HOUSTON—Costs must decline further before Gulf of Mexico (GoM) activity rebounds, according to speakers at the recent Hart Energy’s Offshore Executive Conference in Houston.

Technical innovation will be part of the solution, as it always has been. However, today more operators and service companies are talking about collaborating and standardizing as well, they said.

“We’re always looking at technology; it is part of the solution. But you can’t keep doing this the same way as before and then expect to see costs drop,” said Michele McNichol, CEO of Wood Group Mustang, one of the GoM’s largest service providers.

“We love technology and we have a significant R&D program going on. But to really understand which technology makes a difference is very important,” said Amol Phadke, vice president of asset support, U.S. offshore for Statoil, which has two rigs running in the GoM now. “The company sees the Gulf as a cornerstone of its production growth for the next decade,” he said, despite a current slowdown in activity.

W&T Offshore CEO Tracy Krohn added “Technology has a role, but it has a cost before you can save money with it. You have to make sure it doesn’t cost more than the savings it delivers to you. You’ve got to develop it, buy it, train on it.”

Krohn has been operating in the GoM for 30 years; the company has one rig running at the moment. “It’s not so much about the price [of oil and gas]; it’s really about your margin. When margins get back to where we need them to be, then we’ll go back to work.”

Speakers said $60/bbl is the marker they are looking for before they increase offshore activity.

Ron Neal, co-founder and co-owner of privately held Houston Energy LP, noted that its partner, LLOG Exploration, “has done a wonderful job of cutting costs. Our model is really collaboration and that is how we’re able to control our costs.”

The lone service provider on the panel, Wood Group Mustang’s McNichol, noted the industry has already done the easiest bits of cost cutting through 2015; further cuts will be more difficult to attain. In addition to cutting out costs in projects already underway, it will be important—yet challenging—to figure out how to cut costs during the planning phase of any future project.

“I do think there is still work to be done in the Gulf of Mexico on how to innovate and get these projects scoped appropriately, to continue to get the costs out. That is the hard work that needs to be done in 2016.”

Statoil’s Phadke has seen a 20% reduction in drilling costs, but that is not enough, especially in deep water. He cited the ever-present need to reduce cycle times further. Statoil has been championing more standardized equipment and engineering in offshore facilities instead of each project being customized.

“Changes in fit-for-purpose requirements will drive costs lower,” he said.

McNichol agreed, saying operators and service companies in the GoM can be leaders in these concepts of cost reduction, standardization and further innovation. “We can lead in getting costs lower.”

Neal’s company partnered with LLOG Exploration in the Delta House field development, which is a deepwater floating production system tied back to three fields in Mississippi Canyon. “I know that our group and LLOG are looking at duplication of Delta House and if we can do that with moderate improvements, it’s got to drive down costs,” he said.

The companies are partners in other wells that were drilled by separate groups but are sharing infrastructure, “so collaboration is not only a real situation, but it is about our survival to lower costs. After the lease sale is over, companies can join together—we can be competitors and partners.”

“I think collaboration is happening in pockets,” McNichol said. “We are having a conversation with operators [on a number of fronts], but a lot of that is still just talk and we need to move further along and take action.”

Krohn noted that in the end, it is the operators who drive down costs because they are the ones who sanction projects or delay them. “You have to ask for that and speak louder. It’s a simple formula: oil and gas have dropped by 50% so costs have to drop by 50%.”

Leslie Haines can be reached at lhaines@hartenergy.com.