In 2015, reacting to the drop in oil prices was the primary focus for Oil & Gas companies and it was all about costs.... cutting Opex, reducing CapEx and reducing staffing levels. With a “lower for longer” industry outlook in 2016, many companies are now focusing on two challenges; one near-term and one longer-term. The near-term one is cash flow. Companies are seeking improvements that can yield a near-term cash position to maintain dividends and the integrity of the balance sheet. The longer-term challenge is changing how they work. There has been a great deal of reduction in activity and cost cutting, but not significant effort on transforming work to be sustainably leaner with increased efficiency into the future. How do you work on both of these challenges together?
Most companies are reaching the limit of what they can cut in terms of capital and activity without significantly undermining their medium-term viability. To avoid a significant rundown scenario, reserves have to be replaced; critical maintenance must be done. Many companies are contemplating further layoffs, but the immediate cash flow benefits of that are limited (it might actually take more cash in the short term). Furthermore, there are real limits to further cost cutting without transforming the underlying approach to work. You can’t simply cut your way to more efficient work execution or surveillance — you actually have the change the workflow processes, use data and key performance indicators to create business efficiencies and enhance staff effectiveness. The biggest lever many companies have to pull from a cash perspective may be on the revenue side — improving reliability and uptime, decreasing production declines and increasing throughput. Even at historic low oil prices, the cash benefits of organic production growth may dwarf cost cutting. You may be able to cut cost by another $1 or $2/bbl but imagine if you could generate another $5+/bbl with increased uptime, higher throughput, and reduce field production declines.
You will need to motivate the people who have stayed on and are potentially doing the job of more than one person. Remember that the company has taken many people out of the organization, but hasn’t changed “how” they work. In this constrained environment, fear will cause your people to be less innovative with many just keeping their heads down and trying not to stand out or create any ripples in the organization. However, this is a time when you need to really maximize innovation and new ideas. To enable real change you will need to find ways to take the fear out of the organization and create the right environment for real innovation.
This also creates longer-term benefits by getting your people to figure out how to do more with less, grow their skills and create an approach for ongoing continuous improvement. They will change the way they work by reducing cycle time, changing spans of control and creating improved efficiencies.