PDO eyes $900mn savings over next 5 years: Report

Initiatives have been designed to yield hundreds of millions of dollars in savings to the company over the 2015-20 timeframe

The targeted savings are a direct consequence of the slump in global oil prices.
The targeted savings are a direct consequence of the slump in global oil prices.

State-owned Petroleum Development Oman (PDO) is targeting savings in excess of $900mn over the next five years, according to a report by the Oman Daily Observer.

Already in place is a string of initiatives designed to reduce expenditure in the face of a severe revenue crunch that has also impacted much of Oman's oil and gas sector.

The initiatives, which include 'Contract Optimisation Reviews', 'Smart Contracts', and 'Lean Business Strategies', have been designed to yield hundreds of millions of dollars in savings to the company over the 2015-20 timeframe.

‘We are relentlessly pursuing ever stricter cost control and have identified a number of significant opportunities to execute work more efficiently and reduce waste’, Raoul Restucci, PDO’s managing director has stated in the company's recently released Sustainability Report 2015.

‘Indeed, the current environment is enabling us to challenge the status quo and seize the opportunity to create a more effective, productive and leaner business model. From discretionary expenditure to redeployment of hoists and other resources, we need to 'serve Oman' by ensuring we are all working to remove inefficiency and waste’, he has stated.

The targeted savings come on top of the estimated $1.6bn reduction announced by PDO in its planned expenditure for 2016 - a direct consequence of the slump in global oil prices.

In PDO's sights are around $450mn in potential savings that it wants to garner in collaboration with contractors over the next five years.

‘Together with its contracting community, the Company has seized the opportunity to review and challenge its modus operandi and standards. Engagements were held with key contractors to identify opportunities for value improvement and cost reduction in a collaborative manner, leading to almost 300 cost-saving, efficiency or productivity improvement ideas worth $450mn over the period 2015-20’, the company mentioned.

Separately, Contract Optimisation Reviews (CORs) - an initiative that was launched last year - promise to yield over $400mn in additional potential savings over the 2015-20 timeframe, according to the company.

The reviews, says PDO, aim to identify and eliminate waste in the scope of contracts in order to make them fit-for-purpose, as well as reduce costs for both PDO and the contractors.

Furthermore, through the implementation of 'smart contracts' - where the prices of materials are renegotiated every six months - PDO's Well Engineering and Logistics Directorate is eyeing savings of around $53mn in 2016 alone.

The Directorate, which spends an estimated $350mn annually on a variety of materials, has rolled out a Materials Inventory Management System that enables it to optimise the utilisation of materials in stock - a measure that contributed to savings of $27mn last year.

Also helping streamline operations and cutting waste is PDO's implementation of Lean continuous business improvement methods and systems.

The initiative was upgraded in 2015, at the start of the oil price crash, with the inclusion of project delivery as the seventh ‘value stream’ or business area, following well delivery, well and reservoir management, operate and maintain, contracting and procurement, people and HSE.

A total of 115 improvement projects have been executed and more than 100 projects are ongoing as PDO's lean culture was consolidated, the company added.

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