PwC report calls for fundamental and urgent reform to save North Sea industry

Oil_RigNorth Sea oil and gas firms must learn lessons from sectors such as car making and aerospace to fundamentally change the way they operate to ensure the long term survival of the industry.

That’s according to a new cross-sector efficiency report from accountants PwC and the Oil & Gas Industry Council that says urgent steps must be taken if firms are to successfully compete for international investment and maximise recovery across the UK continental shelf (UKCS) over the next 25 years.

The recent drop in oil price from $110 to a low of $45 a barrel, before rallying at $60, has brutally exposed a substantial escalation in the cost base across UK oil and gas operations, the report says.

And the accountant suggests that tried and tested methods previously employed in the 1980s to 2000s by the likes of Rolls-Royce (aerospace), Bombardier and Jaguar Land Rover, could be successfully used to deal with the same challenges of significant safety requirements; extended periods of considerable cost pressure; economic downturns impacting trade; and increasing international competition for investment.

Gordon Colborn
Gordon Colborn

With all of these issues now facing North Sea firms, Gordon Colborn, consulting leader, PwC in Scotland, said: “There is no one silver bullet that can solve the range of issues currently facing the oil and gas industry - instead there are seven that we believe can transform, modernise and re-energise operations across the UKCS.

“These seven fundamental steps are pragmatic lessons that have been transformational in other major industries and are highly relevant to those firms working in the North Sea.

“The alternative approach is the status quo - acknowledging a short lifespan of the UKCS and an acceleration towards decommissioning.

“Personally, I believe this industry can have a sustainable future but we need to take a more strategic and integrated view if we are to extend the life of the North Sea for everyone involved and for future generations. It’s time to act.”

Stephen Marcos Jones, business development director, Oil and Gas UK, added: “As this basin is faced with being competitive in a global marketplace, it is essential industry acts quickly and determinedly to address its cost and efficiencies challenges.

“Work is already underway to address this, and our upcoming Annual Conference (June 17-18) is the ideal forum to encourage greater collaboration and set out an industry-wide strategy for improvement. We can learn a lot of other successful UK industries, to support both operations on the UK continental shelf, and Britain’s world-class supply chain.

“If this sector is to thrive for decades ahead, cooperation and relationship optimisation will be key.”

Their responses were transformational and this report’s seven fundamental steps capture the key tactics used to dramatically cut their cost base and more effectively manage performance. These include:

The report authors from PwC set out seven fundamental steps that they think could turn the tide:

  • Building leadership teams with a strong, compelling vision for cultural and operational change that can engender trust inside and out
  • Treating operations as a strategic asset that can provide the basis of competitive advantage rather than simply a cost of doing business
  • Addressing the core/non-core dilemma – defining and building world-class capability across core competencies and collaborating with organisations better placed to deliver those that are non-core.
  • Boosting performance management by understanding and measuring what is important and using the data to drive change and improvement
  • Developing an innovation culture and managing change effectively – constantly looking for better ways of doing things, and innovating across technology and processes
  • Encouraging sector wide collaboration between firms and across the supply chain will not only eliminate duplication, create scale and reduce costs, but will ensure the industry is able to swiftly react to future opportunities as they present themselves
  • The report also highlights the influential role of a progressive regulator in helping firms implement best practice and successfully address market shifts, something that has been prevalent in driving change within the automotive, aeronautic, chemical and rail industries
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