Oil and gas sector needs to become ‘part of the solution’

File photo dated 16/03/07 of an oil rig in the North Sea as oil and gas companies must learn lessons

File photo dated 16/03/07 of an oil rig in the North Sea as oil and gas companies must learn lessons from other industries that have survived severe economic downturns in order to thrive in the long-term, according to new research. PRESS ASSOCIATION Photo. Issue date: Wednesday June 17, 2015. A report on the future of the industry says firms should follow the example set by the automotive, aerospace, rail and chemical industries, which have all weathered challenging times. Businesses need a "fundamental shift" in the way they operate to successfully compete for international investment in the North Sea and boost recovery after the recent plunge in oil prices, the report by PricewaterhouseCoopers (PwC) and the Oil and Gas Industry Council concluded. It warns firms against making short-term tactical cuts rather than focusing on longer-term structural changes to achieve the 30% to 40% improvement in efficiency recommended by regulator the Oil and Gas Authority (OGA). The report highlights seven "tried and tested" steps it says could transform operations of companies in the UK continental shelf (UKCS) in a similar way to leading companies such as Rolls-Royce, Bombardier and Jaguar Land Rover. These include improving leadership in the industry, encouraging more innovation, boosting collaboration between firms and supporting the development of the OGA. See PA story INDUSTRY Oil. Photo credit should read: Danny Lawson/PA Wire - Credit: PA

The new boss of the UK’s oil and gas body has warned that the industry must become sustainable in a world where long-term oil prices are about 60 US dollars (£38) a barrel.

Deirdre Michie told the annual industry conference in Aberdeen that the sector must learn from its mistakes and be open to change.

Global oil prices have dropped sharply in recent months, down more than 40% from last June.

The industry has been hit by job losses while North Sea exploration reached its lowest level in at least two decades in 2014.

Oil tycoon Sir Ian Wood, who carried out a review of the industry for the UK Government, has forecast that the price could stay at about the 65 US dollars (£41) a barrel level “for possibly quite a long time, maybe two to three years”.

Ms Michie, chief executive of Oil and Gas UK, said: “In terms of our economic contribution and value to the country, this industry stands head and shoulders above the rest.

“We have paid more to the Treasury than most other industrial sectors, we generate hundreds of thousands of skilled jobs, we have a vibrant supply chain, at home and abroad, and make a key contribution to the UK’s security-of-energy supply.

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“It is an industry that has grown and evolved for 50 years. However, we now face real and present threats that are challenging our future.

“While demand for our products remains strong, critical for our transport and heating our homes, and giving us a whole host of everyday products, our productivity as an industry has fallen - and fallen rapidly.

“In relation to our escalating cost base, we know that as an industry we have been part of the problem; now we need to be part of the solution.

“Over the last 20 years, the price has averaged at 62 US dollars (£39) per barrel and the forward curve is between 65 and 75 (£47). Therefore, it is not unreasonable for the North Sea to set out its stall at being sustainable in a 60 US dollars world.

“As a target, it’s one that we as a trade association can champion, government can align with and the regulator can pursue as an enabler, for example, to focus on key infrastructure.”

Ms Michie called for the industry to do more than cut costs, and to focus on increasing efficiency.

“Focusing on efficiency means that if or when the oil price bounces back, we will be best-placed to seize new opportunities,” she told the conference.

“And let’s not forget, efficient management is also safe management - and I know safety remains the top priority for everyone in this room.”

She went on to call for co-operation between companies, trade unions, governments, regulators and trade associations.

“This is not a time for conflict or entrenched positions,” she said.

“We don’t need to wait for consensus, but we do need leadership in this industry to drive co-operation and an ‘early adopter’ culture from companies willing to rise to the challenge.”

Earlier, Sir Ian told BBC Radio Scotland’s Good Morning Scotland programme: “We’ve now got to assume the price isn’t going to rise significantly and we’ve got to buckle down and make the industry effectively viable at its present level.”

While he said there would be further job losses in the North Sea, he added that he hoped these could be reduced by companies collaborating more on projects.

Sir Ian said: “Of course there will be further job losses because the figures look pretty terrible just now, but I think will be reduced. There will be some job losses but I do think you will see some real progress on collaboration, particularly on new developments.

“So, I hope we will see gradual process in making us more efficient and more effective.”