Long-term thinking needed to achieve cost cuts, says DNV GLNews // January 26, 2016
A majority of senior oil and gas professionals (56 per cent) 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, according to a new report published by DNV GL. "A new phase of cost management is needed, as nearly three quarters (73 per cent) of senior oil and gas professionals globally are preparing their company for a sustained period of low oil prices," said DNV GL.
According to A New Reality: the outlook for the oil and gas industry in 2016, a DNV GL report based on a global survey of 921 senior sector players, cost management is the top priority for 41 per cent of respondents in 2016. The top three measures prioritized to impose stricter cost controls are:
• Tougher decisions on capex, down from 44 per cent in 2015 to 31 per cent in 2016, suggesting that opportunities for further capex reductions are limited.
• Prioritizing headcount reductions, up from 25 per cent last year to 31 per cent in 2016, signalling further job losses; and
• Increasing pressure on the supply chain, down from 31 per cent in 2015 to 27 per cent in 2016, indicating that suppliers have been squeezed as much as possible.
Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, 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 per cent say they achieved their cost-efficiency targets last year and 65 per cent 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 standardization. These measures will enable the industry to adjust to the new reality and put it on a sustainable growth path for the long-term.”