The Price of Oil and Gas | Agility Matters

LATEST THINKING

For oil and gas companies, “business as usual” is no longer a winning strategy. Amid the supply and demand disruptions that are rocking the industry, competitive agility is a must.

Some leading players are already becoming leaner and more adaptive with new operating models, processes and digital technologies. They are also embracing an entirely new approach to spending—one that optimizes costs with zero-based budgeting and aligns spending to a strategy for growth and profitability.

Others would be wise to follow their lead.

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OIL & GAS SECTOR KEY FINDINGS

In the oil and gas sector, spending has typically risen and fallen in tandem with the price of oil. That’s become “business as usual” for many operators.

In 2007-08, the growth rate for operational expenses/barrel (Opex/bbl) was 13 percent. During the 2008-09 oil crisis, operators brought Opex/bbl growth down to just 2 percent.
When oil prices rose above $100 a barrel, operators spent lavishly on technical solutions that would allow them to produce more.
Between 2006 and 2013, the industry average Opex/bbl nearly doubled.

Today, long-term structural changes in supply and demand curves have created a new reality for operators. In response, they need to pivot their focus from cost management to cost optimization, from process improvement to process transformation, and from digital enablement to digital disruption.

RECOMMENDATIONS

Comprehensive cost optimization strategies can help oil and gas companies weather the current downturn—and thrive when the market rebounds. These strategies combine:

Zero-based budgeting determines spending based on what things “should cost,” not on what they cost in the past.

Innovative approaches in complex areas to achieve efficiency and competitive agility.

Disciplined closed-loop process to enable companies to keep spending aligned to business objectives and prevent waste from creeping back in over time.

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