From Aberdeen (IF): One of the newest oil entrants to the UK North Sea on Sept. 25, 2014, warned of the dangers presented by the soaring price of projects with rig rates and subsea work among the worst offenders.

Hungary’s MOL Group in currently investing more than $500mn in North Sea licences and aims to become a significant player here. But it says new, more efficient ways of working have to be introduced as a matter of urgency.

The company has another $3bn which could be used for further UK offshore acquisitions and it plans to use this money to become an operator of producing assets next year.

Shocked

But Chris Bird, MD of MOL UK, told SEN that the increase in supply chain costs at home and abroad in recent years was ‘shocking’.

‘The cost of a simple subsea tie-back has now become phenomenal,’ Bird said in an interview. ‘It has gone up from something like less than $150mn to around $500mn today, but there has been no similar increase in the price of oil to compensate for this.’

Bird, an industry veteran with earlier roles including as boss at Venture Production, said moves have to be made now to reduce costs. He said this was possible as shown what was done at Venture.

Bird said MOL would be adopting a different approach to managing its supply chain, one which would benefit both it and contractors. He said the oil industry needed to break the vicious circle of competing for scarce resources such as skilled people.

‘This is a supply-constrained market with over-committed resources,’ he said.

The MOL managing director highlighted ongoing issues such as millions wasted annually on mountains of bid documents.

Bird said vast sums were also being spent on bespoke equipment - ‘we like to engineer a lot, too much in many cases’ - when cheaper, mass-produced alternatives would do.

The MOL managing director – who supports the findings of Sir Ian Wood’s review into maximising UK oil recovery – said a collaborative approach was needed across the whole industry to maximise performance. He said getting this right would be a ‘win-win’ situation for both operators and contractors.

Operators could benefit from long-term fixed rates for drilling rigs and, in fabrication, good performance on cost and schedule. Subsea and drilling contractors could receive long-term work commitments.

Bird said if MOL is as successful here as he hopes, then this could lead to more new entrants being attracted in the basin. This summer, MOL announced its second significant UK acquisition in recent months, spending $130mn on six central North Sea licences from Premier Oil.

The portfolio includes interests in Scott (21.84%), Rochelle (15%) and Telford (1.59%), as well as interests in exploration licences such as the Rochelle Upper Jurassic deep prospect. Last December, MOL revealed a $400mn-plus deal to acquire 14 licences from Wintershall including a non-operating stake in Broom (29%) plus in the Catcher (20%), Scolty/Crathes (50%) and Cladhan (33.5%) developments.

MOL’s current UK North Sea output is around 1,000b/d and the hope is to increase this to 30-70,000b/d within five years. The company now has a British workforce of 20 and is targeting it to rise to 200 people directly employed in the same time period.

Offshore