Five steps for cost reduction in the oil & gas industry

17 May 2020 Consultancy.com.au

The oil and gas industry is currently facing unprecedented change, having to deal with both the Covid-19-induced downturn and the impact of low oil prices triggered by a price war.

To react to these shocks, oil and gas players – especially upstream and refining – are focussing on identifying and capturing rapid cost reduction opportunities. 

According to experts at Partners in Performance, an Australian-origin consulting firm with a presence in major oil & gas hubs, there are four areas that house the most potential for rapidly turning cost cutting plans into tangible bottom-line savings.

Asset management

  • Effective working capital optimisation, management, and discipline
  • Appropriate capacity expansion and investment portfolio rebalancing and phasing 

Procurement

  • Rigorous daily expense management (usage)
  • Aggressive sourcing/renegotiations of supply contracts (price) 

Business improvement

  • Revised business models based on market reassessments
  • Efficiency increase-driven cost reductions
  • Optimised maintenance spends 

Organisation design

  • Accelerated remote working
  • Planned shuts schedule and workforce re-evaluations and revisions 

Execution

To capture rapid cost reduction opportunities, oil and gas companies need to take five key steps: 

Diagnose the situation

  • Evaluate the Covid-19 supply chain and people ‘risk points’
  • Assess supply/demand/price impacts from current oil price shock 

Develop scenarios

  • Detail selected oil price and associated recovery scenarios
  • Identify signposts and trigger points for each 

Assess readiness

  • Assess current ability to overcome supply chain and people risks and gaps, including movement restrictions for both
  • Pressure test current readiness under selected scenarios

Develop plan for lead scenarios

  • Develop medium- and long-term implications (strategic, operational, and organisational) for each scenario
  • Plan implementations for most likely scenarios

Drive delivery and establish mission control

  • Establish a ‘single source of truth’ for and increase visibility of current KPIs and results of planned actions
  • Facilitate ‘drumbeat’ of informed performance reviews and problem solving

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