Report suggests oil and gas sector needs to think long term for meaningful cost cuts

A new report by DNV GL has suggested that the oil and gas industry need to think long term to achieve meaningful cost cuts, and prevent past mistakes.

The new report has revealed that 56% of oil and gas professionals believe that the industry is repeating the mistakes of previous downturns, and have concerns over the loss of jobs and experience and lack of efficiency.

About 73% of the senior oil and gas professionals believe that a new phase of cost management is needed, and they are preparing their companies for a longer period of low oil prices.

DNV’s report has recommended certain measures to impose stricter cost controls, as cost management is a top priority for most of the industry professionals.

The measures include tougher decisions on capex, down from 44% in 2015 to 31% in 2016, as well as prioritising headcount reductions, up from 25% last year to 31% in 2016.

In addition, the measures suggested include increasing pressure on the supply chain, down from 31% in 2015 to 27% in 2016.

DNV GL – Oil & Gas CEO Elisabeth Tørstad said: "With the low oil price, the industry has taken painful short-term cost-cutting measures by reducing the capex and headcount and squeezing the supply chain.

"Although 74% say they achieved their cost-efficiency targets last year and 65% believe the industry will be successful in cutting costs in 2016, not all parts of the sector have been able to achieve lasting lower cost levels during downturns.

"To prevent repeating past mistakes, real change is needed now – cutting complexity, increasing collaboration and driving standardisation. These measures will enable the industry to adjust to the new reality and put it on a sustainable growth path for the long-term."

According to the report, the barriers to growth in 2016 are the low oil price, weak global economy, uneconomic gas prices and growing regulatory burden.

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Image: DNV GL – Oil & Gas CEO Elisabeth Tørstad. Photo: courtesy of DNV GL.