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The oil and gas industry is currently facing unprecedented changes and must deal with both the downturn caused by Covid-19 and the impact of low oil prices caused by a price war.
To respond to these shocks, oil and gas players – particularly upstream and refining – are focusing on identifying and exploiting opportunities to quickly reduce costs.
According to experts on Partners in performanceAustralian-born consulting firm with a presence in major oil and gas hubs, there are four areas where there is the greatest potential to quickly turn cost-cutting plans into tangible savings.
Property management
- Effective optimization of working capital, management and discipline
- Appropriate expansion of capacity and rebalancing and phasing of the investment portfolio
Public procurement
- Strict daily expense management (usage)
- Aggressive sourcing / renegotiation of supply contracts (price)
Business improvement
- Revised business models based on market reassessment
- Cost reduction driven by efficiency gains
- Optimized maintenance expenses
Organization design
- Accelerated remote work
- Planned shutdowns plan and workforce reassessments and revisions
Execution
To take advantage of the opportunity to quickly reduce costs, oil and gas companies must take five key steps:
Diagnose the situation
- Assess the Covid-19 supply chain and people’s ‘risk points’
- Assess the effects of the current price shock on supply/demand/price
Develop scenarios
- Specify the selected oil price and associated recovery scenarios
- Identify indicators 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 of current readiness in selected scenarios
Develop a plan for leadership scenarios
- For each scenario, develop medium- and long-term implications (strategic, operational and organizational).
- Plan implementations for the most likely scenarios
Drive the van and establish mission control
- Create a “single source of truth” and increase visibility of current KPIs and results of planned actions
- Facilitate the “drumming” of informed performance reviews and problem solving
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