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'Crunch time' for North Sea says report

Oil firms told they hold the key to saving jobs

Oil industry firms should use the low oil price as a wake-up call to change attitudes and working methods that could help save thousands of job in the North Sea.

The industry is forecasting up to 35,000 job losses in the region as a result of the slump in commodity prices. The effect is being felt worldwide with Halliburton becoming the latest global major to reduce its global headcount by 1,000.

A new study published today says the effects of the oil price fall could be mitigated through £15 billion of cost savings over the next five years through better collaboration and streamlining the supply chain.

This would make potentially uneconomic projects more affordable, says the report from accountancy and business management firm PwC’s oil and gas team.

The latest in PwC’s Northern Lights series of oil and gas report says it is “crunch time” for the industry with the need for up to 40% cost reductions expected and experts unable to say what the oil price floor may be.

According to the report, the industry needs to be more realistic about how it can achieve sustainable cost reduction of North Sea capital expenditure projects, currently valued in excess of £39bn.

It says it urgently needs to go back to basics around what areas of business could be targeted, how areas of inefficiency are evaluated, and the strategies it can put in place to tackle the issue head on. This could range from £10m general maintenance programmes up to major multi-billion extraction projects.

With approximately $150bn of global projects expected to be labelled as uneconomic in 2015, PwC believes much more could be done cut costs by 40% and reduce the average price of oil extraction from $17 per barrel to $14 – a move that it believes could make programmes more affordable, safeguard jobs and extend the lifespan of projects and fields.

But it admits there is no silver bullet and when it comes to cost reduction, claiming the oil and gas industry is decades behind other comparable heavy industries.

According to Brian Campbell, head of forensics and an energy specialist at PwC in Scotland, this is perhaps understandable because historically timeliness and quality of delivery far outweighed cost factors.

He said: “We have known for some time that the oil and gas industry isn’t the most efficient with its resources.

“But now it’s finally crunch time, particularly in a climate where many firms operating across the North Sea and UK continental Shelf have been experiencing increased costs to produce combined with lower production levels over a sustained period of time.

“The critical focus should be on CAPEX and OPEX projects and programmes; how well they are defined and delivered; and how effective companies are with managing their cash. At an asset or installation level, for example, just doing things differently is not just about reducing costs. It is also about doing things more efficiently and intelligently, having a focus on those activities that add value, and creating the space and capacity to execute more activity for the same or less cost.

“Understanding the end-to-end processes and the total cost of ownership is therefore critical – and can make all the difference to the balance sheet and the future of the North Sea.

“If firms don’t wake up to the problem and recognise that they have the ability to take control and make substantial cost savings while sustaining their operations, then we could see more projects mothballed in the near future. They have the power to effect change – it’s time they used it.”

Oil giant Halliburton revealed in the US last night that it is to axe 1,000 jobs as a result of the slump in global oil prices.

The company, which last month unveiled a $34.6 billion takeover of Baker Hughes, said the layoffs would be immediate and represent 1.25% of its 80,000 worldwide workforce.

The company said the decision was “not an easy one,” but necessary because of tumbling oil prices which this week fell to a five-year low. The collapse in the price since June has caused oil companies to cut back on exploration.

“The decision to eliminate jobs is never easy,” Halliburton spokeswoman Emily Mir said in a statement. “Our talented workforce is the foundation of everything we accomplish, and we place the highest value on the commitment and hard work that our employees dedicate to building our company. Yet, we believe these job eliminations are necessary in order to work through this market environment.”

Chief financial officer Mark McCollum said the company would take a restructuring charge of about $75m its fourth quarter in relation to the job cuts. The company said the layoffs were not a result of the acquisition of Baker Hughes, announced on 17 November.

The oil price slump is now taking its toll on the industry. On Wednesday, BP said expects $1 billion in restructuring charges over the next five quarters that will lead to job losses.  Schlumberger is also expectibg $200 million in charges related to layoffs.

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