Five steps to optimise profits in the troubled oil and gas industry

Five steps to optimise profits in the troubled oil and gas industry

The oil and gas industry has been ushering in radical changes in recent times especially with falling prices of oil. Companies are now trying to enhance their levels of efficiency and productivity for reduced costs of operation. As oil and gas companies are trying to weather the worst downturn in decades, the top companies are adopting contrasting strategies for getting out of the crisis. The best measures for optimising profits

Here are five steps by which oil and gas companies are trying to optimise profits in the troubled industry:

1.Face industry challenges and try to maintain equal margins

Even the best oil company today must adapt to sharp decline in prices. These businesses need to adjust their businesses to continue making money. Increasing output in profitable lines and decreasing output in lower profit sectors is a start for most. The non-core assets could be sold, while operation costs can be reduced with structured layoffs and planned restructuring. Continued profitability with responsible financial investments are crucial at this juncture.Chevron for example decreased its capital expenditures and continued to sell certain non-core assets. Both these measures has helped the company to gain profits even the oil prices registered a sharp decline.

2.Integrate business and operational processes across the value chain

Oil and gas companies need strong business relationships with their host governments for survival especially due to the volatile nature of their industry. Oil and gas companies have to integrate business and operational processes together. Hiring and training local employees for instance will strengthen the host government’s economy and even will attract foreign investments.

Oil and gas companies also have to prove environmentally responsible by embracing green technologies and driving environmental and social responsibility. Blending business and operational processes across the entire value chain can keep each element secured and integrated in the long run.

3.Use operational excellence programmes to optimise profits

Operational excellence is an integral part of organisational leadership that stresses on how different principles, systems and tools can converge for the improvement of overall performance metrics. These programs target enhancing HSEQ performance and drive overall cost efficiency and is transformational in nature with strategic adjustments aligned with the business climate.

Strong leadership relies sound employee engagement that would drive performance expectations in an organisation. The latest technology should be implemented to allow efficient knowledge transfer, seamless communication and performance review. Also, the ability to transform data into information and then into positive decisions is what would differentiate such companies from the rest.

4.Measure business goals in real time to get instant feedback on decisions

Big Data describes the theory and practice of applying analytics to digital information that can be collected and stored. Royal Dutch Shell, one of the largest companies in the sector along with BP, Chevron, Total and ExxonMobil are now exploring the idea of ‘data-driven oilfield’ to reduce the overall cost of oil drilling that accounts for the biggest expense for the industry. About 86% to 90% of respondents feel that increasing their analytical and IoT capabilities would enhance their business value, according to a Microsoft survey.

Shell for instance is relying on fibre optic cables and sensors, to derive data about a potential drilling site for an accurate image of what lies beneath. Such data can enable geologists to make better recommendations about the drilling locations too, reducing the cost involved too.

5.Manage changes and respond to disturbances efficiently and effectively

Oil prices are cyclical in nature, and oil companies are mostly aware that the high prices do not last for sustained periods. Not every company can survive especially when barrels are priced at US$100 each compared to times when oil falls below US$50/bbl. Companies who pile on debt or purchase a huge number of assets that demand high operation costs will always struggle to cope up especially when prices fall. In this regard, the top players are flexible enough in their operational structures and mode of investments responding to disturbances efficiently. Exxon Mobil for instance, managed to cut down on exploratory investments when the prices declined, focusing instead on the production which increased as a result, yielding profits.