The time has come for the offshore industry to review costs in line with lower oil prices, according to an executive of V.Ships Offshore.
The ongoing industry downturn is a time to review the cost of services since it was driven up by speculative play in the market place and keeping in line with the surging crude oil prices, Alessandro Ciocchi, Group Offshore director at V.Ships Offshore said.
Pointing out that it is the longest drawn crisis in the history of the industry, he called for implementation of cost effective measures across the industry, saying this should happen within the rest of 2016 and in line with the new oil price trend.
Ciocchi agreed that oil prices will stabilize at or close to $50 per barrel by end of this year, which could help resume hydrocarbon exploitation from deepwater basins. Global petroleum industry must resume deepwater hydrocarbon production, otherwise prices would spike again and result in another shortfall in oil supplies, Ciocchi added.
On whether the industry is currently facing a crisis or an opportunity, Ciocchi said, “It is a moment that allows all of the industry supply chains to look back and work towards the cost basis. There has been escalation of cost for a number of years, which was absolutely not justified.”
The escalation of costs was in the name of innovation. But in reality there was no innovation and it was just an escalation of prices.
“Yes, demand was very high and drove prices up, but let’s face the reality,” he said.
He called on the industry to maintain professional attitudes towards maintaining costs.
“Now, I think, is the right time for people to look at the costs and start understanding what is really needed. Maybe we can make this like the new normal,” Ciocchi said.
Cost of upstream services in the North Sea has come down by 40 to 50 percent, he cited general industry estimates.
Ciocchi is more confident of cost management in Asia.
“Asia is an area where, historically, the cost effectiveness will always be there because there has been always a better attitude towards cost control.”
Asia is also improving the standard of its services, which previously lagged behind those in the Western markets, he observed.
“Actually, Asia could be a leading example of how to, going forward, execute business by learning from the standards in the compliance side of the services and maintaining a strong cost control,” he said.
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