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The APPEA Journal The APPEA Journal Society
Journal of Australian Energy Producers
RESEARCH ARTICLE (Non peer reviewed)

Cost transparency: which levers do you pull when we cannot trust the dials? The continued challenge of understanding what is really driving costs

Jonathan Smith
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- Author Affiliations

KPMG.

The APPEA Journal 56(2) 581-581 https://doi.org/10.1071/AJ15087
Published: 2016

Abstract

In the past few years an industry-wide race towards achieving construction milestones took place, which drove behaviours of increased spending. Now the focus is on implementing low-cost operating models to optimise the move towards operations in a lower-priced oil world.

KPMG’s recent work and research demonstrates that cost transparency is still a major issue in the upstream oil and gas industry for operators and non-operators. It is clear that it will be difficult to drive out costs and move to the lower cost baselines without significantly improving cost transparency in oil and gas organisations.

In KPMG’s research, operators in Australia and the Association of Southeast Asian Nations (ASEAN) were asked about what challenges they saw, and how they were managing cost in the context of cost transparency.

The focus of the research covered the following areas:

  • how can you optimise costs if you don’t have transparency?

  • defining the problem and its boundaries;

  • external influences;

  • internal influences and reactions;

  • the increased scrutiny from joint venture partners;

  • the challenge to developing a cost culture; and,

  • the barriers and enablers.

Also, the oil and gas industry has invested heavily in a safety first culture. It has made enormous improvements and the culture is permanent. It could be argued that if the industry put a fraction of the same energy in to building a cost conscious culture then it will weather the lower oil price world so much better.

Jonathan Smith is KPMG’s National Leader for oil and gas services in Australia. He has more than 25 years of experience in management consulting, and for the past eight years has focused almost solely on working with gas operators on process improvement and cost transparency/management. He has had a particular focus on advising and assisting finance leaders with strategic and operational issues facing their finance functions. In the past few years Jonathan has worked in capital-intensive industries; specifically, LNG, CSG/CSM and mining companies. He has authored thought leadership publications on areas such as cost transparency, building a cost culture, and cost optimisation.


References

Malik, Q.A., Saif, I., Anjum, N., and Hassan, S. (2011). Organisational culture and cost management strategies—developing a model. The European Journal of Economics, Finance and Administrative Sciences , 155–62.

Wilson, S.A. and Perumal, A., 2009—Waging war on complexity costs: reshape your cost structure, free up cash flows and boost productivity by attacking processes, product and organizational complexity. New York: McGraw-Hill Education.