Resilience in Oil & Gas event - Dundee

www.scottish-enterprise.comwww.scottish-enterprise.com
Resilience in Oil & Gas
8th December 2015
David Rennie
International Sector Head –
Oil & Gas and CCS
www.scottish-enterprise.com

Energy Jobs Task Force
Theme Champion
Balanced Messaging Alan Johnstone – AMEC FW
Shared Principles and Values Trevor Garlick - BP
Cost Efficiencies Gordon Ballard – Schlumberger
Leadership for Change Roy MacGregor - Global Energy
Retain Talent and Skills Kevin Higgins - Petrofac
Supporting our People Bob Keiller – Wood Group

Examples of Actions
• Series of Job Fair Events (PACE)
• Series of Industry Events covering:
– Leadership
– Financial Management
– Production Efficiency
– Learning from Other Sectors
– Values and Behaviours event – follow up action plan
– Facilitating discussions between Operators and Supply Chain
– Series of consultations with SMEs – and feeding those back to Operators and Contractors
• Oil and Gas UK Efficiency Taskforce
• Set of case studies developed (now available)
• Job Matching Service
• Progress Report

Scottish Enterprise Text Wall
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8th December 2015
Alan Johnstone
AMEC Foster Wheeler

Amec Foster Wheeler
Connected excellence in all we do
Resilience in the North Sea
December 2015

How I am going about being resilient in 2016

Is this the Calm before the Storm:

What is the price of oil in the future?

Game over? ……NOT I think!!!!!!!!!!!

8th December 2015
Stuart Brown
Barclays Bank

Stuart Brown, Director
Working together for the
long run

Collaboration - Bank and business together
What does it look like?
• Appropriate Headroom
• Support for the supply chain
• Support contribution
• Relationship & Trust
• Facilitating potential partnerships

Alternative Finance Options
Advances on Invoices
• Invoice Discounting – For growth and typically debtors paying within 90 days
• Supplier Finance – For suppliers to obtain advance payments from key client debts, often with
stretched terms.
Client
(Seller)
Debtor
(Buyer)Invoice
Sells debtor
Discounted cash
received in advance
@ Debtor rate Pays on due date
23

Alternative Finance Options (contd)
• Trade Finance– Funding from imported goods purchase through to debtor receipt
• UK Export Finance– Government support to extend bank facilities for working capital requirements
of exporting goods & services.
24
Customer
Supplier
1
2
3
4
5
Buyer

25
Shared support
Bank Support
Relationship & Trust
Potential Partnerships

Stuart Brown, Director
Working together for the
long run
Thank You

8th December 2015
Garry Price
Scottish Manufacturing Advisory
Service

Operations in a downturn
Garry Price

Turn over £12m
Direct £ 7.0
Indirect £ 3.8
Unit Costs £0.9m (unit)
Sales Value £ 1m
Unit Build Time 1 Month
Payment terms 3 Months from Invoice
EBITDA £1.2m
Working Cap £ 0
DRI
llstring Co

DRI
llstring Co
Turn over £ 8.0
Direct £ 7.0
Indirect £ 3.8
Unit Costs £1.35 / Unit
Sales Value £ 1m
EBITDA £(2.8)

DRI
llstring Co
Turn over £ 8.0
Direct £ 4.66
Indirect £ 3.2
Unit Costs £ 0.983 / Unit
Sales Value £ 1m
Working capital £ 0.983
EBITDA £ 0.136

Lean Background
Lean Background
Waste Identification
Waste Elimination
6 sigma and CI

• Focus on Eliminating Waste
• Reducing Cycle Times
• Cut Costs
• Reduce inventory

“All we are doing is looking at the timeline, from the
moment the customer gives us the order to the point
when we collect cash. We are reducing that timeline by
removing the non value-adding activities”
Taiichi Ohno – Joint creator of the Toyota Production System
Lean Background

Lean Background
This is not the car industry!

