Procurement strategies for the oil and gas industry: conventional versus innovative approaches

During the period of high oil and gas prices in the late 70’s and early 80’s, the operators (Petronas, BP, Esso, Shell etc.) was focused on ways and means of high volumes of oil and gas from the rich and easily accessible sources. In their rush for early oil production, there was a tendency to use construction techniques and equipment that were on the market at that particular time. Because of limited financial resources early operators were more concerned with the capital cost of construction and equipment than running and operation with little attention given to long-term procurement strategies. This resulted in concern by the operators that some contractors had adopted a ‘sell and forget’ approach that resulted in a poor image of after-sales service. The operators were also facing the risk of plant and equipment failure, which could lead to a major operational shutdown and loss of production. This experience, together with the oil and gas price crash in 1986, led the operators to look at other innovative options in procurement approaches, which not only based on cost, time and quality but also shared risks and profit. Lessons on procurement, including Design and Build/ Engineering, Procurement and Construction, Partnering/Alliancing/Joint Ventures and Performance-Based contracts from other industries were tested but with mixed outcomes. This paper presents a review of current literature on the subject within the industry which will form the basis of further work.