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

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.