Waste is Non Value Adding
Activity in the process
Lean Background

VA NVA
Lean methods
VA NVA
Traditional
Improvement
Activities
Major Improvement
Minor
Improvement
VA NVA
Typical
Company
Current KPI
Right first time
Total Lead Time to Customer
Waste identification

1 Month
£ 983k

VA
NVA
1 Month
£ 983k

VA
NVA
Waste Elimination
1 Month
£ 983k

Success Factors for Change
Skills Incentives Resources Action Plan Confusion
Vision Skills Incentives Resources Action Plan Change
Vision Incentives Resources Action Plan Anxiety
Vision Skills Resources Action Plan
Gradual
Change
Vision Skills Incentives Action Plan Frustration
Vision Skills Incentives Resources
False
Starts
Vision Skills Incentives Resources Action Plan Change
Skills Incentives Resources Action Plan Confusion
Vision Incentives Resources Action Plan Anxiety
Vision Skills Resources Action Plan
Gradual
Change
Vision Skills Incentives Action Plan Frustration
Vision Skills Incentives Resources
False
Starts
Reference : Tom Peters

£800K
VA
NVA
3 weeks
Waste Elimination

DRI
llstring Co
Turn over £ 8.0
Direct £ 4.37
Indirect £ 3.2
Sales Value £ 1m
EBITDA £ 0.440

– Focus on Company Productivity
– Promoting Best Practice in Manufacturing
– Hands-On, Practical Support
– Free Diagnostic Review
– Project Driven Approach through Direct Company Intervention
Client Enquiry & Initial Contact L1 Introduction, Information, Advice & Signposting
Manufacturing Diagnostic Review L2 Free 1-Day Review, Report & Recommendations
Best-Practice Awareness & Training L3 Best-practice sharing, awareness raising, networking and training
activities (1-2-1 & 1-2-Many)
Manufacturing Improvement Project L4 Support, Part-Funded and Delivered by SMAS Practitioners
Referrals including Specialist 3rd Parties L5 Signposting and referral to other SE and HIE services and other
recognised industry and business support bodies.
What Next

Garry Price
SMAS Practitioner
Tel: 07748111522
Email: garry.price@scotent.co.uk

8th December 2015
Break & Networking

8th December 2015
Jim Leggatt, Company Growth Ltd
Strategic Resilience

Jim Leggatt, Joint Senior Partner, Company Growth Team Ltd, Stirling
•Jim is an experienced director in strategic marketing, coaching leadership teams,
performance management and implementing innovative business growth. Wide
experience of Oil & Gas and other sectors both nationally and internationally.
•Extensive career in commercial, management and consultancy roles, various Director
Positions.
•Working with companies in the Energy, Oil & Gas, Manufacturing, Life Sciences, and
Technology sectors to help them develop and implement their strategies and mentoring
their leadership teams to realise their ambitions for growth.
•Jim is Non Exec Advisor to the Boards of companies in the Oil and Gas sector and
Paragon Music.
Welcome & introduction by Colin Turnbull SE O&G

“The balance of power has shifted from producers to
customers - customers who know more, care more,
demand more and participate more.”
- Sandra Vandermerwe, Professor of Economics Imperial College, London
“If you always do what you've always done, you'll
always get what you've always got!”
- Rosabeth Moss Kanter, Prof. Economics and Business, HBS -
Strategic resilience

Why not go out on a limb? Isn't that where the fruit is?
-Frank Scully
To stay ahead, you must have your next idea waiting in
the wings.
- Rosabeth Moss Kanter

Strategic
Dynamics of
Organisation
Global Business
Environment
Organisational
Learning &
Innovation
Strategic Processes
& Metrics
Competence
Architecture
Boundaries

“90% of Organisations fail to implement their
strategy”
“95% of People do not understand their organisation's
strategy or their part in it.” Source: Norton and Kaplan

Traditional “inside out” approach
Vision
Strategic
intent
Brand
Positioning
Marketing
Model
BrandExecution &
Communications
Leadership
Style Drivers
Business&
Market
Strategies
Total
Customer
Experience

Customer Connected “Outside-in” Approach
Vision & strategic intent
Brand
Positioning
Marketing
Model
Brand Execution &
Communications
Leadership
Style Drivers
Attitudes &
Behaviours
Business &
Market
Strategies
Operating
Model
Business Process
& Decisions
Culture norms
aligned
aligned
aligned
Customer
Needs
High
Performing
Customer
Connected
Organisation

Customer
Align
Resources
Faster
Than
Competitors
Make sense of
Business
environment
Readiness
Innovative
Mindsets
Develop
Strategic
Options

