By Velda Addison, Hart Energy
Former British Prime Minister Winston Churchill once said “Those that fail to learn from history are doomed to repeat it.”
Unfortunately, some people who responded to a survey conducted by Longitude Research on behalf of DNV GL believe that is exactly what is happening in the oil and gas industry.
Of the 921 senior oil and gas professionals surveyed, 56% said they believe the industry is repeating the mistakes of previous downturns. The majority also said they were concerned about the loss of jobs and experience as well as the lack of efficiency.
The results were part of a report unveiled Jan. 25 by DNV GL called “A New Reality: The outlook for the oil and gas industry in 2016.” The key findings were that the industry still has lessons to learn when it comes to manpower cuts, cost-efficiency challenges and the impact on innovation and R&D.
The report’s delivery comes as the industry endures one of its worst downturns ever with oil prices reaching 12-year lows in January. Hundreds of thousands of jobs have been cut since the downturn began, and the cuts have been widespread. BP, Chevron, Shell and Statoil as well as Schlumberger, Halliburton and Baker Hughes—to name a few—have all had layoffs.
“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,” said “Elisabeth Tørstad, CEO of DNV GL – Oil & Gas. “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.”
As stated in the report, the top five issues that the industry has failed to learn during previous times of low oil prices are:
- Losing experienced people through headcount reduction;
- Lack of cost discipline when oil price was high and stable;
- Failure to work against the cyclical price of oil;
- Failure to take a long-term view of the industry; and
- Failure to take advantage of investment opportunities when the oil price is low.
A new phase of cost management is needed, most of them agreed.
“To prevent repeating past mistakes, real change is needed now—cutting complexity, increasing collaboration and driving standardization,” Tørstad added. “These measures will enable the industry to adjust to the new reality and put it on a sustainable growth path for the long-term.”
The report spotlighted sentiments on three measures that could tighten cost controls, indicating that some believe job cuts have not stopped, capex reductions are limited and suppliers have little left to give up.
- Tougher decisions on capex, down from 44% in 2015 to 31% in 2016;
- Prioritizing headcount reductions, up from 25% last year to 31% in 2016; and
- Increasing pressure on the supply chain, down from 31% in 2015 to 27% in 2016.
But the report, however, wasn’t all bad news: 61% of the respondents said they agree that operators will increasingly push to standardize their delivery globally. That’s up from 55% in 2015. And, nearly half said their company is taking a long-term approach to innovation and R&D, DNV GL said.
Velda Addison can be reached at email@example.com.
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