The North Sea oil and gas industry has been warned not to repeat the mistakes of the past by using mass lay-offs as an easy way to cut costs.
The sharp fall in the price of oil to around $60 a barrel has forced firms to revisit their plans in order to shave costs where possible.
Wood Group PSN last week announced a salary freeze for its UK-based workforce and a 10% cut in contractor rates while oil major ConocoPhillips confirmed plans earlier this month to cut up to 230 staff from its North Sea operations.
The decision over redundancies came just days after the Houston-based firm announced plans for a 20% reduction in spending next year.
Milos Bartosek, oil and gas specialist in PwC economics and policy team, said the North Sea sector had lived to regret using mass redundancies as a way of curbing costs in the 1980s and should think twice about doing so again.
“With the oil price falling at a precipitous rate, oil and gas operators are pulling the traditional levers of cost mitigation,” Mr Bartosek said.
“In some cases they are downsizing headcount, announcing reduced capital expenditure for 2015, and implementing wage freezes.
“Looking ahead it would not be surprising to see operators dispose of non-core assets and negotiate more aggressively with third party suppliers for reduced pricing.
“Given it is unclear where the oil price floor will be during this period of volatility, some participants can be forgiven for pulling these levers fervently.
“However, it is important the sector’s responses are measured to ensure the sustainability of the industry.
“Moreover, the industry would do well to be mindful of two themes going forward talent retention and operational excellence. Talent retention is essential for the long-term survival of the industry.
“The talent gap that currently plagues the industry in the shape of the ‘big crew change’ was in large part triggered by the mass layoffs of the 1980s when oil prices declined dramatically.
“That decision back then has resulted in the major challenge of sourcing and retaining seasoned geologists and engineers, who are in perennial short supply.
“As for operations excellence this is somewhat of a core competency that needs to be revisited.
“The ability to manage an asset base (which in some cases is very mature such as in the North Sea) efficiently while complying with stringent health and safety requirements is essential.”
PwC’s head of oil and gas consulting, Alastair Geddes, said quick-fix solutions were not always the best for the long-term health of the business.
He said: “In the oil and gas industry, complexity arises from the nature of a ‘whole system’ interconnected elements from people and processes to assets and supply chain that need to be balanced.
“Whole systems, however, don’t respond well to tactical change and that’s where the challenge lies.
“Almost by definition, you change one thing in the system and you’ll find unintended consequences which may create a bigger problem down the line.
“Unfortunately, there is no silver-bullet solution.
“Companies need to implement a range of measures to create a sustainable, lower cost, operation, not just the tactical quick-fix answers.”