A critical evaluation of operation cost drivers of oil and gas plays
: a retrospective assessment of the economic viability of the Gulf of Guinea and the UK North Sea

  • Ibn Wahab Benin

    Student thesis: Doctoral ThesisDoctor of Philosophy


    Oil and gas industries are characterised as complex, highly capital intensive and high-level secrecy. Despite the global call for fossil fuel cut to reduce the global carbon emissions, the oil and gas industries account for about 58% of the global energy consumption. Previous studies on the oil and gas operations demonstrate the influence of operating cost on the operational performance, on a separate basis, within each of the regions of Gulf of Guinea and the UK North Sea. However, despite numerous studies in understanding the operational mechanics of this sector, there is limited academic literature on the operating cost dynamics vis-à-vis the operating cost drivers and also on how to foster effective comparison between the two important, but distinct regions namely: Gulf of Guinea and the UK North Sea. Comparison of the two regions is important because it helps towards understanding the universality or otherwise of the oil and gas operations. In response to the growing need to understand the dynamics in the industries, this study evaluates operating cost with a view to identifying and understanding activities that influence operating cost objects and their optimisation strategies in the oil and gas operations. The dynamics are crucial in identifying the economic viability of the projects undertaken within the two distinct regions in terms of regulatory framework and sources of labour. In this connection, three important research questions emerge. First, what operating cost drivers affect operating costs in the Gulf of Guinea and the UK North Sea upstream oil and gas operations? Secondly, what are the nature of the relationships that exist among operating cost objects in the Gulf of Guinea and the UK North Sea oil and gas operations? Finally, to what extent are the optimisation strategies implemented in the Gulf of Guinea and the UK North Sea help control operating cost to optimise oil and gas operations?

    Based on the literature reviewed on oil and gas operations and cost evaluation techniques, this study employs semi-structure interviews and open-ended questionnaire and electronically distribute them to senior management in the oil and gas industry to solicit for information on oil and gas operating cost drivers and their optimisation strategies. Additionally, this study employs vector autoregressive (VAR) models to explore the operating cost dynamics and establish relationships that exist among the operating cost objects. The results from both qualitative and quantitative data demonstrate that maintenance and labour activities are the major drivers that influence operating cost in oil and gas operations in the two regions. However, a closer observation of the data from Gulf of Guinea indicates that maintenance cost is trigged by poor maintenance culture, while in the UK North Sea maintenance cost is trigged by the aged infrastructure, which generates complex maintenance activities that influence operating cost. The labour cost in Gulf of Guinea is influenced by labour unionism while in the UK North Sea region the labour cost is influenced by high wages to compensate for the nature of the operation. Furthermore, labour deficits in both regions appear to be one of the factors that influence the operating cost. Additionally, this study identifies the importance of health and safety and how it influences UK North Sea’s operating cost, mainly due to strict regulation put in place in the provision of the health and safety. The study also documents evidence that security activities (e.g. from militancy, pipeline vandalization) often associated with weak regulatory system influence Gulf of Guinea operations, hence operators spend more resources to protect their assets. Furthermore, supplies and service cost in the Gulf of Guinea is influenced by the local content law where services are outsourced through the local company which often quotes outrageous prices of the service. However, in the UK North Sea, the supplies and service cost is influenced by oilfield chemicals for enhanced oil recovery processes. We conclude that, the operating costs in the two regions are affected differently given the peculiarities of the environments. These findings are particularly important to the investors when evaluating sensitivity of environmental factors to the operating costs. Based on the conclusion of this study, we recommend that there is a strong need for all stakeholder engagement, collaboration, and commitment towards devising and employing an effective system to optimise labour, maintenance and health and safety activities in oil and gas operations.
    Date of AwardMar 2021
    Original languageEnglish
    Awarding Institution
    • Coventry University
    SponsorsGhana Education Trust Fund (GETFund) & Coventry University
    SupervisorAdrian Wood (Supervisor), Masud Ibrahim (Supervisor) & Augustine Ifelebuegu (Supervisor)

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