Commentary, 9/10 2014

Published Oct 20, 2014
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Safety Net

During the recent Offshore Northern Seas – ONS – one of the most predominant themes was a discussion of cutting costs. The cost of doing business in the North Sea, and on the Norwegian Continental Shelf in particular, has risen across the board. Although there was and is continued excitement and optimism concerning the development of Norway’s recent fields, such as, for example, the Johan Sverdrup field – cutting costs is what made the headlines this year.

As said Statoil President and CEO, Helge Lund explained in his address during the opening session of ONS, “…increased complexity and more risk have led to escalating investments, increased cost and declining returns.” Lund cited competitiveness issues, climate change challenges and increased expectations from the communities around the world where Statoil operates as the primary reasons for this complexity.

In part, Lund’s address emphasised that Statoil is working with an “ambitious improvement agenda” to deal with these issues. No one expects that Statoil will cut corners when it comes to safety – working safely is an industry mantra, and undoubtedly will remain so as the improvement agenda is executed.

But we must remember that there’s also been in recent years a reduction of expertise in the industry, with oil and service companies competing to hire the best candidates available. This competition has been a big contributor to the cost of doing business.

So finding the right balance will be a little like walking a tightrope – and the need for a safety net must be addressed. If the industry on the NCS moves too slowly, the skills gap may widen, as fewer young people decide that an oil and gas career is something worth pursuing. The industry must be better about communicating that the NCS oil adventure is far from finished.

This communication is of special importance when we’re faced with the popular media, which responded to the ONS opening speeches by declaring that Norway’s oil era is over (Why else would Elon Musk be invited to speak?). This is certainly not good news to an engineering student planning her or his curriculum.

There’s still much to do. The development of new fields – Johan Svedrup is only one example. The Barents Sea is beginning to reveal its promise, with new finds in the frontier areas such as Hoop. And much of the developed NCS will produce for many years to come.

Helge Lund also mentioned technological standardisation – a familiar topic that should lead to significant savings. Whether topside gear such as gas turbines, as Mr Lund mentioned in his address, or subsea production equipment, the opportunity exists to streamline the process of putting together the infrastructure needed for production. Standardisation doesn’t mean an end to innovation; it means increased levels of collaboration that should be profitable to everyone involved.

And standardisation can be applied to international policy as well. While a considerable amount of standardisation exists for classification and certification offshore, whether for vessels or offshore facilities, more international consistency of safety requirements could help. This doesn’t mean compromising on safety, but making it possible to move from province to province without the need for extensive, costly modifications.

But it takes time to gear up and gear down. The markets evaluate businesses quarter by quarter, comparing one quarter with last year’s corresponding quarter, with far too little consideration of long-term potential. But as the NCS works to cut costs – as well as maintain existing activities and develop new fields – a longer view must be taken. The recent – and continuing – skills gap should provide a lesson that even one or two years looking forward may not be enough. The safety net will be woven from a thorough analysis of all possible outcomes of decisions made today.

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