State of the oil and gas (O&G) industry
COVID-19 is a global crisis, evolving at unprecedented speed and scale. Business leaders must make rapid decisions, and take immediate actions, to protect and support their workers while ensuring that critical business operations continue.
For the oil and gas industry, part of Accenture's Energy industry practice, COVID-19 is causing a demand-side shock that’s still rippling through the global economy. Alongside, the industry faces an even more significant supply side shock from OPEC+. A dual shock like this is unprecedented for the industry.
The near-term impact on the industry can be devastating – many companies faces an existential risk. We expect the industry to be reshaped in a structural way.
The immediate response of most oil and gas companies is to ensure the safety of its workforce and continuity of operations. Beyond that, many are announcing broad capital and discretionary spending cuts. Those are needed in the near term. However, the industry needs to recognize that both this cycle and the post-cycle will be different, and that requires taking measures that enable survival in the near term and positioning to thrive in the medium term.
6 actions oil and gas companies can take now to build resilience
We see six critical steps companies can take now to build resilience:
How oil and gas companies can emerge stronger
Some of the current disruption trends were already in motion before the current supply and demand shock. Today’s O&G players will need to fundamentally rethink and reduce their structural costs in non-traditional ways:
- Create cost variability and eradicate complexity while freeing up capital
Evaluate and identify opportunities to shift cost and business/organizational complexity inherent in delivering or driving non-core technology, support functions and partner platforms. Focus the organization on the core business and maintain flexibility to dial up and down based on resulting market outcomes.
- Team with peers and competitors
Consolidate activity or assets through a formal or loose joint venture particularly in high-volume geographies like North America. This can be in the form of joint development programs particularly for contiguous upstream positions, sharing equipment and workforce, partnering on service agreements and other infrastructure while idling less favorable or sub-scale positions and assets.
- Bring the ecosystem creatively into play
Identify collaborative opportunities with operational and technology partners and/or service providers that require integrated planning and execution. Take a long view toward releasing trapped value that can benefit all partners while serving as an offset to direct price concessions.
Once the global economy stabilizes there’s no indication that growth won’t return as the world still needs oil and gas to sustain development and drive prosperity in the developing world, not to mention meeting the needs of an estimated 2+ billion people who’ll join the global population. Also, while the economics of O&G extraction have improved considerably since the last supply shock in 2014—by up to $10-$20 per barrel—ultimately the full-cycle breakeven economics of the marginal barrel will set the equilibrium price. And that breakeven price will be higher than the prices we are seeing through this dual shock though with a lower ceiling than in the past. That’s why this cycle, while being a challenge, is also an opportunity for companies to fundamentally reshape their investments, priorities, and ways of working.