'New Normal' Environment Requires Closer Look at Cost-Cutting Measures

'New Normal' Environment Requires Closer Look at Cost-Cutting Measures
KPMG energy practice leaders discuss industry challenges amid a lower oil price environment.

The state of the energy market has been a hot topic for many months now, with questions about the effects lower oil prices will have on the oil and gas industry for the remainder of 2015 and beyond. KPMG LLP energy practice leaders addressed these questions at a roundtable discussion Thursday.

KPMG consultants discussed the various ways companies are executing actions to weather the industry downturn, including cost controls, supply chain and procurement, talent management, operating models and mergers and acquisitions (M&A). The industry climate seems to be survival and future functionality.

Chris Click, principal, strategy, energy and natural resources for KPMG North America practice, said every energy discussion should involve the nature of why the industry is where it is now, which will influence how it weathers the current situation.

Click said the industry is expected to tread in the $50/$60 per barrel of oil price range for a while and companies are taking a conservative approach to capital expenditures (CAPEX) cuts in 2016. But with the oil prices creating a “new normal,” companies are going to have to go beyond simple cost-cutting measures.

More M&A activity is expected in the midstream sector, including transactions in which two players come together for scale reasons as well as a host of other transactions focused more on capability-sharing – in which a company who is strong in one part of the value chain connects with a company who is strong in a different part of the value chain, said Click.     

Regina Mayor, KPMG U.S. Energy & Natural Resources advisory leader, said she could not think of a large player in the industry who doesn’t have a cost-cutting program underway.

Talent management in a “new normal” environment will involve strategic long-term planning, said Angie Gildea, principal at KPMG.  

The industry is lacking leadership and other soft skills, said Gildea, and many realize that immediately reducing headcount is a short term approach to the issue. She said this down cycle differs in that executives are asking themselves how they can be more strategic in their talent management this time around.

“Many realize in the past, they’ve either cut too deep or cut the wrong type of skills,” she said. “There’s a disconnect between what is imperative to fundamentally shaping your long-term growth and what companies are actually doing.”

The forward-thinking approach would be for companies to identify the specific skills they need to be successful and consider the in-house skills that need to be the core of their organizations.

Click said companies who don’t factor in a long-term strategic approach when it comes to reducing headcount are “going to be less ready to ramp up when the industry turns around.”

In addition, Gildea said the industry should make better use of analytics based around talent.

“We haven’t seen that fully take off in the industry yet,” she said.    

Valerie is an experienced writer and editor dedicated to providing useful and relevant career news about the oil and gas industry. Email Valerie at valerie.jones@rigzone.com

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