Skip to main content Skip to Footer

BLOG


July 28, 2016
"Lower for longer" prices pushing leaner business models in oil and gas
By: Colin Sloman

While prices have crept higher in recent months—an encouraging sign for a stressed industry—the end of low oil and gas prices does not seem near.

Companies have already slashed major capital-project budgets and executed across the board headcount reductions. However, since crude prices at mid-year 2016 remain at only half of peak levels, businesses need additional strategies to thrive in a cost-constrained era.

The following talent and organization strategies can enable supermajors and independents to survive a “lower for longer” price environment and improve profitability:

  1. Embrace a "lean" manufacturing mindset. Refining and manufacturing companies have survived cost constraints for years, which is why a number of energy majors are appointing downstream leaders to help run their upstream businesses more efficiently. While not a totally new concept, with capital remaining scarce, upstream businesses can learn from how downstream and manufacturing manage cost and waste.

  2. Embrace digital for active, visible talent management. After rapid headcount reductions, leaders now require more than ever a view of the talent they have remaining and how best to deploy that talent to drive productivity.  To remain profitable, competitive and compliant in any crude cycle, active management of an organization’s entire talent (inclusive of both employees and contingent labor) is critical.  Accordingly, leading organizations are equipping their leaders with digital tools and services that optimize talent data across various sources to provide an integrated view of spend and skills of the total workforce.  This provides the visibility required for agile management of talent supply and demand, and greatly enhances workforce planning for future talent needs and succession. Broader transformation to digital technologies can enable field workers, improve asset life-cycle management and bring a host of other benefits, according to a recent research report by the World Economic Forum in collaboration with Accenture.

  3. Re-align priorities and break down functional silos through prime value chain analysis1. Starting with desired strategic outcomes, oil and gas business leaders are using this approach to identify all related and supporting activities that combine to create differentiated value. A detailed value map can help managers improve critical processes, drive collaboration and improve efficiency, speed and quality.

  4. Right-size portfolio governance and decision making. Careful, deliberate planning is essential for multibillion-dollar projects, where, given the size of the investment, critical path and schedule management is key.  However, for unconventional plays involving the execution of many smaller projects, decision making needs to be streamlined to enable nimble adjustments based on local realities. This need for agility requires looking beyond annual planning cycles through the adoption of more frequent, dynamic planning sessions with a sense of urgency to rapidly respond to changing market conditions.

  5. Re-examine talent and HR operating models to get the most from the full range of talent. Improved results at reduced cost can be achieved by re-examining the traditional operating models supporting talent and human resource management. This requires going beyond traditional boundaries to push talent management everywhere in the organization. In addition, organizations are acutely focused on identifying efficiency opportunities to transition non-core activities to third parties without impacting the effectiveness of their ability to serve the business.

Today’s volatile, “lower for longer” oil price environment is driving managers at all levels of oil and gas organizations to have a radical rethink of the required organization capabilities to thrive. These new strategies will help oil and gas companies benefit from a lean-manufacturing mindset for improved competitiveness, for enhanced agility to survive price volatility, and for managing the total workforce for improved results.


Footnote:
1Prime value chain analysis is a technique that creates a dynamic view of major sets of activities that represent and deliver the company’s core value proposition or those that impede performance. For more information see: https://www.accenture.com/gb-en/insight-prime-value-chain-analysis

Popular Tags

    More blogs on this topic

      Archive