2. BACKGROUND
• The Oilfield Service (OFS) Industry experienced tremendous growth both in revenue and employment following the global
economic challenges of 2008-2009. The Norwegian OFS industry in particular was not hit very hard by the financial crisis,
so even pre-2010 growth figures are impressive.
• The profitability of this largely unchecked growth became a concern in 2014 as oil prices dropped dramatically, but there
was a lag in the effects of these dropping revenues due to existing contracts and development plans.
• Spot day rates have dropped by as much as 75% for both offshore vessels and rigs, but contractors and suppliers have
been largely unable to «rightsize» their organizations in time to handle the decreased demand and lower revenues. This
has led to a number of high profile bankruptcies and a management crisis in many businesses.
• Decreasing ROI on employee efforts and productivity per manhour over the past decade has been largely offset by an
inflated oil price. Many of the work practices that were financed by $100 oil are no longer feasible in the present market
and need to be swiftly corrected to respond to this new economic reality.
4. Revenue generated on the NCS vs Price of Oil
Unsurprisingly, revenue generated on the
Norwegian Continental Shelf closely
follows the development of the price of
oil.
5. Growth in Global Oil Production vs Growth in Oil-related Employment
6. Growth in Global Oil Production vs Growth in Oil-related Employment
While global oil production has increased
by less than 10% over the past decade
(85 million barrels per day in 2005 –
93 million barrels per day in 2014),
global oil employment has increased by
more than 80% in this same time
(2,3 billion manhours in 2005 –
4,3 billion manhours in 2014).
Growth on the NCS follows a similar
pattern to the global trend – employment
far outstrips production gains.
7. 30 years of Worker productivity measured in barrels produced and revenue generated
8. 30 years of Worker productivity measured in barrels produced and revenue generated
As employment growth outstrips
production gains, the number of barrels
of oil produced per manhour has fallen
almost 80% over the past 30 years.
Decreasing efficiency has been
compensated for by the inflating price of
oil, so revenue generated per manhour
has been on the increase since the early
2000s despite worsening productivity.
9. PRODUCTIVITY DECLINE
• Productivity in the Oil & Gas industry has been negatively impacted by a number of (largely reversable) factors, including
the following:
• Lack of standardization (focus on project/product uniqueness)
• Ballooning documentation requirements (anectodal evidence suggests an increase of 5-30% of paperwork in the past
5 years alone).
• Specification-Creep, or increased complexity of technical compliance
• Insufficient cost focus (due in part to oil price compensation of declining productivity)
• Increasing regulation, in particular with regards to HSEQ and risk management
• Increasing worker specialization, or lack of employee skill cross-over
10. SUMMARY
• The «value» of a manhour in the oil and gas industry has never been lower than it is today. The average revenue
generated by a manhour over the past 30 years has been $650 (median value = $625). Over the past 10 years the
average has been $745 (median value = $675). In 2015, revenue dropped 85% to $165 from it’s height of $1075 in 2012.
• The current cost of doing business is not sustainable at $30 oil
• To improve profitability, the number of manhours utilized to generate each barrel of oil must be reduced, the downward
trend in productivity needs to be reversed.
• Labor costs per employee on the NCS have been growing at a similar pace to the overall wage inflation in Norway,
enforcing industry/company wide salary cuts does not properly address labor costs – only a reduction in the total size of
the labor force will bring costs in line with revenue.
• Continuous improvement of cost management and productivity is the key to managing the current economic climate as
well as remaining sustainably positioned for futher growth-and-decline cycles.
11. MANAGEMENT STRATEGY
• The oil and gas industry has a history of responding dramatically to growth and decline cycles, and in general shows a
lack of managerial maturity in operational strategies.
• Stability and sustainability should be the principles to which organizations in this industry aspire. This requires a proactive
(as opposed to reactive) management strategy.
• The focus of workforce «rightsizing» should be on operational essentials, shaping the workforce to address core business
needs ideally through cross-training (creating a more versitile employee pool) and standardization (reducing uniqueness).
• HSEQ standards cannot be lowered, but to keep costs in check companies need to move HSEQ ownership down the
management structure into the hands of the workers who are most at risk. Standardization of expectations is also
required here.
• Empowering employees from an HSEQ perspective is complemented by a general onboarding of personnel to the overall
management strategy of sustainability, this is only achieved through compassionate leadership and clear communication.
12. VALUE STREAM MAPPING / CHANGE MANAGEMENT
• Increased productivity and efficiency can be acheived despite overall labor cuts through the proper application of lean
management strategies and the leveraging of appropriate technologies.
• Continuous improvement and focus on operational essentials is required.
• Better planning means fewer changes will be required.
• «Everything should be as simple as possible, but no simpler» Particularly true of technical specifications – the simpler and
broader the requirement the cheaper it will be to fulfill and the fewer change requests will be required later in the process.
• Authority to approve change should sit as low within an organization as possible.
• Standardized solutions are preferable to specialized ones.
• Accept more uncertainty, be clear where the line is drawn between acceptable and unacceptable risk.
13. REQUIREMENTS TO LEADERSHIP
• Is perpetual growth a worthy goal in itself?
• What is acceptable for the sole sake of financial returns?
• Automation threatens jobs
• Outsourcing threatens jobs
• Crowd Working threatens jobs (and walks a fine line of illegality)
• A portfolio of Forbe’s magazine’s «100 best places to work» outperformed the market by more than 4 percentage points a
year between 1984 and 2005. Why? More work gets done at businesses where people care about the product and the
company.
• Developing and maintaining trust between levels of management is essential to high performance.
• Leadership can be found at all levels of an organization, leveraging and empowering the individual is key.
• Strong teams build strong companies.