The North Sea oil and gas sector has been warned it faces squandering billions of pounds of business due to poor industry collaboration, under-investment and lacklustre supply chain management.
Professional services company PwC’s latest Northern Lights publication found that a lack of joined-up thinking across the industry was putting jobs, orders and profits at risk.
The report, published today, said a “step change” was required in strategy and integration in order to avoid losing significant export and revenue generating opportunities.
The authors pointed to a potential £35 billion of decommissioning works on the UK Continental Shelf in the years ahead, and said revenues generated from such projects had the potential to cement the North Sea as a global energy hub and extend the operational life of the region for generations to come.
However, that will only be achieved through better collaboration and the exploitation of tax reliefs to develop innovative decommissioning projects.
“While it’s exciting to see a continuing drive to explore and develop in new areas such as West of Shetland, there is no escaping the fact that exploration and production is down on previous years,” PwC senior partner Kevin Reynard said.
“The stark reality is that even if all the planned wells go ahead, the rate of drilling is still too low to recover even a fraction of the potential resources. But our future outlook could be so much brighter.
“With UK taxpayers effectively footing the bill for half the costs of any decommissioning activity in UK waters, forecast to be worth around £35bn, is it not in our best interests to harness our own expertise and grab the opportunity ourselves?
“If we don’t act fast, the risk is that overseas companies will raid the UK’s revenue base, setting themselves up as the ‘go to’ global experts.
“The Wood Review recommendations, particularly in relation to a strategic framework and creation of a tough industry regulator, will go some way to creating certainty and a common strategic direction for North Sea operators.
“But it can’t operate in isolation. It’s vital the industry, and other stakeholders such as the public sector, get on board and commit to this vision of the future.”
PwC said the supply chain was one sector where reform could ensure better returns.
The sector contributes more than £27bn to the UK economy, but PwC said more effective management could see costs cut by 10% and profitability boosted by as much as £3bn. The firm said that would require a key cultural change in which the supply chain came to be treated as a strategic asset rather than a business cost.
“A lack of focus across the supply chain can hit the bottom-line hard,” said Al Geddes, who focuses on operational effectiveness in the oil and gas industry for PwC, said
“Focusing on the short term and redesigning aspects of the supply chain from project to project are just a few of the common issues we’re seeing across the industry that can significantly drive up costs.
“It’s clear that the industry needs to take a more strategic approach to managing its supply chain.
“As well as better integration within and between businesses, we need to see a focus on planning, scoping and costing of projects alongside performance monitoring and commercial management.
“By taking these steps together, we believe this will significantly improve the future financial viability and success of the North Sea.”