presented in stacks of documents and it is very difficult for contractors to deal with

and makes the process side of the business much more expensive

SCOPE CREEP: This usually occur in every FPSO project. This may be important but it

will always delay the building process

ENGINEERING SPECIFICATION CHANGES: review in specifications as a result of

technological changes or need to add special features.

THE UNWANTED SURPRISES IN RIG AND FPSO SUPPLY CHAIN

QUANTIFY DELAYS

These are disruptions within the rig and FPSO supply chain that can be measured in figures either by (Days Weeks &Months)

Rig & FPSO SC quantify delays analysis in months

Source: Douglas wood 2014

THE UNWANTED SURPRISES IN RIG AND FPSO SUPPLY CHAIN

OVERRUN COST

The Amount by which the total cost of ownership for rig and FPSO project exceeds the budgeted, or target cost.

Months

Adapted: Douglas wood 2014

•Forecasting Error (price, project timeline)•Uncertainty (Natural disaster)•Inadequate planning process•Unclear scope of work

•Inadequate material and information flow•Inadequate resources•Inefficient financing •Inefficient use of resources •Inefficient contract management

Technical factors Economical factors

Rig and FPSO SC overrun cost Analysis in months

Causes of Rig and FPSO SC overrun cost

REASONS BEHIND THE AILING RIG & FPSO SUPPLY CHAIN

Governing conditionsProject complexityRegulation Challenges Local content

Floating industry suppliers challengesSupply chain complexityOrganisational learning Nature and size of project Shipping industry influence

Industries ComparisonComparison of drilling industry

Rig & FPSO SC Issues •Overrun Cost

•Risks•Quantify delays (disruptions)

The reasons behind ailing rig & FPSO supply chain are grouped into 3 categories:

ROLE OF OIL COMPANIES , DEVELOPMENT COMPLEXITY, REGULATIONS AND CONFLICT OF INTEREST WITHIN THE VALUE CHAIN

OIL COMPANIESRegular cost examination: This encourage change in rig and FPSO procurement procedures. supply chain development: Continuous improvement in the SC will result in achieving resilient and robust SC at lowest cost and reduction in delays.

DEVELOPMENT COMPLEXITY Execution quality and efficiency is enhanced: due to project development that builds on industry experience.Repeatability: helps the supply significantly in area of right material selection in terms of quality vendor selection and lead time management

REGULATIONChanges in the regulatory framework: This may bring about meaningful impact on the SC to meet future demand.Complexity and underdevelopment of FPSOs regulation: this have affect FPSOs relocation and other mobilisation as well as treating each FPSOs as a separate entity.

CONFLICT OF INTERESTIncrease the project complexity: it make the project execution cumbersome which adversely affect the suppliers and the projects efficiency.

RECOMMENDATIONS TO AILING RIG AND FPSO SUPPLY CHAIN

Collaboration among stakeholders along the value chain-executive support

Adopt lean Six Sigma methodologies in Supply Chain for process improvement.

Institutionalise Supply Chain best practice

Commitment to procurement resources management

Develop performance metrics for monitoring Supply Chain

Thank You