Industry Participation Business
Group
Distinctiveness
Strategic Business Framework
• Competitors
• New Entrants
• Product
substitutes
• Supplier power
• Buyer power
• Vertical
/Horizontal
Integration
• Diversification
• Alliances
• Cost
Leadership
• Differentiation
• Focus
• Efficiency
• Quality
• Innovation
• Customer
Intimacy
• Price
Corporate Assurance
What should be your
participation strategy to
maximise long-run
profitability?
What is your strategic
intent across our
businesses?
How do you build
competitive
advantage?
What are the
competitive forces in
your industry?
What in the macro
environment might
impact upon your
success?
Macro
Environment
• Political
• Economic
• Social
• Technological
• Legal
• Environment

Customer
Customer
Proposition
Capabilities &
Organisation
Strategic
Positioning
(What capabilities
are needed )
(What is our competitive
distinction, strategic
options & business
model?)
How can you grow a profitable
customer base?b2b Market
Trends
(How can we learn
from x-industry
b2b marketing?
• excellence in
b2b marketing
• distinctive offers
• capabilities
• customer trends
Market
Evolution
(What opportunities
will be presented by
changes in the markets?)
• key market trends
• competitor activity
Customer Value
(How value-adding is a customer
base for you?)
• total customer value (existing & forecast)
• customer connected
Customer Understanding
(What can we learn from our customers
(existing, old & potential)?
• customer needs, attitudes & behaviours
• unmet customer needs
• new market opportunities
Market
Market
The Storyboard…
Storyboard: growing profitable customers

Select Create Operate
The Customer Connected Model
• Discovery of
Customer Groups
•Gather Customer
insight of needs
•Customer
segmentation
•High level sales
plan to meet ambition
• Focus on Customer
Value
•Create Value
Propositions
•Innovative techniques
to create customer value
•Differential competitor
advantage analysis
•Tools for Marketing
plans
• Implementation of business
options
• Leadership of teams
• Effective stakeholder
communication
• Customer assurance
• Risk management
• Organising the customer
interface
• Understanding the Customers’
DMU
• Customer account management
tools
• Operating in the
Customer’s Space
•Developing key
relationships
• Monitoring and
measurement – Benefit
Reports
• Becoming a Trusted
Advisor
• Maximising the
constant opportunity
• Leveraging and
learning
Implement

Sources of Value to BP from Id
EA
Id
EA is X+Y+Z
Customer
TEM
X
Y
Z
Joint Prospecting
Facilities Sharing
e-procurement
Joint
Procurement
Fluids
Management
CASTROL
LubesOnsite BP storage
Retail
Fuel Cards
Fuel Management
Logistics
Design Services
Joint Product
Development
Chemicals
LPG

1) Define the 'market space' i.e. the result the customer is looking for
2) Identify the critical activities that customers could/should go through to achieve results in
the market space
3) Identify opportunities for adding value at each critical point
4) Identify opportunities for taking non-value out at each critical point
5) What opportunities exist to improve service? Customer
Activity
Cycle
PRE
POST DURING
deciding
what to do
doing it
keeping it
going
copyright: Sandra Vandermerwe
Customer Activity Cycle

1. Understanding the Customer’s Value expectations
2. Understand Cost of Ownership that impact on customer’s decisions
3. Establish USP/Competitive Advantage - Superiority over competitors
4. Understand all the factors that Customer considers when making
decisions
5. Identify and nurture 1:1 relationships with DMU
6. Understand the Customer’s business operating environment
7. Ability to offer support & services
8. Understand the different DMU roles
9. Understand the decision-making processes within the Customer
10.Influencing potential customers to allow you to bid
Task and Action

Thank you for
listening
Jim Leggatt: Company Growth Team Ltd 01786 433809
jim@cgtl.co.uk
Colin Turnbull: Scottish Enterprise 01224 252030
colin.turnbull@scotent.co.uk

8th December 2015
Comfort Break

8th December 2015
Garry Price
Scottish Manufacturing Advisory
Service
Operational Resilience

£800K
VA
NVA
3 weeks
Waste Elimination
1 Month
£ 983k

DRI
llstring Co
Turn over £ 8.0
Direct £ 4.66
Indirect £ 3.2
Sales Value £ 1m
EBITDA £ 0.136

