Quality of Work Life: an evolving definition
April 20, 2020 was yet, another unprecedented day during unprecedented times. The WTI benchmark dropped below $0/bbl for the first time ever, closing at –$37.63 for May contracts.
With demand obliterated due to COVID-19 and OPEC+ cuts not taking effect until May, oil storage is near capacity. The oil & gas story arc of 2020 continues to evolve, pushing struggling companies to the brink and forcing stronger, cash rich-er companies to react, but also review consolidation opportunities.
Oil & Gas emerged leaner, and with battle scars, from the 2014 downturn. 2020 presents a challenge unlike any the industry has faced, from the demand shock from COVID-19 to the supply glut from OPEC+, not to mention the shadow of impending debt due. To address immediate stability, companies announced decreases in capital and discretionary spending. As the dynamics of the current pandemic progress, forecasts are outdated soon after being published. The actions that some oil & gas players take over the next few months may very well determine their longevity.
Prioritizing people, operations, and technology, for both short-term crisis management and long-term strategy, will help mitigate issues on the back end of the crisis and into recovery.
“We woke up to the industry shutting down, and that’s not exaggeration…The old phrase of ‘on our knees’ would be an understatement,”
For the oil & gas industry, the announced furloughs and layoffs, and pause on hiring and new projects at the beginning of the crisis, is just the beginning. The story continues to unfold, and where initial focus on business continuity was fixated on technology, it now becomes a challenging ongoing people event. Continued uncertainty and job security weigh on retained employees, and employers.
People, and thus Human Resources, are at the heart of the COVID-19 response. Smaller companies that applied for the Paycheck Protection Program (PPP) received funds to address immediate payroll, rent, and utilities needs. Larger organizations continue to monitor the crisis and timeline, and execute mitigations as necessary. Engagement is a recurring theme, and transparency and communication are foundational to creating an environment favorable to remote work. Consistent individual touchpoints should complement broad and team-based communication. Setting clear expectations and being flexible to working styles and conditions will support employee morale and engagement. Companies may want to consider creating a cross-functional swat team or variable workforce that can tackle issues as they surface and introduce innovative learning and collaboration, such as micro learning applications to increase engagement.
The dual shock to oil & gas led companies to decrease budgets for the next few years and in turn pause projects - for new developments and maintenance. Portfolio review must be executed rapidly to prioritize core assets. From larger to smaller players, production is shut in, with much smaller operators not planning to drill another well this year Although integrated companies have downstream operations that in the past could buoy cash, margins are under pressure with a lower output price offsetting lower feedstock price. Fuel demand in the US has dropped by 30% and refiners are idling capacity.
Short term survival means cashflow management and financial optimization. Companies must consider the ecosystem in operations resiliency plans, and adapt quickly. Now is the time to be (more) collaborative with third parties, even considering forming strategic alliances – from joint interest partners to suppliers and customers. Operators must balance short-term survival with long-term relationships when asking suppliers and oilfield service providers to cut prices and rates. Industry consolidation and smart adjustments to operating models will benefit the stronger players.
Oil & gas companies should not press the brakes on innovation investments. Accelerating high return / short timeline innovation projects can result in near immediate impact, adding capacity and variabilization to physical operations and relieving a strained and remote retained workforce. Data science for surgical optimization and automation to streamline processes and workflows increase efficiency, insights, and fact-based decisions. Rapid implementation of these technologies can create a competitive advantage and path to survival, enabling faster response to changing macroeconomic variables.
Seamless, rapid execution is essential, now more than ever. With changing inputs and no predictable end date, a “hyper-agile” approach – results in days not weeks - should be considered for short-term COVID-19 efforts. Foundational to all execution plans is financial health, and companies will need to balance short-term quick fixes, with long term strategic actions. After immediate needs are addressed, preparation for recovery and long-term sustainability must ensue.
Oil & Gas emerged from 2014 intent on innovation, and the current crisis presents such an opportunity – to double-down on innovation and mitigation strategies to prepare for future headwinds. Recovery from 2020 will be a long tail, and the debt wave will extend this tail even longer. Two types of companies will emerge from this current crisis, the haves and the have nots. The haves, the winners, will rise with new, agile business models. Rekindled attention on renewables and diversification will continue for the stronger survivors. These are unprecedented times, and the industry will rise, leaner, with new battle scars.
Sia Partners delivers superior value and tangible results to client business & transformation; data & digital; and creativity & design initiatives. We can support your organization now to address short term COVID-19 response and recovery preparedness. Specific offerings with rapid execution include:
• SPARTED: Micro learning for the remote workforce
• Makestorming: Work smarter using tools from nod-A
• Workflow Transformation: Streamlined workflow enabling financial discipline and accuracy, partner with Appian
• Data Science Lab: Surgical precision to enable optimal decision making
• RPA: Rapid return on process automation
For assistance, please contact our COVID-19 Crisis Response Team at US-COVID@sia-partners.com