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Companies to transform operations

Oil firms accused of failing to heed warnings to cut costs

Oil workersOil and gas companies could have avoided the crisis now bearing down on the industry if they had heeded warnings 18 months ago that they needed to cut costs by up to 40%.

The authors of a new report say the industry was told it was over burdened with inefficient operating practices that would impact on them if the price of oil fell.

But companies did not react quickly enough and have been caught out by the sudden collapse in the price of a barrel of crude by 60% since last summer.

The report, Opportunities in Adversity out today from PwC, says it is not too late for companies to put the situation right if they take the appropriate steps.

However, the firm’s energy specialists say businesses need to get away from the short term knee-jerk reactions they have applied in previous down turns – or risk damaging the long term future of the industry.

Brian Campbell, oil and gas capital projects director at PwC and co-author of the report, said:  “With economists predicting low oil prices throughout 2015, UK oil and gas firms are not out of the woods by any means.

“The stark reality is that firms need to be able to operate in an environment where oil averages at $50 per barrel – only then can they be truly fit for the future.

“We’ve been talking about cost reduction and restructuring within the industry for several years now and the harsh truth is that if many larger exploration and production and oil field services firms had implemented programmes before the oil price crisis hit, then the industry would be in a much better place to weather the storm that is currently raging.

“But it’s not too late to glean some good out of adversity and for businesses to work together to create their own new dawn for the North Sea. There are a series of levers business leaders can pull, which, as we’ve seen in the past, can lead to long term sustained efficiencies and opportunities for their business and the wider industry.”

The report states that although the industry is in a painful period, with the depressed oil price being sustained for longer than expected, there are still long term opportunities.

But many businesses will need to completely transform the way they operate to grasp the opportunities that lie ahead.

Kevin Reynard, office senior partner at PwC in Aberdeen, said: “Viewing lower oil prices as a catalyst for driving change may not be a bad starting point, particularly if we look for the opportunities in the current adversity for operators in the North Sea and further afield.

“Firms could start by defining the future shape of the company and what needs to be transformed to get there.

“We recognise this may be a much more complex and challenging path. But only by approaching transformation from that vision can we escape short term knee jerk reactions that could wipe out knowledge banks and turn-off suppliers for example, actions which could ultimately damage future business growth and the viability of the wider industry.

“Ultimately if we are sensible about the changes needed, businesses, as well as the oil and gas sector, will be much leaner and more efficient …and crucially for our UKCS, fit for the future.”

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