The petroleum industry has been through a period in which large cost reductions have been made in order to tailor expenditure to income levels. Restructuring in the petroleum industry has sparked a discussion on whether comprehensive cost reductions may increase the risk of undesirable incidents.
The need for comprehensive cost reductions means that the rate of change is high and many change processes are taking place concurrently (within the companies and across the industry). It will be important for the Petroleum Safety Authority Norway to form a picture of potential correlations between cost reductions and incidents in the Norwegian petroleum industry.
This picture will also provide a foundation for determining future priorities.
Conclusion
The study concludes that there is a correlation between cost reductions and the risk of undesirable incidents. This applies to cost reductions where the change affects aspects of the company’s management and where inadequate information and knowledge about this impact weakens the company’s decision-support in respect of cost-cutting measures. Several parallel change processes at different levels in the operating companies and among their suppliers reduce the companies’ ability to provide knowledge and information about how the changes, individually and in combination, alter the risk of undesirable incidents.
The study also concludes that it is difficult to demonstrate a clear link between the incidents experienced in the oil and gas industry in Norway in recent years and the cost reductions occurring over the same period. This is because the knowledge base does not adequately address possible correlations between the changes made by the industry in order to cut costs and the effect they have on risk levels. Some of the cost reductions may also impair the integrity of the facilities over time, making it difficult to point to a link between cost reductions and incidents during the same time period.
The study assessed whether the investigative methods used in the petroleum industry are suitable for detecting links between cost reductions and incidents. The study highlights a number of premises, including the mandate of the investigation, the combined competence of the investigation team, and their understanding of accident theory, as important factors affecting the outcome of an investigation. The Petroleum Safety Authority Norway’s investigations emphasise causes linked to management to a greater extent than is the case for the companies’ own investigations.
The study was conducted between November 2017 and January 2018, and is based on analyses, reports and studies available to the project during this period. Interviews were also held with management and employees from companies represented on the Norwegian Continental Shelf.
Effects of cost reductions
The petroleum industry is in constant change. The changes may cover everything from extensive reorganisation to minor adjustments to amended framework conditions. Change is a natural part of, and prerequisite for, value creation in the Norwegian petroleum industry.
All the same, the scope of the cost reductions has complicated the change processes, which may make it difficult to make comprehensive assessments of the potential HSE consequences of the changes for the industry.
Good change management is a prerequisite
Change processes can therefore increase the risk of undesirable incidents if they are not properly implemented. At the same time, it is important to emphasise that a change can also reduce or leave unaffected the risk of undesirable incidents, if its planning and implementation are carried out in a sound and structured manner.