Full text loading...
-
Supplier integration: driving costs out of the energy industry supply chain
- Source: First Break, Volume 22, Issue 1, Jan 2004,
-
- 01 Jan 2004
Abstract
Canadian company Digital Oilfield has been developing e-technology aimed at reducing oil company expenditure costs with suppliers through automation of invoicing and contract compliance processes. Rod Munro, president and CEO, explains the background and the potential for savings estimated at anything between 5-10%. The global oil and gas industry spends nearly a trillion dollars per year in upstream and downstream operations. Although Digital Oilfield anticipated that there was significant value in supplier integration for both upstream and downstream, the focus of its analysis centred on E&P expenditure because this portion of the industry is heavily outsourced to suppliers. More than $400 billion is spent annually in E&P operations around the world. Driven by continued high commodity prices and global uncertainty, these expenditures are forecast to continue increasing over the next five years. E&P expenditures are derived from more than 500 different companies operating in the US, Canada and internationally. Forecast expenditures by region are shown in the chart. Digital reviewed public company financial information to derive a ‘typical’ E&P company profile. While a ‘typical’ E&P company doesn’t exist, the following graph provides a relatively average profile of E&P company expenditures, normalized to $100 million in total annual spend. Capital acquisitions of major producing properties or peer companies, on a percent of total expenditure basis, vary widely from year to year. Digital defines the ‘supplier-based spend’ as capital, operating and development expenditures made with suppliers to find, develop and operate producing oil and natural gas reserves. It is this supplier-centric spend that is the target of a supplier integration initiative. The graphic below shows that even in an E&P company with reasonable annual acquisition costs, the supplier-based spend represents more than 50% of a typical company’s total annual expenditures.