Supply chain efficiencies top priority for UK oil companies facing price slump

8 June 2016

Rationalising the supply chain and making efficiencies are the top strategies North Sea oil and gas companies plan to use to reduce operating costs in the next 12 months, a survey says.

The Bank of Scotland (BOS) research said rationalising meant critically reviewing the supply chain to ensure the model used is the most efficient, cost effective and offers the best value for money for the business.

When firms were asked how they would meet cost challenges in the North Sea over the next 12 months, 67% of companies surveyed said “making day-to-day operational efficiencies”, while 66% said “rationalisation of the supply chain”.

BOS surveyed 141 firms on a variety of issues from staff layoffs to predicting future prices.

Rationalising the supply chain “may involve creating global agreements rather than local ones to ensure consistency and potentially drive a volume/cost discussion with the supplier,” said BOS.

The last year has been difficult for the oil and gas industry, with the price of oil dropping from $69 a barrel at the start of 2015 to a low of $28 a barrel this January. For five years up 2014 oil prices averaged over $100 a barrel.

Among the report’s key findings, over half of the companies surveyed have cut jobs, four out of 10 surveyed do not expect oil prices to rebound until 2020 and large companies with a turnover of more than £750m have been affected more severely than their SME counterparts.

Only 15% of respondents said economic sustainability was in the industry’s hands, with 33% saying it was all down to oil prices and that activity would remain subdued until prices rose. 

However, 55% of respondents said there were still positive opportunities within the industry. Just over half (51%) of companies said they have had diversification opportunities, 49% said they had new contracts opportunities and 40% said they had the opportunity to invest in new technology in the last year.

Mid-sized and large companies in particular are looking to survive the downturn in oil prices by rationalising their supply chains, while small companies with a turnover below £25m said they were more focused on day-to-day efficiency savings.

The report said the Oil and Gas Authority was encouraging cost saving through collaboration, and 58% of respondents said they supported collaborating with other North Sea companies while 48% said they supported the standardisation of technology and machinery.

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