* Oil firms ask for more standardisation
* Sector's shift favours bigger, integrated service firms
* Oil firms may delegate more competence
By Balazs Koranyi and Gwladys Fouche
OSLO, March 26 (Reuters) - On a mission to crush costs,global oil firms are rewriting the rule book on how they dealwith service companies.
Energy companies have sharply cut spending plans after adecade of double-digit growth, saving cash for dividends asstagnating oil prices and cost increase on mega projectsworldwide have squeezed margins and angered shareholders.
Some now ask service firms to come into projects at thestart, ditch some tailor-made designs in favour of standardisedsolutions and stay with projects longer to reduce the number ofcontractors involved, moves that reduce costs but favour bigger,integrated firms.
Oil service shares have suffered over the past year, withEuropean firms hit the most. Analysts at UBS estimate they tradeat 14 percent discount to their 5-year average with a furtherdownside risk as investors adjust to a lower growth scenario.
"It is evident that the problem is not the services makingsupernormal returns but rather, given the persistence ofexecution issues, that something in the contracting model needsto change," UBS said.
"Now is the time of integration, with one service companydoing everything with the client from planning the well tobuilding it," Torjer Halle, the chairman of Schlumberger's Norwegian unit said. "Size matters and (integration)will happen in the industry."
A big extra cost has been that oil companies have built upredundant competencies with costly control systems since BP's 2010 Macondo accident in the Gulf of Mexico, especiallyfor expensive engineering.
"Over many years people have become very inward thinking andbelieve the processes they have built up are the Holy Grail,"said Ashley Heppenstall, the CEO of Swedish oil firm LundinPetroleum.
Rising oil prices had also masked the sector's erodingcompetitiveness and energy firms grudgingly swallowed costblowouts or delays without revising their contracting models.
"We have seen what .... we refer to as 'gold-plating',specifications beyond what is really required," Kristian Siem,the chairman of Britain-based Subsea 7 said.
"There is a lot of 'it is nice to have' but not 'need tohave'. If you eliminate that, that is where the big cost is."
THE SVERDRUP WAY
Norway's Statoil, last year's most successfuloffshore explorer, has already taken a leap in cutting costs.
It told Aker Solutions to reduce engineering costsby up to 30 percent, potentially $900 million, in the initialphase of its Johan Sverdrup oilfield, a North Sea giant with upto 2.9 billion barrels of oil.
To get that kind of saving, Aker Solutions has to getinvolved earlier than in past projects, combine work withanother field and reuse design elements from past projects -instead of starting from scratch, Chief Financial Officer LeifBorge said.
Statoil has already experimented with some standardisationon smaller, marginal fields but has not done anything on thescale of Sverdrup, which could cost $20 billion in its initialphase.
"Tailor-made projects needs to be replaced by copy-pastebecause there's substantial opportunity to just repeatsolutions, not necessarily go into mass production, but toreplicate solutions that have been used before to reduce costs,"Jan Arve Haugan, the CEO of Norway's Kvaerner said.
The new business model means energy firms will work withfewer suppliers, reducing the number of costly and timeconsuming tenders, and awarding bigger contracts.
They could also reduce overlapping engineering competenciesand delegate more responsibility to service firms.
Just this week Schlumberger, one of the biggest players inthe sector, said it was taking business away from rivals andthat its first quarter was better than it projected.
"Shifting supplier for every project, you will never getefficient processes," Aker's Borge said. "This gives us astronger position but it also puts your head on the block....because there's a risk that you invest in a relationship butcan't secure the business."
Another risk is that the increased use of standardisationcould push firms to develop simpler, less complex fields andleave more complex finds dormant.
"If we are not able to lower the cost development, decisionmakers will move away from the North Sea once the ongoingprojects are done," Kvaerner's Haugan said.
The International Energy Agency sees oil prices down at $102 per barrel next year from the current $107 asseveral producers ramp up output, a big change for energycompanies that have commissioned projects assuming higherprices. (Additional reporting by Joachim Dagenborg, editing by WilliamHardy)