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April 9, 2020

PDO asks contractors for cost reductions

By MEED   

Majority state-owned Petroleum Development Oman (PDO) has directed oil field contractors to achieve savings of at least 30% of their contract values.

In a letter addressed to a number of contractors, PDO managing director Raoul Restucci warned that cost reductions are indispensable to ‘our mutual survival and sustainability’.

With the Covid-19 pandemic spreading globally, oil prices have been hit hard, dropping below the $30-a-barrel mark in recent weeks, proving detrimental to the commercial interests of national oil companies (NOCs) in the Gulf.

Abu Dhabi National Oil Company (Adnoc) issued a notification to its supply chain on 17 March calling for discussions to achieve procurement cost reductions.

In addition, Adnoc was also reported to have approached contractors to urge them to reduce costs by up to 30%.

While it is understood Saudi Aramco has not made a similar approach to its contractors and suppliers, it has reduced its capital expenditure plan for 2020 to $25bn-$30bn.

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PDO’s Raoul Restucci said in his letter, titled ‘Near-term Sustainability’, that maintaining operating and capital costs at present levels was not sustainable.

“We will need to concertedly re-address and challenge all operating, technical and development costs,” he said. “As a key supplier to PDO, I count on your support to critically examine your contracts and associated supply chains.

“Please identify opportunities that will result in driving value / improved efficiency and cost reduction of at least 30% without compromising safety and technical integrity,” he noted.

“As you are well aware, the industry faces a dramatic and continuing fall in oil prices while Covid-19 challenges are escalating, impacting the safety of company and contractor employees and their families, work execution, supply chains and broader economic fundamentals. This unprecedented operational and economic climate poses serious challenges for our industry and Oman,” he said.

Contractors and service providers have until 5 April to submit specific proposals for achieving the targeted 30% reduction in their contract values.

This article is published by MEED, the world’s leading source of business intelligence about the Middle East. MEED provides exclusive news, data and analysis on the Middle East every day. For access to MEED’s Middle East business intelligence, subscribe here.

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