New report urges oil and gas firms to cut costs by taking a lead from other industries

The blocks could hold a significant amount of oil
The blocks could hold a significant amount of oil

Oil and gas firms need to cut costs by up to 40% a barrel to prolong the production life of the North Sea, a new report says.

It urges energy firms to implement seven key tactics used by the aerospace, automotive, chemical, and rail sectors to lower costs and manage performance during hard times.

The report, from professional services firm PwC and the Oil and Gas Industry Council, will be officially launched at the Oil and Gas Industry Conference (OGIC) 2015 in Aberdeen today.

Speaking last night, Gordon Colborn, consulting leader at PwC in Scotland, said there was “no one silver bullet” that could solve the range of issues currently facing the offshore sector.

He added: “Instead, there are seven that we believe can transform, modernise and re-energise operations across the UKCS (Uk continental shelf).

“These seven fundamental steps are pragmatic lessons that have been transformational in other major industries and are highly relevant to those firms working in the North Sea.

“The alternative approach is the status quo – acknowledging a short lifespan of the UKCS and an acceleration towards decommissioning.

“I believe this industry can have a sustainable future but we need to take a more strategic and integrated view if we are to extend the life of the North Sea for everyone involved and for future generations. It’s time to act.”

Stephen Marcos Jones, business development director at industry body Oil and Gas UK (OGUK), said: “As this basin is faced with being competitive in a global marketplace it is essential industry acts quickly and determinedly to address its cost and efficiencies challenges.

“Work is already underway to address this and the upcoming OGUK annual conference (today and tomorrow’s OGIC 2015 event) is the ideal forum to encourage greater collaboration and set out an industry-wide strategy for improvement.

“We can learn a lot of other successful UK industries to support both operations on the UK continental shelf and Britain’s world-class supply chain.

“If this sector is to thrive for decades ahead, cooperation and relationship optimisation will be key.”

PwC’s seven “fundamental” key steps include: building strong leadership teams; boosting performance management; developing an innovation culture and managing change effectively; treating operations as a strategic asset rather than simply a cost of doing business; using information technology to bolster operational processes; engaging the workforce at all levels; and identifying core activities.

These measures will go a long way to securing cuts of 30% to 40% in operating costs but will not be sufficient on their own, according to the Cross Sector Efficiency Study.

Collaboration and effective regulation are also needed if the sector is to reverse its fortunes, the report says, adding that while some firms are making the right changes there are still too many examples where short-term measures or old solutions from previous downturns are the norm.