Oslo. The global oil service industry will have to cut more jobs and idle more rigs following the slump in crude prices and companies must reshape their business models to get a grip on costs, the chief executive of US firm FMC Technologies said on Thursday.

One of the world’s biggest subsea equipment suppliers, FMC Tech expects the US shale sector to take the brunt of the next round of cost cuts and sees large West African deepwater projects and developments in the North Sea and Brazil as most vulnerable to delay or cancellation, John Gremp said.

The sector’s cash drain could make smaller oil service firms in the US shale market takeover targets but the bulk of the sector has already undergone consolidation and is in position for the eventual recovery, Gremp told Reuters in an interview.

“When there’s a recovery, we’re still left with the same problem, which is lower returns even when the oil price was stable,” he said.

Offshore majors from BP to Chevron have slashed billions of dollars in investment this year in response to a 50 percent plunge in prices since mid-2014, while Brazil’s Petrobras the world’s biggest offshore firm, is in disarray after a management shake up and corruption scandal.

After years of rapid cost inflation, spending cuts will not solve the sector’s problem unless firms use more standardized equipment, bring contractors into projects earlier and start producing equipment on an industrial scale, he said.

“Deepwater oil is like the automobile industry used to be. The first automobiles were unique, then eventually there was scale, standards and industrial scale. We need that curve.”

Oil firms demand unique solutions, from engineering to equipment, for each new field to maximize production but this keeps costs high as service companies, who do everything from seismic surveys to drilling, cannot reuse past work.

“Every project is a new adventure every time, so there’s no learning curve, no repeatability, and it destroys the ability to be cost efficient and reliable,” he said.

Subsea has been among the most resilient parts within the oil services sector but Gremp said this was because there is a delay given it takes six to eight years to complete projects.

Gremp predicted energy firms will not stop projects already sanctioned, keeping subsea order books relatively healthy for now, but orders could take a hit once the current work runs down and new projects are delayed.

Reuters

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