Guest Editorial: Low Prices Trigger Much-Needed Change Through a Holistic Approach

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Guest editorial Change in the oil and gas industry often comes slowly. However, as months of low oil prices turn into years, it is necessary now. Oil producers have taken to cutting billions of dollars in expenditure, which has forced providers and contractors to slash rates and delay and even cancel projects. The upstream industry in particular needs to fundamentally transform the way it works to survive and thrive. While cost-cutting can be an effective plan in the short term, the industry needs to take a longer-term focus and change the fundamentals of the way it operates. To compound matters, the days of triple-digit oil prices appear well and truly over, with the World Bank estimating that a barrel of oil will only rise to USD 60 by 2020. Regardless of the oil price, the sector needs to rethink established ways of working in order to better handle increasingly complex projects. The high crude price in recent years helped the industry gloss over inefficiencies and enjoy success in the short term. But the recent slump has fully exposed shortcomings, and shone a spotlight on the fact that the offshore industry was on an unsustainable path and in need of guidance to standardize processes to lead the industry through a turbulent time. Taking a Holistic Approach A reason why projects are not completed on time and on budget is the disconnect between operators and contractors. A recent report from Ernst & Young on oil and gas megaprojects showed that 21% of project failures came down to management processes and contracting and procurement strategies; 65% were due to people, organization, and governance; and 14% of failures were due to external factors such as government intervention and environment-related mandates. The existing model of contracting is piecemeal with specialist designers, contractors, and projects managers coming on board one at a time, with no one group bringing the whole project together at the front end to deliver efficiencies and control that should be standard in the offshore sector. Oil companies and contractors, therefore, need to work together better to understand the drivers and develop the best blueprint to take the project forward into execution with a common purpose. The benefits of a holistic approach mean that all aspects of a project are taken into consideration from the beginning to ensure that it can be delivered on time, on budget, and with certainty.