
How oil and gas companies can build resilience in uncertain times
March 20, 2020
March 20, 2020
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.
We see six critical steps companies can take now to build resilience:
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:
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.