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

More senior oil and gas professionals in the UAE felt their organization had been successful in achieving its cost-efficiency targets over the past year than the global average (83% versus 74% globally), according to a new report published today by DNV GL, the leading technical advisor to the oil and gas industry. Despite strong cost-efficiency achievements, UAE respondents still favour more short-term responses to the downturn.

Short-term strategies include focusing more on onshore operations (40%), shifting from CAPEX to OPEX efficiency and favouring investments with a shorter time-frame (55%) according to the report, A New Reality: the outlook for the oil and gas industry in 2016, based on a survey of 921 senior sector players¹. UAE respondents also believe the sector has taken a short-term approach to innovation and R&D (36%) and to skills and career development (45%), compared to 32% and 43% respectively among global respondents.

Cost management has fallen slightly as a top/high corporate priority, but there is expected to be growing pressure on the supply chain (31% of respondents in 2016 compared to 20% in 2015). Reducing the headcount will be less important in 2016 as a cost-management measure, down from 30% last year to 24% in 2016.

Anupam Ghosal, regional manager for Middle East and India, DNV GL – Oil & Gas, says: “Whilst the price remains low, some short-term cost cutting will continue with the supply chain still under pressure and it is concerning that a short-term approach is being taken to skills and innovation. However, there are signs that the Middle East is adapting to the new reality of the low oil price and doing its homework in implementing long-term cost-management changes. Increasing standardization and collaboration are high on the agenda, and will help put the region on a sustainable growth path for the future.”

The UAE is receptive to standardization and 66% of respondents believe that organizations will achieve greater standardization of tools and processes, while 60% think that operators will increasingly push to standardize their delivery globally.

While only 17% of UAE respondents plan to increase R&D spending, this is still more than the global average of 15%. The most favoured strategy in order to maintain innovation within a cost-pressured environment is to increase collaboration with other industry players (43%).

Enhanced oil recovery (31%), unconventional gas extraction technologies (29%) and unconventional oil extraction technologies (28%) are perceived as the new/emerging technologies that will have the greatest industry impact in 2016.

Elisabeth Tørstad, CEO of DNV GL - Oil & Gas, adds: "Joint innovation and smart standardization are critical to strip back complexity and, in turn, lower costs and enable rapid and efficient technology implementation. It is interesting to see that UAE respondents see operational production efficiency as the highest priority for R&D spend.

“Innovation isn't just about finding the breakthrough technologies - although that's important too - it's also about making things simpler and more efficient. At DNV GL, we are continuing to invest 5% of our revenue in R&D, which will ultimately help the industry to safely cut costs.”

Other key findings include:

• Twenty-two per cent of UAE respondents believe the industry has failed to understand supply/demand cycles and cutting production in order to maintain price stability, compared to 8% globally.
• The top two barriers to growth are uneconomic oil prices (60%) and a weak global economy (47%). More than a third of UAE respondents (36%) identified geopolitical instability as the third-largest barrier to growth, compared to 13% globally.

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.