UK regulator’s report signals bright outlook for supply chain with $6.3 bln of work in the pipeline

UK’s regulator North Sea Transition Authority (NSTA) has revealed a new report, which highlights a positive outlook for the supply chain, showing that at least £5 billion (around $6.3 billion) of work is imminent and currently in the works.

A new report from the North Sea Transition Authority launched on 25 May 2022 at the Southern North Sea Conference, indicates that the UKCS operators paid 71 per cent of the 475,000 invoices received last year within 30 days, while 98 per cent were paid without dispute.

The NSTA’s Supply Chain Report further says that there is room for improvement in payment speed with 29 per cent of invoices taking more than 30 days to process, however, it is encouraging that most are processed without disagreement. In addition, this report paints a bright outlook for the supply chain, with at least £5 billion of contracts either being tendered now or in the very near future.

Stuart Payne, Director of Supply Chain, Decommissioning and HR at the NSTA, remarked: “This new report should give suppliers cause for optimism, with billions of pounds of investment coming their way in the next few years. Encouragingly, it also highlighted fantastic examples of operators and service companies working in collaborative and innovative ways to get projects off the ground. However, industry can still improve in some key areas, such as turnaround times for payments.”

The NSTA points out that the recent years have been challenging for the service sector, as the Covid pandemic and commodity price decreases led to a drop in offshore activity. Even though these prices have since rallied amid supply shortages and a surge in demand, previous cycles show there is usually a lag before suppliers benefit from any upturn, according to the UK’s regulator.

Katy Heidenreich, Offshore Energies UK Supply Chain and Operations Director, commented: “We are committed to supporting the UK’s world-leading companies to drive the technology and innovation needed to deliver energy security and net zero emissions by 2050. The UK needs to be a good place for supply chain companies to invest and do business and our Supply Chain Principles define good procurement practice and enable us to maintain and strengthen our supply chain.”

Moreover, the regulator outlines that it has four tools to promote good procurement and contracting behaviours, supporting the development of a competitive supply chain capable of delivering UK energy security during the transition period.

The first of these four is the Supply Chain Action Plans (SCAPs), which were introduced in 2018 to provide evidence that operators are deriving maximum value from their projects through open engagement with suppliers. The NSTA confirmed that it had received 13 SCAPs in 2021 for decommissioning programmes worth £1.4 billion (less than $1.8 billion), and nine for field development plans with a value of £3.6 billion or over $4.5 billion, giving a total of £5 billion (about $6.3 billion).

The second tool at the regulator’s disposal is Stewardship Expectation 12 (SE 12), which was published in May 2021, outlining how companies should collaborate with their contractors and prompt payment of suppliers is a key pillar of this expectation.

The third of the NSTA’s four tools is Energy Pathfinder portal, which was updated last year to give suppliers a clear picture of near-term tendering opportunities, and contact details for the operator awarding the deal. Currently, the portal lists 140 major UKCS energy projects, including exploration and production, well decommissioning, carbon capture and storage, and offshore wind.

The last of the four tools is Stewardship Reviews, which is a platform for the NSTA to stress the importance of SE 12, SCAPs, and Pathfinder to operators’ procurement teams while also giving operators an opportunity to raise issues they have. The UK regulator reported that last year’s 12 Stewardship Reviews highlighted flexible and innovative contracting practices which stimulated activity amid the pandemic, such as waiving penalty clauses and agreeing to contract extensions more quickly.

Furthermore, the North Sea Transition Authority says that operators continue to prioritise the lowest cost, technically feasible proposal when awarding contracts, explaining that the industry must shift at pace to value-adding contracting, which delivers superior results and encourages the supply chain to invest in new skills and technologies. 

“The NSTA will continue to use its regulatory powers, suite of tools and influence to add value and maintain a strong supply chain. This all matters because a thriving and well-supported supply chain is vital for the UK to meet our energy security and energy transition needs,” concluded Payne.