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Oil rivals cooperate to slash equipment costs: Shell

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LONDON | BY RON BOUSSOThu May 5, 2016

Ten oil companies including Royal Dutch Shell (RDSa.L), Chevron (CVX.N) and BP (BP.L) are working together to develop standard production equipment, a rare cooperation among rivals to save money as low oil prices put pressure on budgets.

Bespoke valves, paints and underwater equipment are among the items that could be mass-produced at a cheaper cost, Harry Brekelmans, Shell’s Projects and Technology Director told Reuters.

The companies also want to set up institutions to find future savings after the past two years’ industry downturn led to a near standstill in new project approvals.

“We’re coming together with a number of other operators and suppliers to focus on standardization and common requirements and pushing it all the way into how we can create common inventory,” Brekelmans said in a phone interview on Wednesday.

The other companies involved in the project are France’s Total (TOTF.PA), Sonangol, Eni (ENI.MI) , Woodside (WPL.AX), Engie (ENGIE.PA), Saudi Aramco, and Statoil (STL.OL).

Industry executives have long complained about inefficiencies that stem from companies’ desire to protect patents for parts as simple as bolts, ladders and paints to complex high-pressure pipe systems.

A number of services companies have already teamed up over the past two years in an effort to reduce costs of field development and technology, including FMC Technologies and Technip.

Four years of oil prices over $100 prior to the mid-2014 crash led to spiraling costs in the sector as producers raced to develop frontier oil fields in ever deeper waters with more complex technology.

But a 60 percent drop in oil prices over the past two years sent companies into a desperate drive to cut budgets and save costs, pushing standardization high up the agenda and Brekelmans believes there is commitment from senior executives.

“We have to be far more thoughtful about how we create sustainability,” Brekelmans said.

He said the companies should benefit from the developments even if the oil price recovers.

He said the initiative, which is known as the project for Standardization of Equipment Specifications for Procurement and is backed by the International Association of Oil and Gas Producers, could save Shell and other companies billions of dollars.

However, some analysts were skeptical about how easy it would be for the rivals to collaborate.

“It is still too early to say whether the push for standardization is working,” said Jon Clark, oil and gas advisor at EY.

“While this is an industry that prides itself for its technology it has not always been unable to work together to lower costs even as companies try to adjust to the lower price environment.”

(Editing by Anna Willard)

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