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* Industry slashes costs after price drop
* Longer period of low prices means sustainable cost cuts
* Standardisation taking place, but at slow pace
By Ron Bousso and Claire Milhench
LONDON, June 4 (Reuters) - The slump in crude prices hasjolted the oil industry into deep cost cutting which, unlike theprevious downturn, could last for a few years at least.
After overspending by the industry during the boom years,the collapse in prices in the second half of last year laid barethe need to reduce costs and introduce efficiencies.
Oil producers globally have embarked on billions of dollarsin savings in recent months, forcing oil service providers andcontractors, in turn, to slash rates by as much as 50 percent insome cases.
A partial rebound in crude prices this year will giveservice companies such as Baker Hughes, Schlumberger and Petrofac little respite.
Unlike the previous collapse in 2009, when prices plunged 75percent only to rebound within months, industry analystsforecast a very gradual recovery in prices this time, whichmeans costs will need to fall a lot further still.
"Higher prices have led to cost inflation over the pastyears and now we need to reverse that trend," BP's ChiefExecutive Officer, Bob Dudley, told the OPEC seminar in Viennaon Wednesday.
"This will be tough and will require some very new thinking,but I believe it will lead the industry leaner and thinner intothe future to use capital more efficiently."
Rig rates and service costs rose by up to 35 percent between2010 and 2014 as oil prices held above $100 a barrel.
Since prices reversed companies are scrambling to trim costswherever they can: from hardball negotiations with rig suppliersand contractors, to cutting rig workers' onshore leave andchanging supply ship travel patterns. Some rig operators are nowsharing vessels and helicopters to shuttle staff offshore.
But that may be only the tip of what's to come, and serviceproviders could be hit hard.
In the North Sea, an area that has suffered in recent yearsfrom particularly high operating costs, well drilling costs areexpected to drop by an average of 30 percent by the end of nextyear due to a surplus of rigs in the market, according toMalcolm Dickson, Principal North Sea Analyst at oil consultancyWood Mackenzie.
"The industry has been through ups and downs before, butthis is a different situation," Dickson said.
"We believe there will be a more sustainable deflationeffect from this drop-off because companies have realized youneed to focus more on costs and value over volume. The supplychain has realized that as well and is collaborating more."
STANDARDISATION TREND
Brent crude, at around $65 a barrel, is still 40percent lower than a year ago and a Reuters poll sees it risingonly to $75.90 on average in 2017 as ample supply and U.S. shaleproduction keep it in check.
Wood Mackenzie sees Brent still well below $100 in 2018, at$85 a barrel.
The current downturn has forced major oil companies to cuthundreds of jobs in the North Sea alone. It has alsosignificantly accelerated a move towards standardisation of kitincluding everything from complex subsea equipment to pipes,ladders, doors and paints.
Companies see the introduction of standardised equipmentacross the entire production chain as a vital way to reducecosts.
For example, some North Sea platforms use eight differenttypes of ladders and stairwells, and 20 types of paint are usedfor subsea equipment, according to industry sources.
Shell is working with energy, procurement andconstruction companies (EPCs) to integrate the engineering data,in what it calls Project Vantage, to offer savings in projectdesigning, a company spokeswoman said.
It also standardizes and replicates equipment includingsubsea well designs, known in the industry as "Christmas trees",which has helped shrink the gap between order and delivery by upto 12 months.
BP is also focused on standardisation. "We've built a habitof every project as a new challenge that needs a new solutionand this has led to some great new technology. But in fact thereis often a real case for using more solutions off the shelf,"CEO Dudley said.
"We have now dramatically reduced the number of versions ofhardware that we use. We now have the same subsea control podson the seabeds in the Gulf of Mexico and Azerbaijan, the samewell-heads in the West Nile delta of Egypt and Trinidad."
Some of the standardisation efforts are expected to takeplace through consolidation in the oil services and supplysector, such as this year's $35 billion merger of Baker Hughesand Halliburton.
James West, senior managing director at Evercore ISIinvestment bank, expects more consolidation in the servicessector.
"There is a drive towards standardization but we believethat at this stage it isn't enough to generate big economies ofscale," Wood Mackenzie's Dickson said.
That means not just more cost-cutting, but a change inmentality as well.
John Catlow, cost efficiency project manager, at Total UKexploration and production division, sees a need to challengedesign requirements and implement "good enough" solutions,rather than the best technology solution.
"Engineers who become contract managers always go for thebest engineered solution, so they are having to be taught tothink about the cost," Catlow said. (Editing by Susan Fenton)
