Oman’s PDO asks contractors to deliver 30% cost reductions

Contractors and service providers have until April 5, 2020 to submit specific proposals

Petroleum Development Oman (PDO). Image for illustrative purposes.

Petroleum Development Oman (PDO). Image for illustrative purposes.

Muscat: Majority state-owned Petroleum Development Oman (PDO) has directed oilfield contractors to achieve savings of at least 30 per cent of their contract values – a move that is expected to spark a wave of job cuts and cause other upheavals in the labour-intensive oilfield services industry.

It comes against a backdrop of plummeting global oil prices compounded by the novel coronavirus pandemic (COVID-19), which has convulsed oil and equity markets across the world. On Wednesday, the Oman Crude Oil Futures Contract – the Sultanate’s crude benchmark – plunged to $22.55 per barrel in trading on the Dubai Mercantile Exchange (DME), achieving new lows unseen in the past two decades.

In a letter addressed to a number of contractors, PDO Managing Director Raoul Restucci warned that cost reductions were indispensable to “our mutual survival and sustainability”.

“Maintaining operating and capital costs at present levels is simply not sustainable,” said Restucci in the letter, subject-lined ‘Near Term Sustainability’.  “We will need to concertedly re-address and challenge all operating, technical and development costs. 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 per cent without compromising safety and technical integrity,” he noted.

The steep decline in oil prices, coupled with the crisis unleashed by the COVID-19 pandemic, threatens to pose major challenges for the Oil & Gas industry, said the official. “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 stressed.

Contractors and service providers have until April 5, 2020 to submit specific proposals for achieving the targeted 30 per cent reduction in their contract values.

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