SMAS
Began in 2005 –
shared service
between Scottish
Enterprise and HIE Projects have delivered over
£150 million
in productivity savings to date
23 practitioners
with more than
500years of
manufacturing
experience
We exist to improve
efficiencies and
reduce cost in Scottish
manufacturing
businesses
SMAS is focused on
developing a
culture of
Business
Excellence
SMAS projects in the Energy
sector = £25 million VA since
2006 - equal to £18,000 per
project day
What next

8th December 2015
Gavin Yuill
EY
Financial Resilience

Resilience in oil and gas
Building business resilience in a challenging
climate
8 December 2015

Resilience in oil and gas
Financial resilience

The building blocks of financial resilience
Financial forecasting and working capital management
Resilience in oil and gasPage 108
Short-term cash
forecast
Stakeholder
engagement
Contract to cash
(debtor) cycle
Procure to pay
(creditor) cycle
Forecast to fulfill
(stock) cycle
Medium-term
financial
projections
Building Financial
Resilience

Robust financial forecasting
Medium term financial projections
Resilience in oil and gas109
► Integrated trading, cash flow and balance sheet projections
► Anchored to a robust opening balance sheet
► Bottom-up view of revenue and costs – individual business units; revenues split between secured, pipeline
and “blue sky”; etc.
► Conservative ‘base case’ scenario
► Flexible financial model – which allows easy sensitivity analysis
► Examine any differences to actual performance – understand the drivers
► Don’t forget:
► Mid-month peaks
► Seasonality

Robust financial forecasting
Short term cash flow forecast
► Receipts and payments based – actual in and outflows of cash (not “funds flow” / “indirect” method)
► Weekly forecast – updated weekly, rolling to cover next 13 weeks
► Start point is opening cash position – either opening bank or cash book
► Keep it simple – one line for each key cash receipt / payment item
► Prepare on bottom-up basis – using base level data (sales ledger; purchase ledger; etc.)
► With summary of key upside/downside sensitivities
► Review and understand key variances – good actual data is key
► Sense check to medium-term forecasts – but don’t reconcile it!

Robust working capital management
Why should a business look at improving working capital management?
► An average business can generate additional cash of 5-10% of turnover through better working capital
management
► Improving working capital management is within the business’s own control
► And is typically focussed on process improvement – not cost reduction
So, why don’t businesses do it?
► ‘We can’t improve’/‘it’s the way it has always been done’
► Profit as opposed to cash focus
► Cash flow historically hasn’t been an issue – ‘what would we do with the additional cash’
► Lack of time
Now a key focus for businesses looking to improve their resilience
► Contract to cash/customer invoicing cycle
► Procurement to pay/creditor payment cycle
► Forecast to fulfill/stock cycle

An overview of the contract-to-cash/debtor cycle
Where does it typically go wrong?
Impact of issues on cash flow:
► Delayed cash collections
► Decreased cash flows
► Borrowing cost increases
► Reduced growth
Risk and
Credit Management
Order Management
Realisation
Billing
Collections
Cash
Application
Dispute Management
Sales and
Quote Management

Improving your contract-to-cash cycle
Some practical suggestions
► Think differently – move towards a ‘cash culture’:
► Engaged the whole business – not just finance
► Appoint a ‘cash tsar’
► Performance evaluations / remuneration linked to cash flow, not just profit
► Can I invoice part/all in advance?
► Can I consolidate invoices?
► Can we change invoicing date to give best chance of timely cash collection?
► Start as you mean to go on:
► Consistent contract terms – or good tracking of variations thereto
► Gather as much invoice information as you can pre-service delivery
► Good contract management (change orders, etc.)
► Appropriate credit risk assessment

► Timely and accurate issue of invoices
► Know your invoice issue triggers – communicate and keep to them!
► Challenge whether you need all stages of your invoice approval process
► Early gathering of invoice information – up-front; use of PDAs
► Right first time mentality on invoices
► Move away from ‘month end’ billing culture

Some practical suggestions (cont’d)
► Can your collection process work better?
► Call customer to confirm receipt of invoices and confirm payment dates
► Re-contact before payment date – to check all information received
► Documented dispute resolution/collection escalation policy – no exceptions!
► Change dispute resolution to customer as opposed to product / service based
► Understand reasons for disputes / delayed payments – and take action to prevent recurrence
► Move away from cash collection focus at key reporting dates (eg financial quarter end)
► Informative KPIs
► Track time to invoice and collection periods
► Review of overdue invoices – action focussed

