The oil and gas industry is under unprecedented pressure. The combination of reduced demand driven by Covid-19 and a supply glut has resulted in the sharpest, fastest drop in oil prices in decades. The effects are being felt across the hydrocarbon value chain, and although it’s not the first crisis to hit the industry, the recovery timeline seems far less certain this time around.
According to Teri Mendelovitz and David Roberts from North Highland, oil and gas companies will have to take both short- and long-term actions to protect themselves and their workforces, operations, and customers to ensure survival and eventual renewed profitability.
The oil and gas experts contest that beyond the initial announcements of lower capital investment, many leaders will also have to pursue operating expense and workforce reductions. “These cuts will come on top of the massive strides made in lowering operating expenses over the last five years as oil prices settled into a “lower for longer” pattern,” they said.
Yet in this climate, the industry can’t simply repeat its historic use of “slash-and-burn” measures, cutting the workforce and hunkering down as they wait for better times. “Market conditions demand that leaders be strategic amid the unavoidable tactical plays.” This includes accelerating strategic transformations, such as digitization and diversification into new segments.
It also requires focus on many longer-term drivers including environmental, regulatory, and consumer pressures. For oil and gas companies to emerge from the crisis strong, Mendelovitz and Roberts recommend three key strategic areas of focus.
1. Focus on the workforce and change
“The uniquely unpredictable nature of Covid-19 is placing unprecedented demands on the workforce. In the immediate future, the industry will focus on the health and wellness of employees and their families while simultaneously securing production continuity and liquidity,” they said.
Responding to the changing environment, many oil and gas players are now reducing crew sizes to keep workers safe, using technology to allow support staff to work from home, and budgeting for production reductions.
The senior leaders at North Highland, a global consulting firm, point out that leaders need to embrace a people-first approach that emphasizes care, respect, and empathy to empower the workforce to support the company and manage their own health and well-being. “Change management for the workforce will be critically important during this accelerated transformation, and it will require that companies understand the roles needed in their future organization.”
2. Apply technology to gain efficiencies and accelerate innovation
Oil and gas companies have been investing in technology as part of their digital transformations for many years now. But in the current environment, “they have an opportunity to scale those technologies for competitive advantage by using automation to lean out processes and drive efficiencies.”
The focus should in the views of Mendelovitz and Roberts be on how to move beyond those “pilot bot” and process mining projects to fully scale technology across an agile organization. Here, the advice is to “ensure that the initiatives are aligned to the company’s overall business strategy and digital transformation; don’t automate for automation’s sake.”
3. Put every element of the business on the table
Now is the time for outside-the-box thinking and strategic renewal, argue the experts. “Times of transition offer opportunities for fresh strategic partnerships.” The key question leaders should ask themselves: do all business units still serve their purpose within your portfolio?
“If your company wants to move toward carbon neutrality, consider what can be done now, and do it. Companies can double down on renewables that have proven to be viable.” Another example: “While existing supplier partnerships remain vital, has your business looked at new venture partners and technology partnerships? Adding new, responsive partners can help you chart a new course for the future.”
Concluding, Mendelovitz and Roberts said, “The crisis requires companies to respond firmly and decisively, and the actions taken by the industry during past downturns will not suffice in this uncharted territory. By adopting a balanced response that is both tactical and strategic, organizations can not only survive these difficult times but also ultimately thrive in the new normal that lies ahead.”