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Priorities for Cost-Cutting in the Oil Industry

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Oil companies are running out of methods to cut expenses in order to profit from lower priced oil. Cutting jobs, capital expenditures, and putting pressure on suppliers can only bring overall cost down so much before another alternative is needed. New measures must be taken to ensure survival in a strained market.

A DNV GL report outlines the priorities for cost-cutting by surveying 921 veterans in the oil industry. According to the report, these senior professionals acknowledge that capex reductions were hit heavily in 2015, but will not necessarily be the main focus in 2016. There is only so much that can be cut before one begins to take away from core business operations. However, job reduction prioritization is expected to increase from 2015 to 2016, indicating that some companies see this as the easiest way to cut down on spending.

Putting pressure on suppliers will still be a priority, but not as much as it was in 2015, as suppliers must also maintain a certain level in order to profit. Job reduction seems to be the factor that will see the most increase during this downturn.

Investing in R&D and innovation are critical to staying alive during this time. As Elisabeth Tørstad, CEO of DNV GL, notes, it won’t necessarily be huge technological breakthroughs that will enable survival: rather, it will be a push for efficient, simple processes that reduce unnecessary costs incurred during various operations. She states that “it’s…about making things simpler and more efficient and ultimately helping the industry to safely cut costs.” The companies that achieve this end will be the ones to prosper during, and after, this downturn.

Article written by HEI contributor Timothy McNally.

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