Cost management the key priority for 2016

A new phase of cost management is needed as three-quarters of senior oil and gas professionals in Australia are preparing their company for a sustained period of low oil prices, according to new research published today by DNV GL.

Short-term measures to cut costs are evident, with around a third of respondents (32 per cent) prioritising headcount reductions in 2016 to impose stricter cost controls.

According to A New Reality: the outlook for the oil and gas industry in 2016, a DNV GL report based on a global survey of 921 senior professionals in the sector, more than three-quarters of Australian respondents (76 per cent) stated that their company had met cost-efficiency targets for 2015. However, nearly nine in ten Australians asked (89 per cent) stated that cost management will be a key corporate priority for the year ahead, in line with global opinion (88 per cent).

Tougher decisions on CAPEX are the top priority to impose stricter cost controls for 37 per cent of Australian respondents, compared to 33 per cent globally. After headcount reductions, nearly a third (29 per cent) of the Australians questioned plan to optimise the production efficiency of existing assets.

Respondents tend to lean away from standardisation, with just over half (53 per cent) believing that operators will increasingly push to standardize their delivery globally, compared to 61 per cent globally. A minority (45 per cent) believe their organisations will achieve greater standardisation in tools and processes, compared to 59 per cent globally.

The main strategies to maintain innovation within a cost-pressured environment are to increase collaboration with other industry players (42 per cent compared to 45 per cent globally) and greater involvement in joint industry projects (39 per cent versus 30 per cent globally).

Other key findings of the report include:

  • Fewer than four in ten of the Australian respondents believe their organisation’s response to the downturn has primarily focussed on generating longer-term value in headcount (36 per cent) innovation/R&D (38 per cent) and overall cost base (38 per cent), all below global averages.
  • Nearly six in ten respondents (59 per cent) saw a weak global economy as a barrier to growth, with 56 per cent stating that uneconomic oil prices will affect business development.
  • 88 per cent stated that their company will increase consolidation within the oil and gas sector in 2016.
  • The survey found that FLNG is the new/emerging technology to make an impact on the wider oil and gas industry in 2016 – 35 per cent cited this technology as the most important one, compared to 23 per cent globally.

Download a complimentary copy of A New Reality: the outlook for the oil and gas industry in 2016 from: http://dnvgl.com/anewreality

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