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Oil servicers say "fat trimming" will become new norm
[ABERDEEN, Scotland] A slump in oil prices is forcing the oil and gas services industry for the first time in 15 years to trim costs in a way that executives say will create a lasting change away from their usual lavish way of doing business.
Navigating a new environment in which oil prices have halved in a year and their customers are slashing investments, oil service firms face a rough ride.
"The industry has been quite lazy in changing because oil prices have been helping us a lot," Samir Brikho, chief executive of oil service engineering company Amec Foster Wheeler, told Reuters.
"At a time like this, you need to take a look at how you can take out the fat. Once we have done this we will never go back, this will become the new norm."
The previous oil price plunge in 2008-2009, driven by the global financial crisis, ended too soon to force oil service firms seriously to reassess their cost structures.
Now, as oil prices have failed to rebound in over a year, oil service companies are depending on running their businesses more efficiently to survive.
This week's biennial gathering of the offshore oil services sector in Britain's oil capital, Aberdeen, highlighted the extent of cost savings being made.
British oil service heavyweights including Wood Group and Petrofac, as well as London-headquartered Seadrill , had no presence among the 1,500 exhibitors at the conference.
"It shows how seriously they take the cost-cutting," said one conference attendee who works in the industry but declined to be identified.
Britain's oil and gas industry lobby group estimates the sector will reduce costs by 2.1 billion pounds (US$3.2 billion) by the end of next year.
A large part of these savings is related to job cuts. Oil & Gas UK estimates the industry has already shed 65,000 jobs since peak employment at the start of last year. The group expects employment in the sector to drop further in coming months.
Companies say they are making changes in working practices that mean the sector is less wasteful, such as cooperating better on projects and standardising equipment.
"It's this transformation that needs to be sustained," said Andy Samuel, chief executive of Britain's newly created oil and gas regulator.