Companies Must Develop Resilient Strategies to Deal with Sector Volatility
Despite a ramp-up of U.S. oil production and rising sector optimism, the oil and gas industry could be headed into a supply crunch, according to a new report by PwC.
“With oil demand growing and investment in many major projects having been deferred during the downturn, there is less potential supply available,” the report states, adding that CEOs of Total, Eni and Saudi Aramco have warned of a supply crunch by the end of the decade.
Sector volatility remains; therefore, oil and gas companies need to develop resilient strategies to forge ahead.
PwC identified the following supply-related challenges in its report:
- Ongoing decline in new discoveries
- A slowdown of the rise in exploration spending
- Supply disruption
- Deferred maintenance
- Gap between expanded capabilities companies need and the diminished capabilities they have
- Overall momentum to build a lower-carbon world
Developing a Resilient Strategy
In order to be prepared for the fluctuations of the market, energy companies need a “future-proof” plan of action. In its report, PwC offers the following principles:
- Continue to manage the overall portfolio with a much lower breakeven price, despite where actual oil prices are. In order to maintain this type of portfolio, companies must undertake regular portfolio reviews to weed out assets that don’t comply.
- Hold on to the mantra of capital discipline. All spending needs to reflect the focus of a company’s core and differentiated capabilities.
- Refocus investment and efforts on asset maintenance. Given the age of many assets, oil and gas companies need to ensure adequate funds are available to keep supply infrastructure in good repair.
- Replace the “owner-operator” model with an “owner-only” approach in which returns are the priority. Many oil exploration and production companies believe they need to build capabilities across the entire value chain, when in reality shareholders and the providers of capital simply want a return on their investment.
- Double down on digitization. Now is the time to transform operations by leveraging advanced digital technology to drive efficiencies and open up new opportunities.
- Develop talent for a new era of technology. Traditional disciplines such as subsurface and surface engineering are still important, but they must be balanced against new demand for expertise in digital operations.
- Consider how the overall business should evolve. In the longer term, given the mega trends shaping the sector, companies must focus on finding and executing the best strategy for their own unique capabilities.
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