AOG Insights with Accenture: Part 2

AOG Insights with Accenture: What lessons can Australia learn from other oil and gas jurisdictions and what moves has the Australian government made to support the local industry?

In its highly regarded May 2015 report ‘Ready or Not? Creating a world-leading oil and gas industry in Australia’, professional services organisation Accenture highlighted the importance of “collaboration” if the Australian oil and gas industry is to take advantage of its world-class LNG sector and survive the current industry downturn.

In this second part of an exclusive ‘AOG Insights’ series, Accenture report co-author Bernadette Cullinane, Accenture’s Asia Pacific Energy Lead and a keynote speaker at the AOG 2016 Conference, provides some in-depth thoughts on what learnings the Australian petroleum sector can take from other leading oil and gas countries.

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AOG: Do you believe the Australian oil and gas industry has been able to take advantage of lessons learned from other jurisdictions on how best to make these types of transitions?

Bernadette Cullinane: Time is crucial as projects are transitioning to the operations phase in an environment likely to be prolonged by low commodity prices. Accenture’s report highlights many recommendations including the application of global lessons learned and leading practices, increased industry collaboration, innovation and the embracing of digital technology as key to moving the industry toward world-class performance areas.

Australia can learn from other oil and gas sectors that have been through similar growth and cost reduction transitions. One such sector is the UK offshore oil and gas industry, which has created forums that promote collaboration and growth by improving regulatory efficiencies and costs. This allowed the industry to respond effectively to oil price declines and competiveness concerns.

One of the earliest collaboration and cost reduction initiatives in the UK North Sea was the CRINE initiative (Cost Reduction in the New Era), established in 1992 specifically to reduce the capital costs of developing oil and gas fields, CRINE recommended shared working practices, a sole industry body for prequalification and a reduction in paperwork during the procurement process. Acting on these objectives, the industry was able to reduce costs by 40%. CRINE evolved into the CRINE network, which had a wider focus on increasing the global competitiveness of the UK North Sea, and introduced model contracts documents for use in the UK oil industry.

Eventually, the UK oil industry set up organisations like LOGIC (Leading Oil and Gas Industry Competitiveness, established in 1999) to further encourage collaboration and improve the competitiveness of the UK North Sea industry. The formation of LOGIC was one of the key deliverables of the UK’s Oil and Gas Industry Task Force (OGTF, now PILOT), which looked at cost-reduction initiatives and how to improve the productivity of the North Sea.

Application of these very same lessons to Australia could result in similar cost reductions and efficiency improvements.

AOG: Do you believe Australian governments have recognised this transition and have reacted accordingly?

Bernadette Cullinane: While there have always been strong industry supporters in government, there is increasing recognition of the importance of the sector to the oil and gas industry across many stakeholders. As an example the Oil, Gas and Energy Resources Growth Centre is mandated to address a broad spectrum of industry challenges including:

• Reduce high cost structures
• Promote industry sustainability
• Unlock unconventional gas
• Develop key industry skills
• Enable industry-lead research
• Reduce regulatory burden
• Improve supply chain
• Support predictive data analytics

However Accenture research indicates there is still much to be done. Two areas that require significant improvement are in the regulatory and industrial relations frameworks. The current industrial relations framework is not ready to support world-class operations and requires significant improvement.

In the Ready or Not research, three-quarters of operators and two-thirds of service companies stated that Australia has an inflexible industrial relations framework. To improve Australian competitiveness will require changes to labour regulations, flexibility of wage determination, hiring and firing practices, and more cooperation across the board.

The majority of operators and services companies interviewed for Accenture’s research were concerned about ambiguous, changing and/or inconsistent regulatory requirements, and the time and money spent complying or dealing with government regulation, licensing processes and bureaucracy. In order to increase competitiveness, the regulatory framework must be made more consistent.

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