Supplier Selection Based on Price Does Not Always Yield the Best Outcome

Selecting an oilfield services supplier primarily based on price alone does not necessarily result in the best outcome.

Kimberlite Oilfield Research recently published the 2018 Subsea Equipment and Services report based on interviews with 102 subsea engineers and managers representing 46 unique operating companies managing a total of 4,563 subsea wells worldwide.

While operators report a strategic intent to reduce the finding & development cost for subsea developments to $40 per barrel or lower, the subsea operators worldwide are experiencing a range of outcomes for their subsea developments.

Subsea oil & gas operators worldwide report that an average oil price of approximately $57 per barrel is required to justify investment for subsea developments. The responses ranged from as low as $35 per barrel of oil to as high as $80 per barrel of oil reflecting the variance in levels of efficiency and optimization being experienced among the subsea operators worldwide.

Operators able to justify subsea developments at lower oil prices are the most effective in being able to differentiate between supplier’s offerings and value delivered. Operators who need higher oil prices to justify subsea developments are less effective in being able to differentiate between supplier’s offerings and rely more heavily on price and availability to drive supplier selection.

The exhibits above reflect that the subsea operators who can justify investing in subsea developments with oil prices in the $50 per barrel or lower range distinguish performance and value differences between the 4 major subsea equipment & service suppliers and place greater importance on equipment quality & reliability and technical support in their selection of a subsea supplier.

By contrast, the subsea operators who require oil prices of $60 or higher to justify investing in subsea development do not distinguish performance and value differences between the 4 major subsea equipment and service suppliers. Rather, these operators place greater importance on pricing and availability in their selection of a subsea supplier.

The findings of the report reveal that subsea E&P operators who can best differentiate supplier’s capabilities and offerings will be able to experience the highest level of efficiency and economic outcomes.

With the Deepwater market expected to grow approximately 12% annually for next 3 years and concerns relating to availability, scheduling and increasing costs, it is more important than ever for E&P operators and subsea equipment and service suppliers to collaborate on standardized subsea solutions, optimize delivery & scheduling and reduce costs.