Back before the oil price crash there were a lot of engineering companies and consultancies that offered engineering services for the standard rate to engineer + 50% overhead cost + 15% profit margin. They didn’t construct or install anything, just focussing on engineering deliverables. These were the source of a lot of good and well-paid oil and gas engineering jobs, however nowadays, it is unlikely that companies can survive doing just engineering specialist work. The market has shifted to projects being delivered by companies providing engineering along with installation, construction or drilling services.
Why pay for engineering when it comes free…
Engineering work is now being done at cost (or sometimes for free) by companies that are interested in selling something else, normally the installation or construction of something. When an oil company gets two comparable proposals they typically select the one which is cheaper, meaning if you only offer engineering you are likely to keep losing out. Oil companies are also now looking for complete solutions, where a single company comes in to perform conceptual design, FEED and EPIC without having to go back and redesign “because that subsea manifold can’t be installed by the vessel we are using”.
Using a company interested in installation or construction to do your concept or FEED does however come with problems, as designs will be tailored so they are the only companies that can install or build things. However, if you can get a project to FID cheaper this way then it is an understandable approach that oil companies are taking.
So for engineering houses that have provided many thousands of manhours on major projects in the past, it is unlikely that they will be doing as much of this in the future. Even as the number of projects increases these are more likely to be given to companies that provide the full package, i.e. more than just engineering. Some business models might need re-adjustment or we will probably see some more industry consolidation taking place.
Does it matter for your oil and gas job search?
For us engineering specialists trying to find work we need to factor this in when deciding what oil and gas engineering jobs we go for. The rate squeeze will stay for longer if you are working for someone who is trying to deliver an oil and gas project that they have bought by reducing their profit margin down to zero. Oil and gas recruitment seems to be following this trend, with engineering companies currently advertising less oil and gas jobs than their EPIC ready competitors.
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
Headline crude prices for the week beginning 10 February 2020 – Brent: US$53/b; WTI: US$49/b
Headlines of the week
Global liquid fuels
Electricity, coal, renewables, and emissions