More supply chain bankruptcies on the cards if the ‘squeeze’ continues, report says
More oilfield service companies could go to the wall if operators continue to “squeeze” the supply chain financially, PwC and OGUK’s report said.
Operators participating in the study acknowledged service companies had been put under enough pressure and could cut costs no further.
Failing to ease off could “precipitate bankruptcies” across oil service companies, which would be “detrimental to competition”.
The report also suggested operators’ treatment of suppliers during the downturn could return to haunt E&P companies.
Service companies were forced to diversify into different geographies and sectors to make a living during the lean years.
Operators now have to “actively attract suppliers to engage in the UK Continental Shelf”, according to the report.
When oil prices plummeted in 2014, exploration and production (E&P) firms forced suppliers to make do with a smaller slice of the cake, leading to widespread company closures, consolidation and job losses.
Interviewees said operators and suppliers had to find “new ways” of working in partnership if the UK North Sea is to stay competitive.
But too many companies are “still locked in a traditional mindset”, meaning they remain focused on cutting costs rather than driving value.
Report authors did note signs of improvement. They said operators were starting to build “fresh and more durable relationships with their suppliers”, treating them as equal partners.
Star pupils included Chrysaor and Baker Hughes, who struck up a multi-well drilling agreement under which both parties shared the risks and rewards.
Chrysaor chief executive Phil Kirk said: “There is just no benefit in choking the life out of the supply chain. They are the breeding ground of innovation, people and technology.”
The report said innovative technologies and business models would be crucial for unlocking the full potential of the UK Continental Shelf.
The study also said oilfield service companies were well placed to partner with smaller E&P firms, helping them manage producing assets and platforms heading for decommissioning.