Building synergi in Oil&Gas Industry.

Currently oil and Gas Industry is going through very rough ride. With oil price struggling to come up, global operators are not only hesitant in initiating new projects but also suspending or calling off projects which was in pipeline. Economics is not supporting Oil and Gas industry to launch any major project. Only few small projects, which is important for fulfilling domestic needs, are running.

This scenario created a very challenging environment not only for the major service providers like installation contractors and equipment manufacturer but also for the operators. Low oil price and rising cost are identified as two major concern. Even with oil price at $80, rising PM & E cost was one of the bigger concern highlighted by major oil companies. Some country do have advantage of low OPEX and with increasing supply, oil price is struggling at $55. With low oil price and higher CAPEX for new development the oil companies are finding it more and more difficult to make new oil discoveries as the easy stuff runs out and the harder-to-reach oil becomes tougher to develop. The CAPEX and OPEX is expected to go up and “oil industry will need to spend $850 billion annually by the 2030s to increase production. An estimated $680 billion each year – or 80 percent of the total spending – will be necessary just to keep today’s production levels flat. (oilprice.com)”

This is a cyclical phenomenon and oil price expected to go up to normal in 6month to a year. With rising development cost and maintaining depleting reserves, the price my spike to $150 in few years. This has given, starting today, the best opportunity to service providers to realign themselves with new mindset for coming challenges. A total paradigm shift is required to the way the projects are handled currently.

Until now top service providers were focusing on the Base Growth by Building, Capitalizing and Sustaining.  They have been making sure to Deliver on Time, Building reliability, Capturing knowledge and Upgrading capacity. Now, with changing operating environment, there is need for service provider offering new value addition of Enhanced Growth (Goldratt Consultancy). Service providers need to build up their competitive edge by offering Bonus Deals and Rapid Project Completion.

There is a need for creating partnership, shared value between the Operator, Contractor and Suppliers. After the project gets awarded all parties should come together to form a conglomerate for efficient execution of project. The focus should be sharing knowledge, innovation and reducing the cost by opening up their cost structure to take the inefficiency and wastage out of it without compromising their profitability and in long run building up the cost structure for future projects.

Its time to choose the harder right rather than easier wrong.

Good Luck