Implications of the Wood Review – can the UK oil and gas industry address its cost control challenges?
Posted on: May 5th, 2014 by
Jim Kerslake

Jim Kerslake

Jim is a software developer at Kildrummy. He has been involved in developing the last four releases of CostMANAGER, and is currently working on Kildrummy's web based KCM Plus software.
Jim Kerslake

The conclusions of Sir Ian Wood’s recent review of the UK’s oil and gas industry were sobering – the industry’s development is currently being stalled by escalating costs – especially in the areas of supply chain and decommissioning.

wood_review_mapExploration is at an all-time low, with the rate of exploratory drilling having halved over the past ten years, and production has fallen by 38% in the last three years.

In Sir Ian’s own words:
“Cost pressures are also a significant challenge with the UKCS being one of the more expensive offshore basins in the world with development costs per barrel having risen fivefold over the last decade. There must be concern at the recent postponement of two sizeable projects and steps must be taken to reduce the cost base”.

In short, there is a cost crisis in the UK oil and gas industry, which mirrors the problem of escalating costs elsewhere in the world.

Here at Kildrummy we have over 20 years’ experience in helping companies of all sizes to get a grip on their project costs, through the implementation of cost control systems. This isn’t just about software: it’s also about the discipline of introducing a formal standardized process for the management and reporting of costs, right across the organization.

In these lean times, there is an understandable temptation for companies to defer the adoption of a formal cost system until too late in the lifecycle of a project, preferring instead to soldier on with the aid of spreadsheets and manual calculations.

However, in doing so they risk missing out on the crucial benefits that a formal system can deliver – most notably:

• increased discipline in capturing project cost data systematically
• increased standardization, efficiency and accuracy of reporting
• the ability to forecast future costs credibly, based on the value of work completed to date

Without these vital tools, the risk of project costs escalating out of control is all too real.

Whilst the adoption of formal standardized cost management processes might not solve all of the industry’s problems, we certainly believe that Sir Ian Wood’s review provides a salutary warning that they are now more necessary than ever.

The Wood Review final report is available at: http://www.woodreview.co.uk/