Oil Majors Seek To Claw Back Costs From Service Firms

Oil Majors Seek To Claw Back Costs From Service Firms
Global oil majors say they are demanding cheaper but better services from engineering and service companies, or simply taking work back in-house.

Reuters

DAVOS, Switzerland, Jan 22 (Reuters) - Global oil majors say they are demanding cheaper but better services from engineering and service companies, or simply taking work back in-house, after losing hundreds of billions on cost overruns in the last five years.

Cost overruns and delays were the main reason why oil majors generated less cash than shareholders expected when oil was over $100 per barrel.

With oil now half that price, the urgency of addressing costs and delays rises by the day for the producers.

While keen to avoid accusations of ganging up to force terms on suppliers, they are exploring measures that are likely to put further pressure on services companies such as Schlumberger and Halliburton, which have already cut thousands of jobs as business shrinks.

"In the 80s and 90s, we were very close to the projects and controlled costs and execution. In 2000s, when we became rich, we became less cost-efficient," said Claudio Descalzi, chief executive of Italy's ENI, one of the oil majors that meet in Switzerland every year on the sidelines of the World Economic Forum in Davos.

The group includes the listed BP, Royal Dutch Shell , Total, Chevron and Statoil and state giants Sinopec from China, Pemex from Mexico and Aramco from Saudi Arabia, making it the world's most powerful gathering of oil companies.

The boss of Aramco, Khalid Falih, said the group had held a closed-door meeting to discuss how to change the nature of relationships with oilfield services and engineering firms to deliver projects on time and on budget.


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