CAPEX: Meeting Challenges and identifying Opportunities

The following article is a transcription from Justin Hoffman’s panel session at the recent EIC Connect Energy Preview Event where he presents the groundbreaking Mobile Cabin Factory concept and how it is done by ALMACO.

Blog post by Justin Hoffman, Vice President, Business Development Offshore at ALMACO

ADOPTING THE CRUISE INDUSTRY MODEL TO CAPEX PROJECTS

If you’ve ever been on a cruise ship or a ferry, as you open the door to your cabin, everything around you would make up a single module that’s been fabricated outside the hull, then lifted onboard, positioned and secured into place.

This prefabricated cabin module technology offers better control of quality, HSE, logistics and scheduling. As you’re fabricating in a controlled environment, with less personnel within the structure fighting for space during construction, and ultimately expediting completion times.

While a mobile cabin factory allows us to be flexible on building locations, as we can set up our production anywhere in the world. Invariably in or close to the yard responsible for the hull is most desirable, but other options to offer improved cost efficiencies can also be offered.

This is a methodology we’ve adapted from the cruise industry, where low price, high quality and fast delivery are constantly driven from the owner and the yard. Which translates very well to the CAPEX projects in the Energy sector, where you are balancing the expectations and requirements of the client, with a cost effective and timely execution.

SPLIT OF WORKS

Depending on the project execution strategy, we typically hone the outfitting design and engineering with the end user/operator/EPC, then interface with the selected yard for the fabrication and installation.

On projects where Local Content is a consideration, we increase the percentage of locally produced equipment, in localized facilities, and transfer skills and technology to create employment opportunities for talented in-country personnel. As a result, we have produced over 26K cabins, across 300+ projects, fabricated in 15 countries, in 40+ locations globally.

TIME FOR A CHANGE?

I’d like you to consider the thought that perhaps the challenge with CAPEX projects stems from the industry continuing to use practices that were developed when projects were smaller, less complex, and more geographically clustered from a sourcing and construction perspective.

I think it’s worth considering that the challenges faced during CAPEX can also amplify the OPEX challenges, starting from the handover and commissioning. But I’ll leave that topic for another time.

So starting from the premise that we’re using practices from a simpler time, if you start adding the opportunity to utilize products and services from wherever makes most financial sense (assuming that cost is the main driver, followed by delivery), you have the challenge of developing projects in lockstep with your requirements and expectations. Something has to give, as you generally can’t have low cost, quick delivery and high quality.

As a caveat, I’m using “quality” to broadly reference quality of materials, products, quality of finish, quality of workmanship, or whether a product is in line with the requested standards or certifications – in the last example, there will be exceptions taken/given in order to meet the cost and delivery requirements of the project, because the deadline rarely moves to the right.
So, we’re dealing with multiple resource pools, pricing levels, standards and certifications, as well as cultural approaches to solving the same problem.

STANDARDIZATION AND OFF THE SHELF SOLUTIONS

But with larger, more complex projects, some industry players have identified opportunities through standardization. To create a menu of options that can be produced on spec, without the need for detailed design or engineering, to expedite time to first oil by allocating resources to project management e.g. SBM with their Fast4Ward program or MODEC with their NOAH and M350 newbuild hull designs.

In addition to standardization, there’s looking at off the shelf solutions, as opposed to adhering to arduous owners’ specifications. As an example, one oil major started rationalizing their internal standards related to compressor packages, and it was so successful that they started working their way through other equipment and products. Peeling off the “gold plating” to technically and commercially qualify categories of equipment and products, even down to the commodity level, thereby reducing cost and expediting delivery.

With the compounding impact of multiple industry downturns or setbacks, we’ve seen companies hemorrhaging talented individuals, some never to return. This has put additional pressure on remaining resources to fulfill the same workload.

During any downturn, training tends to be filed under non-essential spending. So, lack of training or cross-training, combined with the departing experienced personnel, not able to impart or mentor up and coming talent, where will that leave our projects in the years to come.

The great crew change brings with it challenges, but also opportunities for the “old way of doing things” to be looked at with fresh eyes. With companies resistant to taking on additional headcount, for fear of having to go through the cycle of redundancy or layoff again, there is another opportunity in the supply chain for specialist providers or contractors to fill the void, or for a new project execution strategy to be considered.

Whether we’re talking about standardized or simplifying, something along these lines requires dialogue and compromise from all parties and is more akin to a collaborative partnership model.

Additionally, in a time of slowed project development, where supply chain is looking to further reduce cost, the challenge will be when activity does ramp up, will there be the resources to maintain the same prices and delivery promised during the slow times. We’ve already seen yards in Asia turn away work because of this ramp up in workload.

EMBRACING CHANGE

Unfortunately for offshore oil & gas accommodation, reduced headcount seems to be the way technology is leading us with the move towards digital twins, unmanned facilities manned from shore, and fully autonomous functions. But for the offshore windfarm installation and maintenance vessel accommodation, where the majority of designs are originating out of Europe, the “comfort class” requirements aligns very well with our capabilities and experience.

So last year we saw a surging interest in renewables, which looks to have passed the tipping point at which, even with oil & gas projects coming back to life, will continue to move forward. The challenge being at the state level to push them over the line efficiently and to their full potential.

I saw a promotional video on LinkedIn hailing the burgeoning US offshore wind industry as a catalyst to bring manufacturing back to American communities and revitalize local economies. Which reinforces the message that there’s opportunities if you can pivot to meet them, and also that the offshore wind industry has echoes of more geographic clustering from a sourcing perspective to support construction and operations.

However, as we saw in Scotland last year when the award for offshore windfarm jackets went to a Chinese yard over the competing Scottish yards, if we can’t be competitive, is there enough protection to prevent major fabrication or module packages from being outsourced. Will the Jones Act be a hindrance or a help to progressing the US shipbuilding base to truly develop Offshore Wind to its fullest potential?

We’ve seen over the last year that corporations don’t need ivory towers to house all their staff, all the time. We have some wonderful tools to aid remote collaboration through virtual platforms.

But we’re all itching for interaction, and certainly when it comes to project execution, in some places you get what you inspect. Though there too you can perform remote functions with the use of drone software and hardware for security or construction monitoring, as well as a plethora of inspection protocols.

I tend to err on the optimistic side, as there is enough bad press out there. Enough doom and gloom. I am confident that if you look for challenges, they will present themselves, and the same goes for opportunities.