The petroleum industry in the Middle East needs to take a strategic approach to cost transformation to maintain a competitive place in the challenging oil economy, says global management consulting firm A.T. Kearney.
According to Richard Forrest, Global Lead Partner of A.T. Kearney’s Energy and Process Industries Practice, the instability in global oil price offers difficulty for businesses in the region to make a ‘step change’ in their operating models.
Considering the present market condition, the oil price outlook requires a structural response from both national and international oil companies, Forrest said while addressing a networking event held exclusively for members of the Middle East Petroleum Club (MEPC).
Forrest said: “The current oil price outlook requires all companies to take a hard look at costs. Oil companies need to prepare for a future with continued market uncertainty – it requires a structural change from across the industry. Strategic cost transformation goes beyond today’s traditional response of delaying projects and renegotiating with suppliers.”
He also indicated that the North American shale companies were among the first to respond to the new environment affected by fluctuating oil prices. Some in the industry have managed to reduce upstream costs by more than 50 percent in the previous years.
“We are at a critical point in time where oil companies globally need to reflect and act on the oil market outlook. Industry leaders will look to implement the next wave of comprehensive strategic cost transformation,” he said.
Forrest said companies will now be considering how to optimise their portfolio, reduce costs across the value chain, reshape their operating models, and explore how best to leverage the abundance of M&A opportunities in the market.
MPEC is oil and gas industry membership club initiated by the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC).