• Heat Transfer Technologies uses HTT method which transforms supply chain to a competitive advantage for EPC companies.

EPC companies in their supply chain have gone from boom to bust in the past years. Here are three strategies Heat Transfer Technologies offers for EPC companies and their clients which are exploring to adjust to the changing environment.

1. Cost management.

The cost cutting required to address falling revenues has come as a shock to an industry that over the years had grown fat and happy on oil high prices. It’s all resulted on huge cuts of investment budgets of the clients of EPC Companies.

The good times resulted in multiple years of cost inflation, with expenditure per barrel rising between 5 and 15 percent each year since 2009, depending on the service and the geography. Offshore fields in particular saw costs rise significantly, resulting in high break-even levels. In the North Sea, for example, the cost of extracting a barrel of oil equivalent more than doubled, from just over $8 a barrel in 2010 to around $17 a barrel just three years later.

Clients of EPC companies are now rediscovering the spirit of efficiency. For example, independent operators in US onshore have been able to raise production per well while lowering cost per barrel by using improved horizontal drilling techniques, and longer wells with more frac stages, along with super fracking, where drillers pump a lot more proppant (sand) into their wells. In the North Sea, too, 2015 saw a long-overdue cost improvement. Like for example North Sea operating benchmark, 2015 lifting costs declined by 20 percent.

Clients of EPC companies focused at first on tactical initiatives such as project postponements, expenditure cuts, and staff reductions, and EPC companies responded by cutting back on their own service and manufacturing footprint to cope with less activity, lowering their costs for solutions delivered by 20 to 30 percent. However, now that operators are taking more strategic steps—including optimizing operations, exploring supply-chain collaborations, finding new revenue models, and adopting new technologies — EPC Companies are following suit. Heat Transfer Technologies offers to outsource procurement to optimize budgets of both EPC companies and their clients.

2. Collaboration: One supplier for everything 

Collaboration is an effective way to lower costs and simplify EPC contractor management. Combining equipment, software and engineering, or other combinations of service offerings can unlock significant value for clients of EPC companies.

Many services and equipment purchases currently are outsourced to a variety of providers, which results in complexity and a fragmented supplier base. Multiple EPC companies are now outsourcing these services outside, with integrated offerings reducing coordination costs. This can lead to savings of up to 30 percent. 

The companies announced significant projected cost savings of $200 million in 2018, and at least $400 million in 2019 and beyond, which would be achieved through a combination of supply- chain efficiencies, real estate and infrastructure optimization, and organizational efficiencies.

3. Innovation in equipment and service models

Sustained investment in new technologies is allowing some companies to capture new growth. Today’s low oil price has created a new passion for efficiency, which highlights new technologies that can drive efficiencies—albeit at a limited investment cost.

EPC companies should consider investing in such capabilities and increasing the use of digital technologies in general as a way to achieve efficiencies, win business, and help develop new business and revenue models. The sector has been slow to adopt digital techniques that are widely in use elsewhere, representing a clear area of potential opportunity. For example, a lot of investment is being made in automating the process and completions work flow, leading to less people required and better information from the various processes in the work flow.

Many EPC companies now are looking for redesigned equipment with more modular designs in order to drive out inefficiencies. In the past, many products were not designed with cost, or total cost of ownership (TCO), in mind. Taking a hard-nosed look at design from a cost standpoint can result in 15 to 30 percent savings. In the absence of modular design, procurement and manufacturing cannot benefit from economies of scale. 

Today, there is little leeway for inefficiencies in the EPCM sector. Although eliminating those inefficiencies comes with a cost, companies that delay taking their medicine will suffer for it. For some, survival may require nothing less than shock therapy.

These days EPC companies should ask themselves whether they are well positioned to face a volatile and uncertain future. To test whether they are pursuing the right strategies, they should ask themselves a few critical questions, such as the following:

• Do we have the right collaboration models with clients and suppliers?

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• Are we able to address the need to reduce cost for our clients, for example, through standardization?

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• Are we using digital/data and analytics as a potential game changer?