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Three sides to cuts and consequences



After a period of strong growth and hectic activity, companies in the Norwegian oil industry are now reining in hard to get costs under control and trim budgets. But unions, employers and government take differing views of the measures and processes now under way.

Leif Sande, president, Industry Energy

1) What is your view of the cost cuts now being made in the industry?

These reductions are a result of the full-speed-ahead policy. Big fluctuations in the petroleum industry are very unfortunate. The oil companies have to learn from their earlier errors, and the government must steer more towards long-term and stable activity.

 We have long warned against the high level of activity on the NCS. A whole generation was lost to the oil sector about 15 years ago because of the full speed/full stop approach.

The oil companies periodically create many jobs. They search each nook and cranny of the labour market and higher education for qualified personnel, and persuade young people to commit to this industry. All this drives up costs, until the brakes have to be slammed on suddenly. That carries big social costs for the individuals affected.

Over a 10-year period, the oil companies allowed field costs to rise by 250 per cent. Rig costs have climbed by 500 per cent over the same decade. Pay for chief executives in the petroleum business grew by an average of 21.5 per cent in 2013. The only people who have accepted responsibility and reined in costs are the unions. The pay rates we have negotiated on behalf of our members in the oil sector have risen by 50 per cent over these 10 years. That’s the same increase as the rest of Norway.

2) How are the cuts affecting your members?

They unfortunately hit our members in the sense that many recent recruits to the industry are losing their job. That’s difficult for the individual and their family.

3) What consequences do you think the cost cuts will have, immediately and in the long term?

This will hopefully serve as a lesson and a thought-provoker, which means that we get a more long-term and stable oil and gas industry in Norway for the future.

4) How can the industry reduce its costs while also improving safety?

A more stable level of activity will also yield greater stability in costs. Safety will always be our first priority. The oil companies should use the period we’re now in to follow up maintenance on platforms and HSE.

5) History has a tendency to repeat itself. How can we prevent costs getting out of control again when this round of cuts is over?

This is unfortunately a truism. Our members out on the platforms and in the oil industry on land find themselves in the middle of it every day.

They’ve long been reporting to us that the oil companies have had several years of planning and design failures, exaggerated reporting and bureaucracy, endless studies, unclear design, under-dimensioning of new structures and new fields, and inappropriate use of employees and consultants.

In addition come outsourcing, the use of overtime, signing-on fees and loyalty bonuses.

My best advice of all is to listen to those who know what the problems are – in other words, our members out on the platforms and in operations on land.

Sigve Knudsen, director of supervision, PSA

1) What is your view of the cost cuts now being made in the industry?

Initiating improvement processes at the companies in this area is understandable. What’s important for us in this context is that these provide positive effects for both safety and efficiency.

It’s not enough to have a passive goal that the level of safety won’t decline. The companies must have ambitious HSE objectives, even when times are tough. That also finds expression in the regulatory requirements for prudent operation.

2) How are the cuts affecting the PSA’s priorities?

We view these in the light of our risk picture of the industry, and will apply a risk-based perspective in our follow-up of the players.

The figures from our annual RNNP report on trends in risk level in the petroleum activity are generally good, but we mustn’t rest content with that.

For the past two years, these data have shown big maintenance backlogs in the sector. This is an area it’s natural to monitor in connection with the industry’s change processes.

How the latter are handled will be incorporated in many ways in our main priorities and specific supervisory activities for 2015.

We’ve long been monitoring processes in the Statoil technical efficiency programme (Step), for example. We’ll also be continuing to focus attention on management processes and responsibility.

Company managements hold the key to ensuring that change processes are conducted in a positive way, so that the short- and long-term results contribute to an even better level of safety than we have today.

3) What consequences do you think the cost cuts will have, immediately and in the long term?

The goal is for these cuts to have positive consequences for safety and the working environment. But a threat clearly exists that things could go the other way if the industry fails to pay attention to the way these changes affect HSE risk.

In the short term, we’re already seeing various consequences of big companies reducing their activities in a number of areas. That affects contractors and suppliers, who respond by downsizing.

On the other hand, some companies have opted to be counter-cyclical in this phase and are taking the opportunity to hire people, increase their holdings in fields or launch big projects. It’ll be very interesting to see who succeeds.

4) How can the industry reduce its costs while also improving safety?

The first rule is to believe that it’s possible. And the second is also to have a clear and explicit goal for improvement in the HSE area.

Without these ambitions, one might easily adopt a passive approach to ensuring that the cost cuts don’t affect or reduce the level of safety. Achieving good HSE results would then be hard.

It’s also important to make an overall assessment of safe and efficient operation, rather than concentrating on one or the other. Efficiency and safety go hand-in-hand in many cases, and a lot of measures will have a positive effect on both. But clear objectives are then needed in both areas.

5) History has a tendency to repeat itself. How can we prevent costs getting out of control again when this round of cuts is over?

The moves now being made by the industry must be sustainable in the long term. Good decision processes, based on solid risk management, collaboration between operator and supplier, and good employee participation which ensures entrenchment and ownership with everyone concerned, are important both now and in the future.

Stein Lier-Hansen, director general, Federation of Norwegian Industries

1) What is your view of the cost cuts now being made in the industry?

Reducing costs in a systematic and durable manner is essential. A special need exists to “industrialise” the NCS – in other words, introduce extensive standardisation of concepts and technical solutions to ensure cost-efficient production.

Within the parameters of a good HSE standard, simplifications are also necessary to ensure that attention is concentrated on what’s important.

2) How are the cuts affecting your member companies?

What’s affecting parts of the oil service sector right now is extensive postponement of necessary modification and maintenance work.

That’s primarily a way to safeguard the internal finances of the relevant oil companies in the short term, not a measure which will necessarily provide a more competitive cost base for the NCS.

3) What consequences do you think the cost cuts will have, immediately and in the long term?

In the long term, cost reductions will necessarily improve competitiveness on the NCS, and thereby contribute to the recovery of more resources even with lower oil prices. Among immediate effects, structural changes in various companies must lead to fewer employees.

4) How can the industry reduce its costs while also improving safety?

These two aspects should not be regarded as contradictory. Mainland industry has systematically cut costs and increased productivity while simultaneously reducing sickness absence and accidents.

5) History has a tendency to repeat itself. How can we prevent costs getting out of control again when this round of cuts is over?

This is primarily a matter of introducing a culture based on working systematically, every day throughout the year, on reducing costs, developing cost-effective work routines, standardising on a broad front and constantly focusing on what’s important for achieving continuous progress with productivity.