In 2012, when Kevin Dell left Calgary to assume the role of regional director for the Middle East for global EPC company Kentz Corporation, the Canadian oil and gas industry had finally dug itself out of the hole created by the 2008 financial crisis and was getting set to boom.
Five years later, Dell is back in Calgary, this time as senior vice-president and country manager for SNC-Lavalin’s oil & gas business after it acquired Kentz in 2014. His return comes with a sense of déjà vu as the Canadian industry is once again in recovery mode after a two-year long global commodity market collapse and is working to find its footing and grow in a new normal of lower for longer oil and gas prices.
“The most obvious change in the last five years has been market conditions and how that affects the business as a whole. There are the cost pressures and delays in capital spending as an effect of the effort to reduce costs,” says Dell.
But, he notes, there are also positive signs that the Canadian industry is now willing to work together to address its long-standing cost issues and build a sustainable structure to build new projects going forward.
“We’re seeing more openness to collaboration in the industry, but it is early days,” says Dell. “Generally speaking, the industry recognizes a need to do something different to reduce operating costs and total industry costs. The industry is saying it wants to do something different but so far we haven’t seen anyone doing anything significantly different.”
Dell says SNC-Lavalin believes working more collaboratively with oil and gas operators has the potential to provide predictability in project execution and operating costs, and get projects generating cash flow quicker. He also says it will foster more trust within the industry that everyone is working towards a result that benefits all parties involved in the process. But to get there, the industry needs to overcome what he describes as organizational resistance to change.
“Some companies will adopt a more collaborative approach, some won’t,” he says. “We’re going to market talking to clients about the concepts surrounding collaboration. We need to talk to the right people who get the vision and can affect organizational change.”
“Contractual agreements will have to change as well,” he adds.
Dell says the idea of collaborative contracting isn’t new in the global oil and gas industry, or in other industries, and its effectiveness has been proven in those markets. He points to the North Sea, where the idea of collaboration to drive down costs was first applied in the industry, as one example. As it proved its value, the idea of collaboration solidified into alliance agreements to speed project execution and drive down costs across North Sea developments in the early 1990s, vastly extending the life of the offshore play.
A University of Minnesota study shows the value of collaboration. The study found an 85 per cent improvement in project execution certainty through collaborative contracting compared to traditional contracting frameworks.
This growing openness to entertain new ideas in Canada comes at a time when SNC-Lavalin has been building out its capabilities to partner with its clients through a series of acquisitions.
Dell says the acquisition of Kentz brought with it a strong construction and commissioning group to augment SNC-Lavalin’s traditional EPC skillset.
In 2017, SNC-Lavalin added to its global presence with the acquisition of U.K.-based Atkins, one of the world’s most respected consultancies in design, engineering and project management. Dell says the Atkins acquisition brought a number of important skill sets to the SNC-Lavalin team.
“Atkins delivers a true consulting and engineering business,” he explains. “From the beginning, we can now look at the business plan and ask does it make sense conceptually and through to the front end engineering and design (FEED). We can also provide an early estimation of the cost of the project before the FEED even occurs, ensuring we deliver better projects for our customers.”
The Atkins acquisition also included the acquisition of Faithful and Gould, bringing expertise in project control. And the Atkins acquisition gave SNC-Lavalin one of the most advanced digital offerings in the industry, Dell adds, from digital design, to smart construction, to operations and maintenance and everything in between. As an example, Atkins is a global leader in the implementation of building information modelling (BIM), which captures and documents all project data, and provides valuable information to more efficiently manage facility operations.
“We have a lot of experience in integrated project delivery and BIM and how it can be incorporated into a commercial structure, and we’re bringing that to the Alberta and Canadian marketplace,” he explains.
Dell says the two acquisitions have given SNC-Lavalin the depth and breadth to collaborate and deliver value to Canadian and global clients from the project concept through to decommissioning, and all points in between, including FEED, engineering, procurement, modular fabrication, construction, completions & commissions, operations & maintenance, and asset enhancement.
“We can focus on whole life value for our client,” he explains. “We’re beginning with the end in mind and making sure internal rate of return on an asset is guaranteed. We’re now thinking about projects as assets. The sooner our clients can get money from an asset and ensure production thereafter, the sooner they can invest elsewhere.”
Getting there, however, required a major effort to bring everyone under the SNC-Lavalin banner.
“Our leadership has done an excellent job in setting us up to be fully integrated company and giving people the licence to go out and be creative,” he explains. “We’ve put together teams to test new concepts, both from the technical and commercial side, to help the industry be successful.”
The company has also put significant effort into understanding what a project looks like from an operator perspective, going as far as taking equity positions in projects. Dell says this ties into the company’s strategy to drive an asset’s value throughout its life, and encourages the company to focus on internal rate of return.
“It helps us understand what our clients are thinking,” he explains. “We want to be thinking like an operator. SNC-Lavalin uses an operator mindset.”
Dell points to SNC-Lavalin’s global gas business, which produces process and production facilities, as an example of what the company can now deliver. The SNC-Lavalin midstream business has created standard designs for gas facilities that can be quickly brought to the market, leveraging a modular approach to optimize cost and schedule.
“The owner gives us their specifications, and with our design we can construct it quickly,” says Dell. “What used to take two years with the traditional model they can now have in under 12 months. There are a lot of advantages in the “design-once, build-many” approach. There are procurement advantages, a strengthened supply chain, and all the fabrication is done in the shop, not the field.”
The midstream group, which originated in Houston, Texas, to serve the U.S. shale business, has built gas facilities leveraging a standard design and modular solutions all over the world. It is now localizing its Canadian operation with solutions for this market.
Dell says Canadian SAGD operators have recognized they need to take a similar approach if they hope to be successful. He adds that standardization to drive costs down is also happening in the Middle East.
“Customization is a dead duck. It’s expensive. The opportunity to have the same plant across the globe, built the same way, is a huge advantage,” he explains.
Dell says SNC is ready and willing to collaborate with all oil and gas operators in Western Canada to create a sustainable industry that can grow in the future.
“We need to ensure we’re getting capital applied here in Canada,” he says, “and certainty in project delivery and operating costs brings the most value to our clients.”