Trimming the fat – how oil and gas are managing lean times

 

Despite oil prices sitting at a sustained low, Peterson’s Murdo MacIver claims that it’s not all doom and gloom in one of the UK’s major industries.

Murdo MacIver is Director of Peterson Group, a project management and logistics company active within the oil and gas supply chain. His industry experience stretches back over 35 years. In March 2016, Peterson won the Collaboration Award at the Offshore Achievement Awards.

Murdo MacIver

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We need to stop over-reacting. It’s easy to focus on the short-term, particularly in a downturn, but it’s important not to get caught up in this mind-set.

Instead of focusing on if and when things will recover, we need to focus on adapting to the current price over the long-term. Everyone is talking about sub $50 being the new normal. But today’s oil prices – what we think of as low – are actually near the real average price of a barrel of oil for the last 150 years: $35.1 We can’t predict or influence the oil price. What we can influence is the industry’s cost base.

crude-oil-prices-chart

Driving costs down

On reflection, it was maybe the sustained four-year period of $100+ that was abnormal. It was this that enabled the industry to create a cost level that was too high to readily adapt. That being said, the industry reduced unit operating costs from almost $30 in 2014 to just over $21 in 2015.2 But more is needed. Rather than speculating on what the new norm for oil prices might be, I’d like to see the emphasis shifting to a new, sustainable norm for the cost base.

To achieve that, we need to collaborate more and look at greater efficiency. The last couple of years have been about scaling back, removing cost. That has resulted in significant redundancies (estimated to be 65,000 in 20153). We are now nearing a point where all the excess fat has been trimmed.

A new way of working

Now companies need to look at new ways of doing things. This means embracing new technology and collaborative business models to be competitive in a lower price environment, it also means looking at diversification into new industries and markets.

Whilst we continue to believe in a long-term future for oil and gas, we see opportunities to transfer our skills to other areas within the energy sector and beyond. Internationally, we are seeing a lot of opportunities and interest in our collaborative initiatives, such as aviation, vessel sharing and asset optimisation and tracking.

Beyond the buzz

“It’s easy to focus on the short-term, particularly in a downturn, but it’s important not to get caught up in this mind-set.”

Collaboration and sharing should not just be buzzwords when the oil price is low. The industry has a responsibility to ensure that resource sharing is the new standard. Close co-operation between service providers, ports and government is of crucial importance.

The single biggest challenge facing the industry is to change long-established behaviours and attitudes. We need customers to take a leap of faith and commit to new ways of working. This means putting meaningful collaboration ahead of competitive advantage.

Shaping a new future

Game-changing technology is coming to our industry. It’s going to happen whether companies want it or not. I’d like the UK to have the ambition and appetite to seize the opportunity to be leaders and first movers in the technology field. I’d like to see the UK become a centre of excellence for shared resources and innovation.

Now is an exciting time to be involved in the UK oil and gas industry. We all have a part to play in shaping its future.

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