The New Oil and Gas Industry Supply Chain Code of Practice ADD TITLE AS APPROPRIATE.

The New Oil and Gas Industry Supply Chain Code of Practice

ADD TITLE AS APPROPRIATE

Initially developed by a work group established by ILT / PILOT under the Progressing Partnership banner (PPWG)

The Supply Chain CoP is one of over 10 initiatives launched by PILOT and outlines a set of best practice guidelines

First adopted by the industry in 2002, signatories undertake to work towards full compliance with the Code

Signatories include major purchasers (operators and principal contractors) and suppliers (providers of goods and services)

The Code is endorsed by PILOT, the Industry Leadership Team and the key Trade Associations

In July 2005 the PPWG SCCOP Work Group was disbanded and replaced with a new Supply Chain Steering Group which reports directly to ILT / PILOT

Supply Chain Code of Practice

Supply Chain Steering Group (9)

Supply Chain Managers Network (50+)

PILOT

Industry Leadership Team

Major Purchasers

and Suppliers

OperatorsSupply Chain Steering

GroupILT (Supplier & Operator) 2

DTI 1

Standard Contracts 1

FPAL 1

SCMN 2

UKOOA / LOGIC 1

Marketing / Communications 1

Work Grou

p

Work Grou

p

DELIVERY

SCCOP Industry Involvement

Supply Chain Managers NetworkOperators 30

Trade Associations 6

Major Contractors 10

Industry Groups 6SCCOPWork Group

Work Grou

p

Work Grou

p SCCOP Work Group

Operators 2

Major Contractors 4

Industry Groups 3

To make the UKCS the safest place to work in the worldwide oil and gas industry

Production at 3bn BOE per day in 2010

UKCS capital investment sustained at £3Bn per annum

Prolonged self-sufficiency in Oil & Gas

Supporting up to 100,000 more jobs than there otherwise would have been by 2010

A 50% increase in oil and gas exports by 2005

£1 billion per annum additional revenue from new business

The PILOT 2010 Vision

Supply Chain CoP

Access to Infrastructu

re CoP

Commercial CoP

Subsea Effectivene

ss

Technology

Progressive &

Innovative Licensing

Decommissioning

UK Norway Co-

operation

Wells Share

Initiative

Stewardship

The Fallow Process

Step Change in

Safety

Workforce Capacity & Capability

Supply Chain

Efffectiveness

PILOT Initiatives

Increased UKCS Supply Chain competitiveness through improved efficiency and reduced waste

Improve working practices, commercial behaviours and purchaser / supplier relationships

Regular and detailed forecasting of activity levels.

Enhance and simplify the bidding process.

Prompt payment.

Active two-way relationship management.

Code of Practice Objectives

1. Commercial Stage - Forecast/Planning all activity up to the point of tender

2. Commercial Stage – Tendering all activity up to the point of contract negotiations, including elimination of bidders

3. Commercial Stage - Negotiation agreement of contract terms

4. Commercial Stage - Implementation and review through the life of the contract and at the end of the contract

5. Commercial Stage - Monitoring and Evaluation of Code

6. Implementation and Adoption of the Code

The original Code comprised 6 sections

… commitment received from 80+ Operators and Major Contractors


Code of Practice for Suppliers was developed in 2003

… commitment received from 300+ suppliers and contractors

Stage 1 Forecasting and Planning – To provide more effective business cycle planning.

Stage 2 Tendering – To reduce the cost of bidding.

Stage 3 Negotiations – Cut waste and reduce unnecessary paperwork.

Stage 4 Implementation and Review – Getting the job done right.

Stage 5 Monitoring and Evaluation of the Code – Assuring process is in place.


