A Sea Change: six months on
01 December 2016
Back in June of this year, we published our report “A Sea Change - the future of North Sea Oil & Gas”. The report was well received by industry stakeholders, protagonists and commentators, with the power of its message being that the key themes and ideas were generated from interviews. When we launched it at the Oil & Gas UK Conference in Aberdeen, we didn’t foresee the global reach it would have but the fact that it resonated with the new regulator, the Oil & Gas Authority (OGA), as well as HM Government was encouraging. There was interest from mature basins such as Australia and the USA, as well as from frontier areas such as East Africa.
We’re almost 6 months on from that now and it is interesting to see how things have developed. The most obvious change has been the empowerment of the OGA, who released their strategies for Maximising the Economic Recovery of the UKCS (MER UK) in October. They are now a fully fledged regulator with the necessary remit and powers to drive our industry forward.
Many of the themes we identified form the backbone of the strategy - technology & innovation, decommissioning, supply chain etc. Whilst some of the individual ideas have struck a chord, namely the notion of the Super Joint Venture. We have followed this up by issuing a short document outlining the potential issues, challenges and blockers to the Super JV, or similar advanced operating structures, and the OGA itself is working on a green paper on whether such structures can help achieve the MER UK goal.
More recently, we have published a second major paper in the Sea Change series - “A Sea Change - emerging from a downturn”, which focusses on potential green shoots of recovery for the global Oilfield Services (OFS) market.
The past two years have been torrid, with operators globally scaling back dramatically on upstream capex spend and deferring projects. Not surprisingly, OFS responded by pulling the traditional cost reduction levers: cutting capex and headcount, while minimising opex. Margins have been eroded and many OFS companies faced financial distress. The outlook was grim.
Now there appears to be light at the end of the tunnel. With supply and demand seeking a gradual equilibrium, the oil price has recovered a little and among some companies there is a growing confidence that perhaps we have reached the trough. And OPEC’s announcement of a production cut may well further encourage those green shoots.
That said, if we are poised for a potential recovery, it is likely to be uneven. Our paper focusses on what the OFS sector can do to meet the challenges of the upturn head on:
- Focussing on innovation and R&D as a means to maximising future opportunities;
- Looking at “Big Data” as a means to improve efficiency of operations whilst enhancing capability sets;
- Ensuring future capability gaps are narrowed through effective use of partnerships, technology and outsourcing;
- Minimising the complex nature of operations, optimising talent pools and capital deployment;
- Targeted and focussed M&A which reduces complexity and differentiates the business;
- Working smarter through innovative solutions, use of consortia and intelligent demolition techniques to minimise the cost of decommissioning.
By adopting these ideas whilst maintaining a sustainable cost reduction and cost management mindset should position OFS companies well to be resilient at lower oil prices. We may never return to the heady days of $100/bbl but there is no reason why those players who are able to operate efficiently and profitably in the current environment, whilst investing sensibly for future growth, cannot emerge from from the turmoil.
As Oscar Wilde once said, “We are all in the gutter, but some of us are looking at the stars.” And for some, the sides of the gutter might be a bit less precarious to overcome.
The messages of the Sea Change series are a powerful way of articulating the current situation with your clients and help to explore how we navigate the future.