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 around the world. Although it's not the first price collapse to hit the industry, the recovery timeline seems far less certain this time around. 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.
Beyond the initial announcements of lower capital investment, many leaders will 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.
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. Many oil and gas companies are in the process of big transformations, and they should seek to accelerate those transformations. Although low oil prices and COVID-19 are short-term drivers, there are many longer-term drivers including environmental, regulatory, and consumer pressures.
For oil and gas companies to emerge from the crisis strong, we recommend three key areas of focus.
Focus area one: Devise a care strategy for your workforce and a resilience strategy for your business
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. Many companies are now reducing crew sizes to keep workers safe, using technology to allow support staff to work from home, and budgeting for production reductions.
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.
Does your company understand how the workforce today aligns to strategic challenges it will face tomorrow?
Focus area two: 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. 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 be on how to move beyond those “pilot bot” and process mining projects to fully scale technology across an agile organization. Ensure that the initiatives are aligned to the company’s overall business strategy and digital transformation; don’t automate for automation’s sake.
Has your company considered how automating processes can free up talent for innovative thinking and enhanced problem-solving? Every company prides itself on recruiting the best engineering talent, yet how much more could be accomplished across the organization if these brilliant minds were allowed to think and act?
Focus area three: Put every element of your business on the table
Now is the time for outside-the-box thinking and strategic renewal. 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. It may not be the time to place big bets on untested alternatives, but companies can double down on renewables that have proven to be viable.
Times of transition offer opportunities for fresh strategic partnerships. While existing supplier partnerships remain vital, has your business looked at new venture partners and technology partnerships? Adding new, more nimble and responsive partners – ones that can help accelerate efficiencies and growth – can help you chart a new course for the future.
We’ve been here before, but this time needs to be different
Recent events require 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.