Remain Profitable as Oil Price drops – the DOs and the DONTs for Oil Companies, Investors and Employees.

As things get tougher in the upstream oil and gas industry, an industry professional has looked at some necessary actions to remain afloat. He also identifies some areas that should not be meddled with. Do not forget to contribute by leaving a comment here or on any of our social media platforms. Feel free to share with your friends as well

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Producing Company

DOs

  • Pause Exploration: Producing companies need to hold off the search for more prospects. Projects should be geared towards increasing the producing capacity of confirmed fields. Since the OPEC is not going to cut production, the more cheap oil you can produce, the more revenue you generate. Now is the time to contact production optimization experts and artificial lift companies.
  • Increase System Efficiency: This is very essential. A lot of inefficiencies in most producing companies were comfortably covered by the high levels of revenue generated during the $100/bbl regime. With the price of crude well below $65, there is need to ensure that every department is running at minimal cost. Embrace IT and use less paper. The years of first class flights for employees and 5 star conference rooms for routine meetings are certainly over.
  • Request Discount from suppliers and service providers: The drop in oil and gas price has reduced the cost of energy for energy intensive businesses like manufacturing companies. This means that service providers and suppliers now spend less in manufacturing tools and equipment. Do not expect a discount proportional to the drop in oil price. Any discount around 5% will not affect the quality of service you receive.

DONTs

  • Don’t Compromise on Safety: There is a growing drive to cut down the cost of running the business. But safety should remain a sacred cow. Do not drop the quality of PPEs and other Safety devices onshore or offshore. For well integrity, adequate numbers of appropriate barriers should still be maintained. Do not drop the DNV standards just yet, the risks in the oil industry did not drop with the falling oil price.

 

Service Company

DOs

  • Multiskilling: You can train a Wireline Engineer to perform slickline pull and runs. Why is there a Lower Completions Engineer and an Upper Completions Engineer? The drilling engineer is different from the acquisition engineer? The ESP engineer just concluded the installation but we are bringing in the commissioning engineer to setup the surface unit and startup the pump. The burden of overspecialization in a small area cannot be sustained in a $50/bbl industry. Cross-train your team for better and less expensive service delivery.
  • Increase Efficiency (Inter-segment, intra-country and inter-country loans): In times like this, some regions may be busy (eg the Gulf) while some areas may be quiet. Big service companies can leverage on their size to deploy personnel from a less busy to a more busy location. This movement of personnel is also applicable across departments and product lines.
  • Create closer relationship with client: The clients (producing companies) are going through a tough time now. Showing them that you are in it with them, increases your chances of expanding your business with them. The benefits will start to show whenever (if ever) the business gets rosier. All the same, this ensures you remain in business. Negotiate realistic discounts as well as financial risk sharing contracts. It won’t be a bad idea to peg some service rates/bonuses with prevailing oil price. It price drop can’t get worse than it is already.
  • Move your Field Team to support Sales (Look up to smaller producers and marginal fields): Now, every kobo (cent or penny) of revenue you get really counts. Your ability to support several smaller clients has two pronged advantages. It keeps your team engaged with relevant work. It also creates leads for more revenue when activities pick up
  • Shelf the fancy new technology unless it reduces cost: Unless the new technology reduces the cost of production for the client, you may need to halt the launching of that ultra-high resolution imaging drill bits (ok, not exactly that fancy). Many clients at this moment will not subscribe to high end services. Even the ADSV now keeps an eye on the company’s cost per barrel.

DONTs

  • Don’t Lose your Essential Staff: This is a downturn and not a dead end yet. Service companies need to retain essential personnel to ensure business continuity. Unless you are so hit that you are closing shop, do not lay off your workers randomly. Ensure that any staff you are relieving is actually surplus, not only based on current activities but the planned activities for the next quarter at least.
  • Don’t Compromise on Quality: Do not compromise on the quality of the service or products you provide. The competition actually got tougher and losing business is not an option.

Investor

DOs

  • Leverage on the Midstream and Downstream boom: The oil and gas mid and downstream business is booming now actually. Higher volumes available implies more freight and transportation demands. It also means more raw materials for plastic industries, fertilizers and other petroleum products. You may want to divert a chunk of your investments to that area.
  • Invest in the Energy End Users: Investing in the energy consuming industry may help investors offset the poor performance of the upstream portfolios. Manufacturing companies, automobile businesses and transportation business are witnessing lower operating cost.

Employee

DO

  • Take a well needed break: With your manager’s approval, volunteer to take a break when the activity is low. This will show your employer that you have keyed in to optimizing the time spent. You actually need it. We in the oil industry work so hard that we forget what it feels like to wake up on a week day by 10am. Maybe, you can also set off a money earning hobby.

DONT

  • Don’t Switch jobs: I may be guilty of playing safe but this is not the best time to switch jobs. Even a high flyer will take some time to acclimatize with a new environment. Some managers (and company policies) also consider an employee’s level of commitment to the company (via years of service) in yardstick for laying off. Also, not taking that job yet gives you options if you are ever shown the door by your current employer.

 

Student

DO

  • Remain Focused: If you are already undertaking and oil industry course, strive to excel in your chosen area of study. Start exploring opportunities to witness the theories being put into practice (internships, volunteer jobs).

DONT

  • Don’t Switch to Arts: The oil industry may be suffering currently but your good grades in the high school STEM (science, technology, engineering, and mathematics) subjects indicate that you are not born to be a musician or actor. I did not see any former oil and gas engineer in the just concluded OSCARS. That switch may deny you the opportunity of sitting next to me in the SPE 2017 Awards.

 

This is not an exhaustive list, join the discussion on these social networks:

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Chima Agbo

Is an Industry Professional and an Oil and Gas West Africa Contributor


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