By Charles Karren, Oracle
The oil and gas industry faces a vexing problem (and one that it has seen before in the mid-1980s as well as the late-1990s)—a new low oil price environment. As oil and gas companies work yet again to maneuver the murky waters of supply and demand, players are looking for ways to cut immediate costs rather than focusing on long-term ROI.
The difference today versus the late-1990s when the oil industry hit $10 a barrel is that there are new technologies and business models that empower oil and gas companies to more effectively weather predictable and unpredictable market cycles alike. While boom and bust cycles are inevitable in the industry, oil and gas companies can adopt new, innovative strategic solutions and approaches that help them navigate lean times, mitigate damage to the bottom line and critically, avoid making the same mistakes that have riddled the industry in past low cost oil scenarios.
Today’s innovative technologies have empowered the oil and gas industry that we knew in the 1980s and 1990s to completely transform. Integrating operations within a company provides all stakeholders,from project-based employees to c-level executives, with a complete view of what is occurring within the organization (in real-time), enabling them to make better informed decisions and ultimately achieve more profitable growth. By leveraging integrated operations, companies can optimize every aspect of their business from uncovering predictive patterns in projects, to effectively managing resources, to delivering projects on time and on budget—which is increasingly important as oil prices continue to fluctuate and therefore require oil and gas companies to have a significant amount of agility to meet the market’s changing requirements.
To achieve this flexible and integrated operating environment, oil and gas companies must embrace modern planning solutions as they are the foundation for a successful strategic planning initiative. Integration between financial management, project management, reserve analysis, portfolio planning and financial planning are essential. Below is a checklist for a planning environment to support the changing market dynamics. Does your current or planned environment enable you to:
- Rapidly and iteratively model scenarios in reserves and pricing;
- Select capital portfolio by prioritizing investments and eliminating non-strategic and redundant investments across production and infrastructure investments;
- Analyze scenarios against corporate objectives for reserve growth, production and lifting costs;
- Determine optimal production and financial measures;
- Perform variability analysis and respond to changes;
- Integrate optimized plan into the strategic financial plan and
- Model, scenario and risk analysis at every stage of the process?
While technology is an enabling tool, IT alone does not provide the complete answer to complex planning and integration challenges. To ensure productive strategic planning and optimize capital and resource allocation, organizations must also be open to change, breaking free from established habits and traditions. Sophisticated modeling and planning tools can help to facilitate this cultural change by delivering new levels of visibility, accuracy, and flexibility that help to instill confidence in taking a new path forward.
One example of a company leveraging strategic planning and integration technology is Noble Energy—a leading energy company with a diverse portfolio of high-quality assets. The company is moving major deepwater projects toward production through a robust infrastructure that analyzes data and provides real-time access to information to help employees make informed business decisions about drilling projects. Prior to implementing its new infrastructure, Noble Energy’s legacy systems were not integrated causing the team to sift manually through massive quantities of data to decide where to drill and how to optimize production.
By integrating information company-wide, Noble Energy was able to provide access to information and bring data together to manage, redirect and shift projects as needed to take on more assignments, understand resource requirements, and make it possible to complete these projects on time and on budget. The company’s comprehensive plan resulted in cost efficiencies by designing safe and responsible oil and natural gas drilling operations that minimized its footprint, reduced emissions and ultimately created incredible efficiencies with less impact on the earth. This kind of integration is even more paramount in times of market crisis, such as when oil prices rapidly waver.
Noble’s strategy and insight is helping it to navigate the current market as evidenced in its April 15, 2015 earnings release, which states: “The 2015 budget is designed to align the capital program with the investment environment and cash flow from operations, while maintaining our financial strength and providing for modest growth across the business. In a highly uncertain commodity environment, this program retains substantial operating and financial flexibility to adjust our plans while allowing us to take advantage of value-creating opportunities that may arise. We have already captured significant cost savings, which should enhance margins as we move through the year.”
This is not the first time we have faced a low cost oil environment, and it almost certainly will not be the last time. But the bottom line is that what happened in the past doesn’t need to happen again. Clearly, technology is a cornerstone of the oil and gas industry. But technology alone will not stop the inevitable market cycles that bring challenges to any well-established company. The industry must be able to plan for and react to these challenges to optimize return on capital investment. Implementing the right tools into the planning process can drive oil and gas companies to efficiently manage their portfolios and achieve success even in times of turmoil.
Charles Karren is director, oil and gas industry strategy, for Oracle.
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