Norwegian oil and gas sector needs to commit to long-term thinking for meaningful cost cutting, says DNV GL

More Norwegian respondents admit they don’t have a strategy in place to help maintain innovation.

A new phase of cost management is needed as 87% of senior oil and gas professionals in Norway are preparing their company for a sustained period of low oil prices, according to a new report published today by DNV GL, the leading technical advisor to the oil and gas industry. Although around one in five (19%) plan to increase or ring-fence R&D spending, 22% say they lack a strategy to help maintain innovation.

According to A New Reality: the outlook for the oil and gas industry in 2016, a DNV GL report based on a global survey of 921 senior sector players¹, Norwegian respondents see collaboration as a key enabler to maintain innovation in a cost-pressured environment - 44% will increase collaboration with other industry players and 28% will increase the involvement in joint industry projects.

Kjell Einar Eriksson, regional manager for Norway of DNV GL – Oil & Gas, says: “Norway is a country with high cost levels and has traditionally been very successful in offering highly innovative products and services, creating a competitive edge beyond price. The fact that almost a quarter of the respondents in Norway do not a have a strategy in place to maintain innovation is cause for major concern.”

More than one in five (22%) see lack of investment in technology and innovation as a barrier to growth, compared to 11% globally.

Cost management is the top priority for nearly half (49%) of Norwegian respondents in 2016 –an increase of 22 percentage points compared to last year, and 8 percentage points above the global score. Further, 76% of the Norwegian respondents believe the industry will be successful in reducing costs in 2016, compared to 65% globally.

Standardization and collaboration on innovation are viewed as measures for cutting cost. 75% of Norwegian respondents expect that operators will increasingly push to standardize their delivery, vs 61% globally.

“With the low oil price, the industry has naturally taken painful short-term cost-cutting measures by reducing headcount, delaying investments and squeezing the supply chain. However, the sector will have to focus stronger on meaningful and long term cost management measures to adjust to the new reality. That means cutting complexity, increased collaboration and greater standardization, which will put the industry on a sustainable growth path for the long term," Eriksson concludes.

Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, says: “Innovation isn’t just about finding the breakthrough technologies – although that’s important too - it’s also about making things simpler and more efficient and ultimately helping the industry to safely cut costs. We will not succeed if all our measures focus on cutting costs. We need to innovate on all arenas. It is positive to see that 19% of Norwegians try to ring-fence their R&D budget vs 15% globally. 

At DNV GL, we are continuing to invest 5% of revenue into R&D as we see this as a key enabler for sustainable long term competitiveness,” she says.

1. A New Reality: the outlook for the oil and gas industry in 2016 is an industry benchmark study from DNV GL, the leading technical advisor to the industry. Now in its sixth year, the programme builds on the findings of five prior annual outlook reports, first launched in early 2011. During October and November 2015, we surveyed 921 senior professionals and executives across the global oil and gas industry. More than a third (35%) of respondents work for oil and gas operators, while 60% are employed by suppliers and service companies across the industry. The remaining respondents come from regulators and trade associations. The companies surveyed vary in size: 40% had annual revenue of USD 500m or less, while 14% had annual revenue in excess of USD 10bn. Respondents were drawn from publicly-listed companies and privately-held firms. They also represent a range of functions within the industry, from board-level executives to senior engineers.