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21 September 2017

Safe and fit for the future: Three transformation agendas in oil and gas

Birte Fehse

Birte Fehse
Senior Manager | Energy, utilities and resources | London

This mini-series will explore the changes oil and gas companies are making to remain competitive and to stay relevant for decades to come. Efficiency, agility and a great culture have become a must for these large, complex organisations, whilst retaining an unrelenting focus on safety. We’ve summarised our thoughts into three transformation agendas: “Be lean”, “Be nimble”, “Be great”. 

Oil and gas companies have not had an easy time of it in recent years. The price of their product has plummeted, they face multi-faceted competition and they don’t win any popularity contests. A recent study by EY found that as little as 2% of US students indicated they would like to work in oil and gas[1].

The last few years have been a fight for survival and in response organisations cut headcount and capital expenditure. In Aberdeen, employment in the oil and gas industry fell by 30% between 2014 and 2016[2]. Projects were put on hold or shelved altogether. Staff morale is low with many mourning the departure of colleagues and wondering what the future holds for them.

On the upside, many of these companies are now in better shape than they have been in a long time. BP reported a 50% reduction in average production costs in the North Sea from over $30 a barrel in 2014, to less than $15 a barrel today[3].  Profitability pressure is finally easing. Diversification into different segments has meant the emergence of more specialised operating models, a source of innovation, interesting work and commercial success. There is a real opportunity for these companies to drive sustainable growth and contribute to society in a positive way.

To remain relevant, competitive and attractive for customers, partners, employees and investors, oil and gas companies need continue this transformation with clear objectives:

  • Continually improving profitability by combining a ruthless focus on efficiency delivery with total predictability
  • Delivering step-changes in performance through optimising existing processes, leveraging digital platforms, Artificial Intelligence (AI) and robotics and creating new business models
  • Responding and adapting quickly to changes in the market by creating an agile organisation that can turn ideas into solutions quickly
  • Creating and maintaining a company vision and culture that inspires passion and confidence and shapes a company people want to work for, work with and invest in
  • Achieving all of that whilst never losing the focus on safety.

The challenge ahead is great, but not insurmountable. Three agendas will help achieve these objectives: “Be lean”, “Be nimble”, “Be great”.

  1. Be lean is all about using the most effective way of achieving organisational objectives, whether that is using operational excellence and design thinking to create the best processes, leveraging digital technology, AI and robotic process automation (RPA) or creating new business models to achieve a step-change in performance.
  2. Be nimble is about creating the ability to turn ideas into solutions quickly through having the right structures and processes for quicker decision-making, well-equipped individuals and a good understanding of the risk context and boundaries.
  3. Be great is about creating a culture that reinforces strategy, ensures that safety is never compromised, inspires employees and creates confidence in the ability of the business to do the right thing by partners and investors alike. 

In subsequent blogs we will talk about each of these agendas in more detail, describing how to successfully inject them into the business.

 
[1] “How do we regenerate this generation’s view of oil and gas?”, EY, 2017
[2] https://www.theguardian.com/business/2017/mar/18/aberdeen-oil-price-wrestles-hard-choices-independence; Aberdeen wrestles with hard choices as independence looms again; Guardian online, 18/03/2017
[3] https://www.oilandgas360.com/bp-chief-says-north-sea-costs-are-15-per-barrel/