Seven fundamental steps to secure long term future of UK continental shelf - PwC rep

Published at 00:20 AM on 17 June 2015

  • Sector wide collaboration and deployment of a proactive regulatory environment are critical to securing long term success
  • Cost reductions of up to 40% a barrel must be achieved to secure a sustainable future for the basin
  • Report launching at The Oil and Gas Industry Conference 2015 in Aberdeen

Oil and Gas firms must learn lessons from other UK industries and fundamentally change the way they operate if they are to successfully compete for international investment and maximise recovery across the UK continental shelf (UKCS) over the next 25 years, according to a new cross-sector efficiency report from PwC and the Oil & Gas Industry Council.

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 cost base across UK oil and gas operations.

While some firms are taking action to implement sustainable, long term changes, the concern is that there are still many situations where short-term tactical measures to cut discretionary spend or apply familiar solutions from previous down turns are the norm. The reality is that making long term, structural change takes time and is not easy. 

But there is a route map that could help hasten this much-needed industrial transformation across the UKCS, enhancing collaboration, increasing trust with partners and across the supply chain, and delivering widespread efficiencies.

The report authors from PwC have set out seven fundamental steps that could turn the tide and secure a brighter future for the industry – and crucially these approaches have been tried and tested by many other leading organisations including multinational brands such as Rolls-Royce (aerospace), Bombardier and Jaguar Land Rover.

Gordon Colborn, consulting leader, PwC in Scotland, explained:

“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.”

In the 1980s to 2000s, four heavy engineering based industry sectors - aerospace, automotive, chemical, and rail - dealt with a similar range of challenges, such as: significant safety requirements; extended periods of considerable cost pressure; economic downturns impacting trade; and increasing international competition for investment. 

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:

  • 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.

While the seven fundamentals will go a long way to helping firms secure sustained efficiencies of up to 30-40%, the guideline target set by the regulator1, the report authors do not believe they are sufficient on their own. Two other factors are crucial to maximising improvement potential and delivering the step change needed across the North Sea:

  •  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.


Notes to editor

1 – The efficiency target is referred to in ‘Call to Action: The Oil and Gas Authority Commission 2015’.





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