An overview of the procure-to-pay/creditor process
Results in varying degrees of:
► Low creditor days
► Early / frequent payment
► Unconsolidated spend
The procure-to-pay process is
interdependent with the forecast-to-fulfill
cycle – and there are a number of cross
related processes which should be
considered
2. Supplier and contract
management
3. Requisition and order
fulfillment
4. Goods and invoice
receipt
5. Invoice processing
6. Discrepancy
resolution
7. Payment issuance
1. Procurement strategy
Procurement policy and control (incl. contractual
terms)
Invoice processing
Payment processing

Improving your procure-to-pay cycle
► Consider opportunities to improve your procure-to-pay process
► This is NOT about delaying payment to your suppliers!
► But ensuring that you pay suppliers correctly – for the right goods/services; at the right price; and on the
right day
► Three primary drivers of procure-to-pay process
► Procurement policy and control (incl. contractual terms)
► Improve your procurement process – documented policy; centralised procurement; sufficient staff
► Increased focus on payment terms in contractual negotiations
► Consistency of payment terms across supplier base (payment trigger date; payment period)
► Good recording of exceptions – so you pay to them!

Improving your procure-to-pay cycle
► Invoice processing
► Avoid high volume of low value invoices – encourage invoice consolidation
► Document invoice approval process – streamlined
► Identify root causes of any disputes – and communicate with supplier to avoid repetition
► Payment processing
► No early payment runs or part payments
► Consider the frequency of payment runs – weekly?
► Consolidate payments – one cheque for several invoices

An overview of the forecast-to-fulfil/stock cycle
Results in varying
degrees of:
► Excess inventory levels
► Incorrect inventory mix
► Poor customer service
► Exposure to obsolescence
Sales/
Marketing
Forecasting
and Demand
Management
Procurement
Planning and
Scheduling
Manufacturing
Inventory Management
Logistics

Improving your forecast-to-fulfil cycle
► There are three basic reasons for keeping inventory
► Lead time – sufficient stock to ensure daily operations can continue without interpution during delivery
► Uncertainty – in both demand and supply
► Economies of scale
► Challenge your product portfolio and stock holding policy
► Do we need all of our product lines?
► Do we need to hold all product lines in stock?
► Are our sales team’s customer service expectations appropriate?
► Improve your forecasting and demand planning
► Challenge whether your Sales, Inventory and Operations planning process effective
► Are your sales team being realistic with their forecast of demand?
► Is your procurement team’s estimate of delivery lead times realistic?
► Is your manufacturing / service delivery teams estimate of “start date” accurate?
► Is there effective communication between these teams?
► Measure your forecasting accuracy – and investigate where it is gong wrong

Some practical suggestions for improving your
forecast-to-fulfill cycle (cont’d)
► Is your procurement process effective?
► Consider size of the team – is it appropriate to ensure effective procurement?
► Is our control over who can procure appropriate?
► Are we ordering the same product from different suppliers – at different prices?
► Are our procurement negotiations effective – how important is lead time and minimum order quantities in
our discussions?
► Are supplier deliveries accurate – on time; correct specification; right quantity?
► Are there opportunities to improve manufacturing simplicity?
► Can we improve manufacturing scheduling – to reduce frequency of set-up/changeover times
► Are set-up times/changeover times appropriate?
► Is our inventory management strong?
► How good is our information on stock holdings?
► Measure your inventory accuracy – and investigate where it is going wrong
► Can logistics help reduce stock holdings?
► Assess stock holdings costs vs. logistics cost

And don’t forget tax saving opportunities!
► Research and development tax credits
► Significant additional tax credit / deduction for qualifying R&D spend for small to medium sized businesses
► Patent box regime
► Profits in “patent box” charged at reduced corporation tax rate
► Enhanced capital allowances for investment in energy-saving plant or machinery
► Full deduction in year of purchase

EY | Assurance | Tax | Transactions | Advisory
Ernst & Young LLP
© Ernst & Young LLP. Published in the UK.
All Rights Reserved.
ED None
The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales
with registered number OC300001 and is a member firm of Ernst & Young Global Limited.
Ernst & Young LLP, 1 More London Place, London, SE1 2AF.
ey.com

8th December 2015
Lunch & Networking

8th December 2015
Ian Ord
Fifth Ring
Market Resilience

8th December 2015
Round up and Q&A

Resilience in Oil & Gas event - Dundee

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