Bergen, Norway 11 – 13 June, 2019

Reduce costs now, but be ready to grow with the upturn

Elisabeth Tørstad was appointed CEO for DNV GL’s Oil and Gas business area in January 2014, having previously been the organisation’s Chief Technology Officer and prior to that COO for DNV’s maritime and oil and gas operations in the Americas and Sub-Saharan Africa divisions. DNV GL was formed in a 2013 merger between Det Norske Veritas (DNV) and German-based Germanischer Lloyd.
Tørstad will give a keynote address at UTC in June on “Standardization – the new innovation”.


Elisabeth Tørstad began by cautioning that while the cyclical nature of the oil price had not come as a surprise, getting through the latest downturn would require a balancing act for companies between short-term measures to reduce costs and maintaining a long-term perspective to ensure future growth.

She said this challenge was reflected in the company’s 2015 industry outlook report, which showed a sharp drop in sector confidence between October 2014 and January this year, with only 32% of respondents now expressing confidence in hitting their revenue targets, down from 62% the previous year.

Cutting back on capex
Ongoing rises in operating costs, colliding with a fall in oil prices, had resulted in operators further cutting back on capital expenditure plans and introducing cost-cutting measures, Tørstad said. This has had an impact on the whole of the supply chain, with headcounts being cut, projects being shelved and investment being diverted from technology and innovation.

Industry outlook research by DNV GL indicates that low oil prices are now the biggest barrier to growth in 2015, cited by 68% of respondents, followed by a weak global economy (35%) and uneconomic gas prices (20%). Between October last year and January, respondents planning to increase their capex plummeted from 40% to 12%, while those planning to reduce headcount increased from 26% to 47%.

‘We need to work smarter’
DNV GL would recommend that service companies maintain a keen eye on efficiency and innovative cost management in the current climate, Tørstad said, but without this having a detrimental effect on future business. If operators cut back too sharply in response to short-term pressures they would face challenges in fulfilling future projects and lose capability through continued skills shortages, she warned.

By taking a broader view, reducing complexity and standardising processes, materials and documentation, industry players could develop a long-term sustainable cost base to adjust to this lower margin environment.

In a low-price environment, it made sense for operating companies to strip back on non-core assets and activities, she said. Divesting non-strategic, underperforming assets was also an effective means of raising capital that could be put to work elsewhere. To prevent capital expenditure from threat, more resources should be devoted to operating expenditure, Tørstad said. Operators should be looking at life extension and enhanced oil recovery projects.

“We need to work smarter,” she said. “Standardisation is one example that can provide a model for preventing unnecessary expense. Whether setting stricter contracting standards or establishing viable technology templates, quick wins can be found in replicating successful models.”

Collaborate on subsea innovation
Tørstad pointed out that the industry would encounter increasing complexity with its progression towards deeper, colder, more remote and environmentally sensitive areas, while the current climate had increased already high operating costs in deep offshore fields.

However, she noted that there was now a drive for the industry to work more collaboratively to research, develop and deploy the most technically and financially efficient underwater technologies and methodologies.

The subsea sector is reportedly set to quadruple in size, with projected annual revenues of £85 billion by 2020, she observed, so there would be opportunities for novel underwater technologies to be prioritised. DNV GL’s industry outlook research indicates that, despite the current climate, 10% of respondents would increase spending on R&D/innovation in 2015.

Technologies that create proven cost-efficiencies or boost production will no doubt be fast-tracked in the oil and gas industry along with opportunities to achieve economies of scale. Tørstad thought that, regardless of the oil price, renewables would have to be brought forward and into the energy mix for us to achieve the required energy transition.

“We are already exploring the combination of renewable technologies with traditional oil and gas production, such as a DNV GL led joint industry project where we use wind powered water injection systems to increase reservoir pressure and increase oil production,” she concluded.


Written by Eloise Logan.