Oil and gas industry must think hard before cost cutting

16 November 2010

Alistair Birnie, chief executive of Subsea UK, has warned the oil and gas industry that it must think hard before embarking on cost cutting measures when awarding contracts for decommissioning work. The industry must be even more vigilant to cope with the growing pressure and scrutiny arising as a result of the Macondo incident in the Gulf of Mexico.

BP Macondo oil blast

Birnie said: "Competition is going to be fierce for subsea resources and there is no doubt that day rates for specialist vessels and services will rise to pre-2008 pricing. There will inevitably be a temptation to drive costs down by looking for cheaper alternatives but companies must be prepared to pay more to ensure experience, safety and environmental protection.

"The priority must be on safety and the environment. Failure in these areas could be hugely detrimental to our industry which is already under intense scrutiny, whether in drilling, operations or in decommissioning.”

“We cannot afford to let incidents happen. Get it right and we will demonstrate to the world the competency of our people, our technological excellence and our high standards in safety and environmental protection. Get it wrong and we could well pay a very high price.”

The substantial market for subsea decommissioning will involve subsea engineering, certification, survey and inspection, pipeline operations, removal of subsea structures, excavation, subsea wellhead cutting and removal and barge operations.

However Birnie points to the future forecasts for both subsea oil and gas projects and marine renewable work which are both set to rise in the next ten years, with work in renewable energy rising more sharply. This will, he says, put pressure on availability of specialist equipment and skilled people.

“For the commercials to work the industry must accept that the cost base will rise and we should instead seek savings by driving out inefficiencies, improving contracting relationships and attitudes, reducing operation requirements and re-apportioning work scope to better balance potential rewards with risks.”