North Sea firms ‘need to slash costs by 40%’

Oil & Gas UK's Oonagh Werngren said cost reductions were essential. Picture: TSPL
Oil & Gas UK's Oonagh Werngren said cost reductions were essential. Picture: TSPL
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EXTRACTING the estimated 23 billion barrels of oil and gas that remain in the UK North Sea will require a hefty 40 per cent reduction in the industry’s cost base, according to trade body Oil & Gas UK.

The organisation said progress is being made towards the target of cutting lifting costs to less than $20 a barrel, with more efficiency initiatives in the pipeline. There are plans to publish a benchmark of contractors’ rates later this summer, while a database of spare parts is also being assembled.

The cost-cutting plans comes amid the maturing sector’s battle to remain viable in the current period of low oil prices. Last week, Oil & Gas UK warned that sentiment has slumped for the third consecutive quarter as confidence, investment and employment are all on the decline.

The body’s operations director, Oonagh Werngren, said that recent tax reforms and the establishment of a new regulator have laid the foundations for the regeneration of the North Sea, with the industry now building on that through cost and efficiency improvements.

She said: “Although tough decisions on resources and projects are having to be taken by individual companies, there is also now a concerted effort to work together to tackle the fundamental behaviours that have driven cost escalation on the UK Continental Shelf. The goal is to achieve a more internationally competitive oil and gas province and attract the fresh investment needed to unlock the North Sea’s remaining potential.

“Achieving this will require a 40 per cent reduction in the ­industry’s cost base.”

Consultants at Mercer have been commissioned to carry out a survey of daily rates paid to independent contractors, giving producers an up-to-date benchmark for comparisons. The first results from this will be available in July.

Oil & Gas UK has also created a database of spare parts which will help operators reduce their downtime by quickly locating replacement equipment. Nine have already logged their inventories, one of whom avoided a 13-week delay by borrowing a ­replacement pump from another operator.

Other measures include moves to improve efficiency in training and safety, and a study into identifying the barriers to implementing new technology. Guidelines on identifying and adopting new technologies will be published in the early ­autumn.

Werngren added: “Our vision for 2020 is an industry ­actively exploring and maximising ­recovery of the UK’s oil and gas, 
a supply chain providing a strong engine for growth with lifting costs less than $20 per barrel.

“The sector now has to deliver the bold action and behavioural change needed to make the ­vision a reality.”