Cost-cutting in the North Sea is vital to maintain investment, protect jobs and secure the long-term future of the basin, according to an oil and gas industry boss.
Bernard Looney, the managing director for BP’s Granite City-based North Sea business, said in Aberdeen last night that offshore operators had to get in shape to survive and prosper in the wake of the price of crude oil plunging from last summer’s highs of $147 a barrel.
The price has recovered slightly to above the $50-a-barrel mark, but many experts are predicting no major increases for some time.
“This makes it imperative we take action on costs and capital efficiency,” said Mr Looney, highlighting a 50% increase in North Sea costs for BP in the past five years.
A barrel of oil now costs twice as much to produce as it did in 2004, he said, adding: “The result is that break-even for the North Sea as a whole now requires an oil price of around $50 a barrel.”
Mr Looney, speaking at a Scottish Council for Development and Industry seminar at BP’s North Sea headquarters, said a healthy North Sea was as important for BP as it was for the UK.
But falling revenue, low oil prices and higher costs threatened investment.
Mr Looney added that a faster decline in the basin was inevitable unless capital spending was maintained.
BP has already undergone restructuring, which the North Sea boss said had resulted in a simpler and more efficient organisational structure built on functional lines rather than asset units.
Other cost-cutting at BP has involved a freeze on executive pay and, with a few exceptions, North Sea employees also got no increase in a recent annual pay round.
Mr Looney said: “We have also acted, where appropriate, to reduce agency rates which had increased with the oil price in the last few years.
“Of course, we are looking at our supply chain.
“Last month, I met with all of our major contractors and suppliers and invited them to work with us on cost reduction.
“The challenge was and is how to get costs back to levels that existed in 2004.”
Mr Looney stressed, however, that BP was continuing to invest heavily in the safety and operational integrity of assets, saying it was “our number one priority”.
Recruitment is also continuing apace, with 54 graduates and 20 trainee technicians joining North Sea operations this year.
Meanwhile, training budgets are also untouched by the cost-cutting.
Mr Looney called for collective action by the industry to improve efficiency in the North Sea. He said, however, that the UK Government also had a key role to play by ensuring a helpful fiscal environment, which he hoped would include an across-the-board cut in supplementary corporation tax in next month’s Budget.
Australia’s third biggest oil and gas company, Santos, is the subject of renewed bid speculation.
Oil majors BP, Shell and Eni are all said to be interested in the company, which would cost about £5billion, for its liquefied natural gas (LNG) prospects in the Asia-Pacific region and strong balance sheet, according to a report yesterday.
Meanwhile, Britain’s BG Group has said its wholly owned subsidiary, BG International (AUS), had now acquired 90.93% of the ordinary share capital of Australian coal-seam gas group Pure Energy under its recommended all-cash takeover offer for Pure, which is also a significant player in LNG.
BG said that, because it had gained more than 90% of Pure’s shares, its offer price would be increased from £494million to about £511million.
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