Oil exploration and production companies could lower unit operating costs (UOC) by another 30% if they deliver just a few changes, KPMG said in a new report.
In its study, the professional service giant flags up several areas where companies could add long-term value to their operations at a time of relentless focus on break-even costs.
At the start of December, the Oil and Gas Authority said North Sea upstream firms had cut UOC for the second year in a row – to £12 per barrel in 2016.
KPMG urges operators with reduced headcounts and budgets to think more deeply about prioritising their activities, only carrying out work that adds value.
Its report recommends using machines to make decisions, while advising that new automation technologies can help reduce “back-office” support costs.
Furthermore, KPMG says E&P companies need to achieve deeper integration and collaboration through the supply chain, and strip standards and processes back to what is affordable for individual assets.
KPMG associate director James Albert said: “Our research shows that there is a potential opportunity to reduce upstream unit operating costs by a further 30%.
“However, taking advantage of new sources of long-term value is not a business transformation or a continuous improvement programme.
“We believe this is about a small number of step changes to exploit the opportunities, which includes being open to challenging conventional perceptions of ‘best-in-class’ for E&P.
“To break the zero-sum cycle, operators must work more closely with suppliers to drive out inefficiencies, and our latest report demonstrates how this can be achieved through more agile, incentive-based relationships.
“In addition, leveraging machines for decision-making and other Industry 4.0 technologies will be critical to raise the performance of upstream oil and gas to the levels of productivity and efficiency seen in other marginal industries.
Mr Albert added: “Whilst extensive cost cutting and renegotiating supplier rates were obvious tactical responses to the downturn, it is not a sustainable longer-term strategy.
“Going forward, companies in the UK continental shelf need to build on recent market confidence and go further to deliver long-term value, so that the basin remains globally competitive.
“This requires adopting a far more commercial mindset to underpin all operational decisions, being more entrepreneurial in the approach to delivering improvements, and actively embracing new technologies.”
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