How to Retain Profits at $55/Barrel Oil
5 Practical Ways Oil Companies Can Achieve Measurable Results Fast
Oil prices have dropped, yet most production and many projects are continuing as scheduled. Ongoing concerns about significantly lower than expected revenues are now running up against higher costs.
- So how do you plan to retain profits at $55 or less per barrel, and can you sustain that plan for the long-term?
- Furthermore, how will you continue your output in this down market yet still maintain efficiency in your production and operations?
An Imperative to Re-think Your Operational Strategies
With such a challenging and uncertain outlook for the industry, it is an imperative to rethink your short-term operational strategies and re-examine your cost base in order to financially succeed. What practical initiatives can you effect to address these challenges, fast?
5 Practical Ways Oil Companies Can Achieve Measureable Results Fast
1. Get more out of suppliers -- oil price drop means there is a tremendous opportunity here
Right Now there is a huge opportunity to reduce costs in your supply chain because of the oil price drop. It is critical that you assess whether your company is prepared for the margin squeeze as your customers demand lower prices.
We often find that executives and CPO's think they have a mature Procurement function when, in fact, they are leaving millions of dollars on the table. The drop in oil prices makes the opportunity even more compelling.
Finding out where your procurement team is on the maturity curve and understanding the potential benefits for improvement is a powerful way to quickly improve your cost and competitive base. In our experience we tend to be able to help companies achieve between 8-18% cost reduction in procurement and a further 15-25% reduction in working capital requirements -- even from experienced procurement functions. For example, recently the CFO and CEO of a major producer asked us to help them achieve measurable savings in direct materials procurement, an area in which they thought they were experts in. During the engagement we not only helped them achieve double digit % savings on their direct material spend, but also put in place a process that enabled the CFO to see where savings were being made in a very formal way. The process also demonstrated the cost-line drop to the sales team giving them better margins and improved pricing flexibility.
2. Your Remote Site Services offer significant untapped cost savings potential
Most Oil & Gas companies in recent times have concentrated on their core assets and getting product to market. This has led them to defer addressing the excessive costs of working in remote locations. If you're already spending tens, if not hundreds, of millions of dollars a year on Remote Site Services (Aviation, Ground Transportation and Lodgings) there are likely to be many untapped opportunities in terms of reducing wasted resources, reducing your carbon footprint and tapping into unrealized savings in the millions of dollars. For one of North America's largest integrated energy companies, we optimized their RSS operations on a number of fronts: For Aviation, we achieved savings of 22% against the in-scope baseline spend of the prior year and improved aircraft fleet utilization from 74% to 95%. For Ground Transportation, our team reduced costs by 7% in less than 7 months. In Lodging, we helped optimize bed utilization and reduce room-per-night costs by 32%.
3. Major in-year savings can be made in your Crude-by-Rail logistics operation
Crude-by-Rail is an often overlooked area as most executives aren't aware that they can overcome the challenges posed by a congested rail network by achieving stronger more strategic relationships with rail road partners whilst reducing costs and improving performance. This can be achieved, as evidenced by the work we did to help one major company regain control of getting its materials to market. We reduced their rail shipping costs by 10%, cut transit times from 8 days to 1 and developed a more strategic relationship with the Class 1 Railroad company. Another area where we have achieved rapid results is Load and Haul where we have helped clients increase operational productivity by as much as 20%.
4. Ensuring production up time -- focus on fast, but safe, plant turnarounds
Cost savings initiatives are obviously critical in times like these, however just as important is ensuring scheduled plant turnarounds run on time, under budget and with a 100% safety record. We were called in just 3 months away from the scheduled shutdown of a strategic production asset of one of the largest oil companies in the world. With our help, the executives were able to prepare for and conduct the largest Turnaround in their plant's history with zero accidents or spills, saving $3m a day.
5. Undertake a pragmatic assessment
At this critical inflection point, it is essential that oil companies quickly review their operational environment and assess their cost base in light of the potential $55 a barrel price. Armed with this information, executives can develop a pragmatic, measurable and prioritized improvement plan that will reduce costs, improve throughput and deliver compelling economic returns fast. For example, working with one organization we identified quick wins in the area of Lean Manufacturing which started to deliver a positive cash flow impact within as little as 5 weeks of engagement.
So where do you go from here?
As specialists in procurement, logistics, operations and remote site services optimization, we know that there are cost savings to be found almost everywhere in the key areas of your operation. Not only that, we have the experience, methodology and capability that means most of our projects deliver significant savings in year one, and on average deliver an ROI of 6:1, underwritten by our 2:1 ROI guarantee.