Oil & Gas UK Economic Report 2015

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ECONOMIC REPORT 2015 26
A Three-Pronged Approach Towards Regeneration
Over the last year, there has been collective action
by industry, the regulator and the UK Government to
improve the UKCS’ competitiveness, encourage fresh
investment, and extend the life of existing assets and
infrastructure that may otherwise be decommissioned:
• HM Treasury announced a range of tax reforms,
including the Investment Allowance, in the March
2015 Budget to help attract fresh investment. This
received continued endorsement in the summer
Budget 2015 (see Section 7.5 for more details under
promoting investment).
• The new regulator, the Oil and Gas Authority (OGA),
has been established and will work to improve
stewardship of the basin.
• The industry is now building on these efforts by
delivering the cost and efficiency improvements
required to secure the UKCS’ long-term future (further
details below).
5.3 Industry Response
All the indications are that there will not be a swift
increase in commodity prices to offset the increasingly
expensive cost base in the UKCS. The industry must
instead rapidly adapt to a world of lower prices. There
are no easy choices. A decade ago, the industry was seen
to be able to prosper at such oil prices. Since then, costs
have risen, production has fallen and infrastructure
has aged. The industry recognises it needs to improve
efficiency and reduce costs for safe and sustainable
operations and is responding quickly to the challenge.
When businesses come under pressure, cost
reduction tends to take priority for up to nine months.
New projects on the UKCS are simply not attracting
investment so operators and contractors have to
make tough decisions on budgets and capacity. Such
behaviour is inevitable and has already been seen by
many businesses as they seek to regain control and
balance expenditure against income.
Alongside cost-cutting, however, there is an appetite for
innovation and efficiency improvement that will deliver
value for both client and supplier. Experience shows,
however, that significant efficiency improvements
cannot happen overnight. These changes often take
longer to implement but yield greater benefits than
simply cost cutting. The transformation, outlined in
Figure 13 opposite, can take between 12 months and
three years to achieve and can only come about through
true co-operation and a cultural change in the shape
of collaborative working between operators, major
contractors and small to medium sized enterprises
(SMEs). There is also an important role for unions,
governments, regulators and trade associations.
Oil & Gas UK Efficiency Task Force
While recognising that some behavioural change
will be company-specific, Oil & Gas UK is taking the
lead to help drive pan-industry initiatives to achieve
efficiency improvements and transformational change.
It is important for companies to consider how they can
support this transition.
The focus on pan-industry initiatives is being formalised
under Oil & Gas UK’s Efficiency Task Force with the
objective of driving improvement in efficiency over
the next two years and beyond, creating a sustainable
industry. A dedicated well-resourced team has been set
up within Oil & Gas UK to focus on three workstreams:
• Business Process
• Standardisation
• Co-operation, Culture and Behaviours
Industry is also seeking to learn from other sectors that
have overcome similar challenges. PwC, commissioned
by the Oil and Gas Industry Council, recently published
a study4 highlighting success in other sectors (such as
automotive, rail and chemicals) from which industry is
drawing tangible measures that can be transferred to
offshore oil and gas.
4The Cross Sector Efficiency Study is available to download at