The Code is endorsed by:

PILOT, Industry Leadership Team, Supply Chain Steering Group, Supply Chain Management Network, DTI, EIC, FPAL, IMCA, OCA, UKOOA, WSCA

… it has significant sign-ups already… it’s a real achievement for the IndustryFor latest information see PILOT Website

http://www.pilottaskforce.co.uk/






New clean and simple format

Signed by CEO and Supply Chain Manager

Simplified structure

New features include

Industry Model ITT’s

“Fair” contracting principles

“Value based” contracting

More efficient Code implementation survey

Drafting party represented all industry groups

PLAN CONTRACT PERFORM & PAY


PLAN

Communication of forward plans to industry

Provide support for Share Fairs

FPAL purchaser profiles

Suppliers to make use of information provided

CONTRACT PERFORM & PAY

0

20

40

60

80

100

120

140

Poor Quite poor Average Good Excellent

Structure/Format



Restricting bidders to FPAL registered companies

Eliminate duplication of data by using FPAL

Providing debriefs

Using standard contract forms

Payment in 30 days

Use of industry Model ITT’s


IADC analysis of Rig ITT’s undertaken

Highly fragmented approaches evident

Extensive duplication of FPAL data

Patchy use of standard contracts

ITT quality extremely variable

Tender compilation slow and expensive

THE OPPORTUNITY


Create a standard ITT structure

Simple, logical organisation

Easy buy-in

Standard documents for those that want to go further

Aimed at ease of production

A quality ITT

A swift offer

A trouble free evaluation

THE SOLUTION


Guidelines on completionITT IndexTendering instructionsTechnical SectionsCommercial SectionsContractual Sections


Templates are clear, simple and pragmatic

Focus is on principle not prescription

Uses industry documents where they exist

Nomenclature is standard

Modular design gives flexibility

Designed to allow substitution


ITT’s are Easier, Faster and Cheaper to issue

Bids are Easier, Faster and Cheaper to return

Simplifies the contracting process

Code recommendations incorporated

Creates a vehicle to introduce better practices

Operators can decide their own scale and pace of adoption

Creates step out opportunities with Well Services, Operational and Construction ITT’s


Model Rig ITT currently available on FPAL website, is now in use and is easy to access …….


Model Rig ITT currently available on FPAL website and now in use

Well Services suite of Model ITT’s

Marine Construction Model ITT

Platform services, plant and equipment Model ITT’s

ITT drafting groups launching Model ITT’s in 2006


Easier method of surveying Code adherence

Use of FPAL Type III feedback uses existing industry scheme and little additional effort

Input now verified

3 additional elements

CODE OF PRACTICE SURVEY METHOD


Include performance Indicators in all significant contracts

Provide and receive FPAL performance feedback via Type 1 and Type 3 mechanisms

Assessment of Client Compliance with Supply Chain CoP

KPI and Review Mechanism for Contracts >$1mm

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Some improvement from 2004 report Majors generally higher rated than small companies Not enough use of FPAL two way feedback

June 2005



Assessment of WSCA Member (as Supplier) Compliance with Supply Chain CoP

Invoicing Quality

0

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WSCA Member

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June 2005

Submit complete and valid invoices

Pay all valid invoices within 30 days

Adopt a prompt payment policy for own suppliers



Why does the Code of Practice matter to Contractors?

1

1.2

1.4

1.6

1.8

2

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005(est)

Gro

ss R

even

ue

($B

n)

WSCA 2005 Report

Revenue increasing

The Industry still cannot afford non-value adding costs in Supply Chain Management processes

Profitability decreasing



UKCS - Gross Operated Reserves by Operator(Data: Wood MacKenzie December 2005)

0

500

1,000

1,500

2,000

2,500

Operator

Gro

ss O

per

ated

Res

erve

s (M

Mb

oe)

Code Acceptance Yet to Sign Declined

…… work on sign-ups continuesCode covers in excess of 80% of UKCS expenditure (on an operated reserve basis)


The New Oil and Gas Industry Supply Chain Code of Practice ADD TITLE AS APPROPRIATE.

Documents

supply chain cop access

evaluation of code

code of practice objectives

code signatories

original code

vision slide

appropriate slide

code assuring process