Friday 31 July 2015 9:56 am

Today's job cuts at Shell and Centrica were about more than just rapidly falling oil prices

The UK’s offshore oil and gas industry is at a crossroads. Though it has spent over £500bn and employed hundreds of thousands people in high-skilled jobs across the UK to extract the nation’s oil and gas over the last 50 years, it has found itself with a bloated cost base and worrying inefficiency.
Job cuts such as those announced today by the industry reflect global cost reduction efforts but significant action is being taken in the UK to work smarter and improve efficiency so that the business can be sustainable in a world of lower oil prices.
The cost of operations on the UK Continental Shelf (UKCS) has doubled since 2009, spurred on by falling efficiency offshore. No other basin in the world has seen such rapid cost inflation and as a result, investors are finding the basin much less attractive.
Capital investment is due to fall by £3-4bn per year over the next three years and exploration and appraisal drilling has fallen to levels last seen in the 1970s.
Yes, the halving of the oil price has exacerbated the sector’s troubles but the challenge to restore competitiveness was recognised long before. Indeed, action to achieve it – beyond simple cost reduction – has been taken over several years.
Since spring last year, the industry has applied a sharp focus to increase the efficiency of its assets and has already achieved a five percentage point increase.
Companies are well down the road of reviewing their processes, specification of materials and behaviours to identify where they can work smarter and get in better shape for the future. Inventory management, drilling, well abandonment practices and maintenance planning are just some of the areas that have been scrutinised and are being streamlined.
But long-term transformational change can only come about with true co-operation. Here, inroads are already being made: technology companies are coming together to share expertise, operators are joining forces to drill wells and access resources such as supply vessels. There is much more to do on this front – but it will be worth it.
Cutting jobs is painful – especially so in places like Aberdeen where the industry is so concentrated – and companies are only doing so having worked through all other options. Scotland’s Energy Jobs Taskforce is working extremely hard to tackle the immediate challenges facing the energy sector, with a particular focus on supporting jobs and the New Anglia Local Enterprise Partnership seeks to do the same.
The UK oil and gas sector industry is doing all it can to ensure the sector is safe, competitive and sustainable in a lower oil price world – so that it can continue to support jobs, energy security and exports across the UK in the long-term.