Thoughts and Insights on Business Excellence in the Energy and Heavy Process Industries
To thrive in the new $50 per barrel oil price environment, the most adaptable companies will have to move beyond the current mode of Cut and Cope, and transform to a nimble, lean, more efficient business model.
On Monday, October 27th, a Wall Street Journal article Cash Crunch Clouds Future for Oil Firms highlighted the cash crisis facing the major oil companies whose expenditures to fund projects, buyback stock and pay dividends is still significantly outpacing cash flow in the extended $50 per barrel oil price environment.
Many companies grapple with whether they should formally adopt Lean as their continuous improvement methodology, or to develop their own customized methodology under a continuous improvement label.
Traditional oil & gas plays have been high-risk, high-reward scenarios where the priority of speed from SPUD to production trumped upfront costs due to time value of getting production online ASAP. Shale production volumes on the other hand are strongly correlated with the amount of completion work done on the wells; the shale development paradigm is therefore more akin to the manufacturing environment than traditional oil & gas production.