Billions of pounds must be cut from North Sea oil and gas supply chain costs to avoid losing significant export and revenue generating opportunities, says a report by professional services firm PwC.
The company’s third Northern Lights report argues a change in strategy and integration is needed right across the oil and gas industry and points to a potential £35BN in decommissioning revenues which could help cement the North Sea as a global energy hub and extend its lifecycle.
PwC also says the UK oil and gas industry is potentially missing out on multi billion pound revenues in the North Sea through poor collaboration, lack of investment and lacklustre supply chain management.
With the supply chain accounting for over half of operating costs, PwC argues that this is one area where a change in approach could reap significant financial rewards. The UK North Sea supply chain contributes over £27BN to the economy, but with more effective management, costs could be cut by 10%, boosting profitability by as much as £3BN.
By collaborating better and exploiting tax reliefs to develop innovative decommissioning projects, firms could generate a new business model worth billions, the report claims.
PwC’s office senior partner in Aberdeen Kevin Reynard said: "While it’s exciting to see a continuing drive to explore and develop in new areas such as West of Shetland, there is no escaping the fact that exploration and production is down on previous years. The stark reality is that even if all the planned wells go ahead, the rate of drilling is still too low to recover even a fraction of the potential resources.”
“If we don’t act fast, the risk is that overseas companies will raid the UK’s revenue base, setting themselves up the ‘go to’ global experts,” he added.
PwC’s report backs recommendations made in the Wood Review in relation to a strategic framework and creation of a tough industry regulator for North Sea operators.