OGA criticises firms over their unrealistic demands

● Pressure on those in supply chain is said to be risking recovery

The Oil and Gas Authority (OGA) has slammed “poor behaviour” affecting the North Sea supply chain.

Operators are slashing their costs in the latest downturn, driven by Covid-19, with major projects deferred and pressure being placed on suppliers.

The industry’s regulator has been forced to intervene, urging supply chain firms to report practices which risk putting small suppliers out of business and “destroy any opportunity for recovery” in the North Sea.

Some operators and tier one contractors are said to have demanded cuts in rates of up to 40% “overnight”.

OGA supply chain director Stuart Payne said: “We’ve had cases brought to us where small suppliers were told they would be liable for all the medevac costs if any of their staff were suspected of having Covid on a platform.

“That would have run to a figure that was just so astronomical it would risk putting the company under.

“We’ve been able to work with the operators and supply chain in those situations to try to help them see that, while it looks good on paper in the short term, long-term it destroys any opportunity for recovery in the basin.”

Some of the decisions have been passed down via smaller suppliers, as well as from larger operators and tier one contractors, Mr Payne said during an industry webinar.

He gave several examples of speaking to operators, including one which had written to one of its suppliers seeking a 25% cut in rates by 1pm next day.

After speaking to the operator’s managing director, explaining that approach was not in line with any UK principles “or, frankly, planet Earth”, Mr Payne said the demand was withdrawn.

The OGA has not yet imposed sanctions on anyone for the practices, with Mr Payne saying the regulator has achieved a “100% hit rate” in reversing problems through candid discussion.

Energy consultancy Wood Mackenzie said it expected less “hardball” behaviour compared to the last downturn.

UNDER PRESSURE: The Oil and Gas Authority said one firm’s demand that another cut rates by 25% in a day was ‘not on planet Earth’