The Oil and Gas Authority (OGA) has slammed “poor behaviour” in the North Sea supply chain, with firms facing demands to cut rates as much as 40% “overnight”.
Interventions are being made by the regulator with some operators and Tier 1 contractors whose practices risk putting small suppliers out of business.
Companies have widely cut costs in light of the latest downturn, caused by Covid-19, with much UK work being deferred and pressure being placed on suppliers.
Supply chain director Stuart Payne has been urging firms to flag their concerns, as poor contracting behaviours “destroy any opportunity for recovery” in the North Sea.
Some firms have doubled the time for their payments to be made, while others have “written and demanded 35%, 40% cuts in rates overnight”.
He said: “We’ve had cases brought to us where small suppliers were told they would be liable for all the medivac 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 that 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, whilst it looks good on paper in the short-term, long-term it destroys any opportunity for a recovery in the basin.”
Some of the decisions which could put companies at risk have been passed down via smaller suppliers, as well as from larger operators and Tier 1s, Mr Payne said during an industry webinar last week.
He gave several examples of speaking to operators, one of whom wrote to a supplier demanding a 25% cut in costs by 1pm the next day.
After speaking to the operator’s managing director, explaining it was not in line with their principles “UK principles, or, frankly, planet earth”, Mr Payne said it was reversed, although the MD “flatly refused” to believe it was happening within his company before seeing the letter.
The OGA has not yet imposed sanctions on anyone for the practices, with Mr Payne saying they’ve instead had a “100% hit rate” in reversing problems through candid discussion.
Analyst firm WoodMackenzie said last week it expected less “hardball” behaviour on negotiating on pricing compared to the last downturn.
Despite the issues, there are “powerful examples” of good practice too, Mr Payne said, picking out operator Chrysaor.
He said: “We’ve had companies come to us where Chrysaor have said to them payment terms will stay where are.
“I think its 30 days with Chrysaor, but if you are struggling and you’ve got lead items we’ll do 15 day payment terms (they said). We can’t do it forever but we’ll do it while we’re in this window of trouble.”