High costs, low productivity hurting Aus oil and gas

Deloitte national director of oil and gas, Geoffrey Cann

Deloitte national director of oil and gas, Geoffrey Cann

The oil and gas industry spends an estimated $6.5 billion complying with internally and externally imposed red tape demands every year.

That figure represents about 2.6 per cent of the country’s total $250 billion red tape bill annually.

Speaking on improving productivity in Australia’s oil and gas industry at last week’s SEAAOC event in Darwin, Deloitte national director of oil and gas, Geoffrey Cann said that estimate was even too low.

“The country’s oil and gas industry has relatively low productivity and relatively high costs – neither of which are an insurmountable challenge for the industry,” he said.

“(But) my counsel to the industry is that the red tape is not going away so we have to find a way to cope with it rather than arguing that it should magically be made to disappear.”

The cost of administering red tape for the public sector is estimated at about $27 billion per year. The private sector then spends about $67 billion complying with government red tape. In addition to that, companies then impose a further $21 billion of cost implementing their own form of red tape, and then spend a whopping $134 billion complying with their own regulations.

“Now, that seems like a hell of a lot of money to me and kind of implausible,” Mr Cann told the conference.

Citing industry estimates that Australian productivity equates to about 65 per cent of that of the US gulf coast, Mr Cann’s presentation at SEAAOC was a sobering reminder of the blown out costs associated with doing business in such a hazardous, highly scrutinised industry.

According to Deloitte Access Economics study of Australia’s red tape burden, the country was on average enacting 15,000 pages of legistlation every decade during the 1970s.

That figure rose to about 30,000 pages in the 1980s, and then to more than 60,000 pages by the year 2000.

And meanwhile, there are approximately one million, or about nine per cent of the country’s total workforce in roles that are characterised as “helping others comply with laws.”

However, it is not a showstopper, he added. Australia can be both high cost and have a successful oil and gas industry.

Mr Cann presented five steps to reducing costs and improving productivity within the notoriously expensive oil and gas sector.

“The key is to do less, but tackle more of these factors at the same time. And this is really hard,” he admitted.

Steps to reducing costs and improving productivity:

1. Simplification of the business. Get it back to its focus and its core.
2. Streamline compliance.
3. Embrace digital automation.
4. Improve your company’s ability to embrace change.
5. Unlock innovation.

Eddie Morton is the associate editor of Gas Today: emorton@gs-press.com.au

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