Adjusting Strategy to Survive Oil Price Volatility

By Jennifer Pallanich
Monday, April 8, 2019

In times of oil price volatility, operators can take certain actions to reorient their businesses, generate sustainable value and reignite investor interest.

According to the “New horizons: Strategic choices for upstream oil and gas companies in a volatile oil price environment” report recently released by Deloitte, operators can bolster their operations and portfolios to ensure long-term success by making strategic changes.

Coming out of the downturn, Slaughter said, cost discipline has been restored, and it’s time for companies to take a harder look at medium- and long-term strategies, said Andrew Slaughter, Executive Director, Deloitte Center for Energy solutions.

Many major operators and international oil companies have good positions in the offshore. They have huge balance sheets and the capacity to operate in multiple locations.

Offshore environments require high up front capital, but with a high rate well, once the capital is spent the well becomes a “cash engine,” generating funds to invest in up and down the value chain, he said.

“In the past, they thought they could do everything, have more irons in the fire,” he said.

These operators would benefit from being more disciplined in focusing on assets that meet supermajor needs, he said. They should conduct a portfolio review and prune late-life or low-impact assets, he added.

“Over the years, big companies have exited shallow water, moved into deeper water with higher development opportunities,” Slaughter said. “More recently deepwater assets are changing hands.”

Andrew Slaughter (Photo: Deloitte)

International independents, on the other hand, have other options. They’ve focused on exploration plays and higher risk plays that can yield high returns when they farm down or exit, he said. “But the risk profile of that has increased quite substantially since the downturn,” he said.

As such, they may benefit from maintaining the business model conceptually but using strategies that better manage risk, such as partnering with financially larger companies to share risk, as well as farming down earlier in the process, he said.

With onshore tight oil getting all the focus, scary headlines crop up claiming the offshore industry is finished, he said.

“We don’t believe that is the case. The world needs conventional, high-rate oil from the offshore,” Slaughter said. “With discipline, portfolio focus, cost and capital efficiency, there’s a lot of life left in the offshore.”

Categories: Energy Oil

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