Five steps for cost reduction in the oil & gas industry
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
