Cresent, Control of Work specialists, CEO Jim Land has responded to results of Energy Voice’s research – $Sub 50: New Perspective and Hidden Opportunities. As an integral part of the Oil & Gas supply chain Cresent offer solutions to Make Work Safe. Jim could be seen as a veteran of the Oil and Gas industry, having seen many ups and downs over the years, he has commented on these recent findings.
Looking at the results of this research survey of over 500 respondents the extent of the damage done to the UK Oil and Gas industry is plain to see with 84% saying their company had reduced their head count. This just puts into figures what everyone living in or around Aberdeen can see every day. It doesn’t end there though, the supply chain has been devastated across the UK and people have been paid off from firms far and wide. There is no doubt that this has been necessary and these are hard times with hard lessons to be learned.
64% of respondents believe the oil price will be between $60 and $100 per barrel by 2020. I hope they are right but I would say that our first lesson has to be that we can’t count on this. We have to be a profitable and safe industry at a far lower oil price than this going forward.
76% of respondents believe the oil price is the most challenging aspect of the industry. Hard to disagree with, however, something I have no influence over. I entirely agree with the 69% of respondents that believe the high cost base is one of the most important issues to be addressed, and in the short term. The pay offs are the first and most obvious sign of the cost cuts that have been made.
I believe this is about company survival though, keeping the cashflow going and managing the finances. There is no denying that cutting staff costs will, in the longer term, have even more negative consequences as the industry picks up and people are once again recruited. I have a slightly skeptical view on this though – will industry leaders hope and even expect lower staff salaries and lower contractor day rates when this happens?
So, let’s say we see that during the initial recruitment phases, but thereafter the costs will escalate rapidly as the market realises that the skills shortfall has grown exponentially due to the amount of older workforce retiring and so many of the younger people moving into other industries with more positive outlooks. Unless we plan for this, and do something about this now, there is a risk that we will be right back where we started in 2014, only with 6 years of lost opportunity to reflect on. Over the years this has something I have noticed happening again and again.
59% of respondents believe the biggest business challenges we face are reducing costs and increasing efficiencies, which is much the same thing really. And 71% believe managing uncertainty to be the biggest challenge. Surely these two issues are joined at the hip? If we reduce costs and increase efficiencies and get the cost of producing oil down to $15/barrel then we don’t need to worry about managing uncertainty. Ironically, if we don’t reduce our costs we won’t have an industry of any significant size, and so equally we won’t need to manage uncertainty because most of us certainly won’t be working in Oil and Gas.
When asked what is the biggest opportunity, most respondents (34%) said behavioral change tops the list – strangely reduced cost only scored 28%, technology only 15% and diversification 10%. This appears to suggest that although the need to change the way we behave is generally recognised, fewer are prepared to ‘grasp the nettle’ and focus on reducing the cost base.
It is interesting that although 76% responded by saying their company saw targeting renewables as a diversification strategy despite only 10% believing this to be the best opportunity open to them.
77% of respondents said their company was reducing or even ceasing investment in R&D. 41% of respondents said their company was reducing or even ceasing investment in technology. Although there is an indication of subliminal optimism persisting, with 51% saying their company was maintaining or even increasing investment in technology. These statistics could be seen to be reasonably good news for technology but infer dire consequences to come from such a cut in R&D.
When asked what will be the most significant contributing factor to the North Sea Industry’s recovery 31% said exploration incentives and, though I don’t disagree, I do think this is relying on political will and we all know how fickle that can be. The good news though is that 46% said sub $15/barrel operating costs – these are the people that I think will drive the industry’s recovery.
I find it interesting that when asked what gaps should technology be addressing by far the biggest response was for improved recovery rates (51%). While this wouldn’t actually reduce operating costs it would reduce the cost/barrel. For example, if current operating costs are, say, $60/barrel and the aim is to achieve sub $15/barrel, then technology is going to have to help recover 4 times as much oil, assuming the other operating costs remain the same. Now there’s a challenge!
Bearing in mind that R&D budgets have been slashed, I fully support the £180m of Government funding being invested in the Oil & Gas Technology Centre and am hopeful this will generate a return by improving recovery rates. Although to expect the Oil & Gas Technology Centre to be instrumental in a four-fold improvement is undoubtedly a big ask.
There is a definite lack of outcomes from both the research and Government input that relate to the reduction of other operating costs, i.e. the massive inefficiencies and wasted wrench time that we hear so much about. I am convinced that technology can be utilised to reduce costs, thus making the challenges faced when working on improving recovery rates appear achievable and not so daunting. For the sake of our industry, let’s hope so.
– Comments by Jim Land, Cresent CEO, 18th May 2016