What Makes Independent Oil, Gas Companies Successful?
Leadership is Also Key
In well-run independent oil and gas companies, CEOs and COOs are able to perfectly manage all the voices of their teams perfectly. This ensures that the right input goes into decision making in terms of technology and drilling strategy, McNulty said.
The technical and physical nature of upstream oil and gas means that industry hires workers from specialized technical disciplines, such as geophysicists, geologists, and reservoir engineers, as well as workers with finance backgrounds.
“All of these workers have their own bias,” McNulty explained.
Being able to successfully mesh technical and financial information is a subtle but important trait for leaders of independent firms; which typically don’t have the wide variety of cash flows enjoyed by large integrated oil and gas majors, he added.
Successful oil and gas independents also have leaders who can strike the right balance between innovation in technology and drilling strategies and managing debt levels. The availability of cheap debt capital allowed some companies to borrow too much during the shale boom, resulting in balance sheets getting out of whack and companies filing for bankruptcies, McNulty noted.
While technological innovation fueled the U.S. shale boom, the succession of technological breakthroughs created a supply glut. This means that company leadership needs to include people with the right market view that can prevent a company from getting too deep into the weeds in terms of technology.
“Engineering and geology can miss the big picture,” McNulty said. “You have to run the business understanding that oil and gas is a commodity business. People do lose sight of it.”
Company Culture and Appeal to Independents
In terms of places for people to work, independents offer an environment where people are less afraid of making a bad decision because of the ability to adjust if mistakes occur, Castaneda said.
“The ability of independents to integrate across functions is another key to their success. The bigger the company, functions such as marketing and finance are siloed off from each other,” Castaneda said. “This lack of integration makes it more difficult to see the ultimate impact of the decisions they make.”
The mid and large independents have done the best job of integrating these divisions. For example, a worker who decides to execute a lease in the land department fully understands the impact further down on operations.
“The ability to break down silos is something that these companies have done very well or are starting to do well,” Castenada commented.
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