ABOUT three quarters of Australian senior oil and gas professionals surveyed by DNV GL are preparing their companies for a sustained period of low oil prices.
In a new report, titled A New Reality: the outlook for the oil and gas industry in 2016, the technical advisory firm said a new phase of cost management was needed.
While 76 per cent of the Australian respondents met their cost-efficiency targets for 2015, 89% of those surveyed said that cost management would be a key corporate priority for the year ahead – in line with the 88% of global respondents who said the same thing.
Short-term measures to cut costs are evident, with around a third of respondents (32%) prioritising headcount reductions in 2016 to impose stricter cost controls.
Tougher decisions on capital expenditure are the top priority for 37% of Australian respondents, compared to 33% globally, DNV GL said.
After headcount reductions, nearly a third (29%) of the Australians surveyed planned to optimise the production efficiency of existing assets.
Most cuts were likely to be felt in the upstream sector, with 62% of global respondents planning to cut capital expenditure and 65% planning to reduce operational spending.
Secretary general of the International Gas Union (IGU) Pål Rasmussen was quoted in the report as saying he expected companies were focusing on cost reduction in exploration and operations
“These two facts are likely to mean that we will see a scaling back of industry activity over the coming 12 months,” he said.
“This is unfortunate, as these periods also provide opportunities for creativity, but, in the longer term, this focus on cost reduction in operations will turn out to be something positive for the sector.”
Globally, operators were looking to cut costs by between 20% and 30% of their current levels, with the report estimating that an average of between 10% and 15% of these would come from supply chain savings.
Australian respondents tended to lean away from standardisation, with just over half (53%) believing that operators will increasingly push to standardise their delivery globally, compared to 61% globally.
A minority (45%) believe their organisations will achieve greater standardisation in tools and processes, compared to 59% globally.
DNV GL Oil & Gas country manager for Australia Richard Palmer said a large number of projects had been delayed or cancelled in response to the low oil price.
“The industry has taken painful short-term cost-cutting measures by reducing headcount and squeezing the supply chain,” he said.
“Now the sector must accelerate meaningful cost-management changes that do not compromise safety and which enable Australia to adjust to the new reality.”
“That means cutting complexity and increasing collaboration and standardisation, which will put the industry on a sustainable growth path for the long-term,” he said.
Australian companies’ main strategies to maintain innovation within a cost-pressured environment were to increase collaboration with other industry players (42% compared to 45% globally) and greater involvement in joint industry projects (39% versus 30% globally).
The report also found that fewer than four in ten of the Australian respondents believed their organisation’s response to the downturn had primarily focussed on generating longer term value in headcount (36%) innovation and research and development (38%) and overall cost base (38%), all below global averages.
Of the Australians surveyed, 88% said their company would increase consolidation within the oil and gas sector in 2016, while 35% of respondents said they expected floating liquefied natural gas was the most important technology to have an impact on the oil and gas industry in 2016.
DNV GL Oil & Gas chief executive Elisabeth Tørstad said innovation was just as much about increased efficiency as it was new innovations.
“While the industry is understandably preoccupied with generating shorter term value, we must also keep an eye on where longer term value and efficiency gains can be achieved,” she said.
“Nearly one in five companies globally does not have a strategy in place to maintain innovation.”