MN SolutionSpace is an occasional newsletter to keep you updated on MN Solutions. As well as highlighting what we do, I hope it may in a small way entertain, inform and provoke new thoughts.
What price low oil price?
The current oil price slump has lasted more than 2 years. The optimists claim there are small signs of recovery, but not all companies agree.
Brent oil price |
Predictable responses
The response to persistent low oil prices is predictable. In companies, first come cost saving initiatives, then budget cuts, including putting major capital projects on hold and eventually staff cuts. Opec members, if they are willing to toe the line, will eventually announce production cuts to bolster prices.
Cost saving initiatives can be good. They force some discipline, remove the ‘fat’ and drive new practices. During the 2008-2009 ‘crash’, in Shell, I substituted high-tech video conferencing for intercontinental travel – and even successfully held major technical and portfolio reviews in that manner.
Exploration is in a squeeze
Exploration in particular is in a squeeze. After all “these guys just spend money, don’t they? At the very least they should share the pain, if not surrender all their budgets”. I could concede the first point but not the second.
Low cost approaches
I encourage my exploration clients to consider a range of options:
Tactical spring-cleaning
- Disciplined cost savings
- Introduce new ways of working
- Eliminate non-value adding work and processes
- Engage your R&D team and service providers in the quest for savings
Acting more strategically
- Portfolio rationalisation – divesting the ‘tail’
- Substitute studies for drilling – push all evaluations down to the level of irreducible risks
- Postpone drilling and re-negotiate contract terms
- Shift, temporarily towards low-risk NFE
Acting counter-cyclically
- Take advantage of others’ distress, acquiring assets and acreage which will have value when the price rebounds
- Conduct positioning studies in the sure knowledge that eventually prices will recover.
Engage geoscience staff & maintain morale
- Engage staff; use their energy, tap their ideas
- Staff cuts are a last resort, when all else fails. Before that, consider re-deployment onto studies, or re- assignment to e.g. field development.
- By all means reduce the training budget, but do not eliminate. Instead make training focused – on business needs and personal development.
Ensure accountability
- Revise the performance scorecard or KPI’s to reflect the new realities
Managed badly, cost cuts will see staff leave your company, or the industry, never to return. Managed well, we will be fitter leaner and ready to prosper.