Jesus Sotomayor, reservoir and petrophysicist consultant
The oil and gas production has been sharply affected by the current Covid-19, I am using the important aspects to be prepared by any organisation to overcome the economic impact of this pandemic, greatly mention by Bernard Marr[1] in his original paper[2] adapted by Jesus Sotomayor in their application currently for depressed crude prices in the Oil and Gas Industry.
The Oil and Gas industry are known to be driven by uncertainty, is part of the ADN in many processes of the value chain. Being the critical ones the subsurface and market. Industry manage projects and investments based on the subsurface and market uncertainties, a well understood fact. Although, this time, there is a new uncertainty, a variable unforeseen by everyone, the appearance of a deadly virus Covid-19, affecting the world society in an unprecedent way. The Covid-19 has opened a new window of risks and opportunities; therefore, organisations have to be prepared to acknowledge these unknowns and implement proactive actions, to place the production of Oil and Gas in the front end to overcome successfully the market demand under the best accounting balance sheet.
The Society of Petroleum Engineers (SPE) has organised recently an Executive Panel[3] addressing how Leaders act and steer their organizations through one of the most challenging times in the Oil and Gas industry. Their comments complement appropriately the views of this article.
[2] 10 Ways To Prepare For A Post-Coronavirus Recession
[3] Executive Panel addresses how leaders act and steer their organizations through one of the most challenging times in the oil industry
1. Get a Grip on Financial Numbers
Work hard on the Company and Production financial KPIs. Establish different production scenarios according the worlds market expectation under to the presence of Covid19. Specially after the drastic crude price crash as seen below.
2. Get a Grip on Data
Reinforce the data strategy and its use to analyse world oil market, process operation challenges, services, and supply chain partners, investments, and sales opportunities. Extract the answers to critical questions using your legacy data facing the next future. Reinforce data security, as the Covid-19 has obliged organisations and teams to work remotely, a working way working way to stay. This reality has to be tackled to avoid losing valuable information and additional lockdown operation due to access inability.
3. Focus Relentlessly on What Really Matters
Develop a strategic plan, focus and simple. Request Leaders in the organisation to keep your strategic plan focused on the essential aspects of the production value chain. To implement simple changes to keep efficiency up at all times. Mainly due to the overall world oil consumption reduction to 1/3 due to Covid-19 lockdown, as per report from ADI- Analytics[1]. Focus on adaptable and flexible organizations.
4. Build Multiple Revenue Streams
Being the Oil and Gas a primary commodity product, marketing becomes an area for development and innovation. The market is volatile and uncertain, delivering just in time service and focusing on minimum physical contact are what client wants beyond Covid-19. Grasp on early the client’s needs.
5. Build Strong Customer Relationships and Experiences
The Oil and Gas customers are few at the delivery port of our production facilities, nevertheless, if we are a part of an integral company, many markets are affected by the Covid-19 crisis, therefore Leaders should maintain closely links to adopt measures according to their needs, and create innovative actions towards customers. Build strong collaborative strategies for the future production outbreak.
6. Review Processes and Try to Reduce Costs
The Oil and Gas producers strategic plan raised by the financial Covid-19 crisis is to maintain liquidity, a free cash flow objective. Require teams to focus on in the optimisation of the whole production value chain processes. Reducing operation cost by all means, being able to operate safely and ready for the revamping in the new normal market demand. Keep empathy towards manpower, design from head and heart, not only from numbers.
7. Review Supply Chains
Haynes and Boones[1] in his early April report mention an estimate of the number of service companies going bankruptcy under the current circumstances, much more than the near past crisis years 2015 through 2017. The current market value has again increased bankruptcy numbers in key services and materials suppliers. Additional stress will develop among service providers due to the actions of cost efficiency required. These actions affect business accessibility and quality of the service. Therefore, Leaders should consider their impacts and keep strong communications to maintain strategic steps for the next recovery period.
[1] HAYNES AND BOONE, LLP OILFIELD SERVICES BANKRUPTCY TRACKER
8. Fast-Track Automation
The Oil and Gas Industry is one of the richest in data gathering as a massive amount of data is daily acquired. Although, today its use is primarily limited to the Internet of Things applications, plant automation and unmanned production platforms. A big room for improvements exists in many more areas. Today, large efforts and investments in Artificial Intelligence and Machine Learning have been made by operators and service providers to improve efficiency in reservoir management. Leaders centred on preparing the organisation to deliver faster solutions with the use of technology will survive with higher efficacy. The benefits seen by the industry impact faster with better decisions, and increased productivity, according to Accenture[1].
[1] Upstream Oil and Gas Companies Spend Smarter on Digital Technologies to Drive Value, Reduce Costs in Downturn, Accenture and Microsoft Survey Finds
9. Flexible Workforce
The Oil and Gas companies are not particularly using the flexible workforce. Industry after 2014 due to the oil price drastic decline has reduced about 30% the number of employees, hitting service companies on a larger scale to about 50%. The Covid-19 has generated a new increase in unemployment crisis, affecting once again the workforce structure, due to lower energy consumption and social habits, according to Rystad Energy[1] source.
[1]HAYNES AND BOONE, LLP OILFIELD SERVICES BANKRUPTCY TRACKER
10. Establish a Strong Employment Value Proposition
Keep in mind your employment strategy, focusing on reaching your strategic objectives to improve your financial balance sheet, it should not be under the pressure to lower the manpower cost. Keep in mind the future uncertainties, opportunities and how the best-qualified employment can manage better the market stress with optimum decisions. Reinforce the appropriate training, targeting your key strategic objectives, with maintenance of top talent and its recruiting.
11. Invest to Support Growth
It is well known that under a healthy financial cash flow, the best investments are made during depressed times. Also, this is the time to invest in areas which best provides a lower risk investment in your strategy plan. Now, is the time to obtain money loans cheaply and shareholders investments to support your future growth.
Concluding
The 11 aspects required by the oil and gas industry that must be prepared beyond Covid-19 are summarized in a preparatory action checklist. Leaders can use the list to increase the success of the project, taking into account a new variable (Covid-19) that it has altered and that they must take into account in their projects.
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