On October 4th, JourneyApps sat down with industry expert Jim Crompton to talk about the current oil and gas landscape. Specifically, the discussion focused on the current realities facing the upstream and midstream space, and what strategies companies can employ to make sure they thrive in 2020. Here are 7 key takeaways from the discussion between JourneyApps and Jim Crompton.
The oil price collapse in 2014 was the latest episode in the history of price cycles within the industry. Many companies within the industry have gotten used to doing business with the threat of a price collapse looming. With this in mind, companies are increasingly putting in place strategies that ensure that they survive a downturn, and can thrive in the market when there is an upturn.
Some companies take reactive steps like decreasing hiring, cutting production or letting employees go. Other companies, though, are taking proactive steps to lower operating costs, increase process efficiency and achieve operational excellence. In a downturn, operators expect lower prices from upstream and midstream service companies. These service providers need to ensure they can respond to these price crunches by having taken taken these proactive steps.
Companies respond to price changes in different ways to stay competitive. Some acquire smaller companies, some cut back on R&D while others focus their resources on one specific region and try to dominate the local market. Two of the most important competencies to survive a downturn are a quality product, and good relationships with customers. Service companies need to ensure that their processes are as efficient as possible to be able to offer their customers the most compelling price. This will lead to good relationships with customers that will be valuable during a downturn, and allow for sustainable growth when the tide turns to a recovery.
“Oil companies are good at doing more with more or less with less. They’re bad at doing more with less.” says Jim.Retaining talented workers cannot result in overburdening them with more than their share of work. Instead, companies should seek operational efficiencies and ways to reduce administrative workload on employees.
Companies can do this by implementing digital solutions to automate manual processes, ensure good management of data, implementing innovative technology applications and improving workflows. These changes will drive companies towards operational excellence and ensure that they continue to thrive within the market.
After large amounts of oil and shale gas were discovered in areas such as the Permian and Bakken Basins, there was no way to transport it to major centres. Therefore, there was increased demand for midstream services and the industry had to respond quickly. Due to the time it takes to get infrastructure in place, midstream companies fell behind in reaping the rewards of these new discoveries. However, the midstream sector has made its way back to be in sync with the rest of the industry.
With this increased demand within the US for midstream services, there is also increased competition as everyone wants a piece of the shale pie. Due to this competition, midstream companies are being forced to focus on cost efficiency and operational excellence. This has led midstream companies to edge ahead of sectors such as upstream in terms of technology implementation.
Within upstream and midstream oilfield services there is increased opportunity to implement strategies that will lead to operational excellence and lower costs. Unconventional oil and gas has changed the supply landscape, leading to greater opportunity, but also increased competition, for oilfield services companies. To come out on top in this market then, service companies need to follow the example of operators and become more integrated and productive by implementing technology.
In fact, this represents an area where midstream is slightly ahead of upstream: with technology applications being installed on their infrastructure, midstream companies are increasingly getting a holistic view of their assets. Both sectors however need to embrace the implementation of process improvement technologies.
Operators and service companies have an evolving relationship and operators increasingly want more transparency into the work being done by service companies. They want to be able to plug into a dashboard and see what is happening on the ground. They’re interested in whether the status of a project is green (everything is good), yellow (monitor the situation closely) or red (immediate intervention is required). Operators don’t want to own the process, but they do want to be informed.
The data collected by people and devices out in the field is valuable, but only if it is managed correctly and leads to meaningful action. Service companies need to ensure that they use data to discover insights that are valuable to their customers. Thereby they can position themselves as value-added partners instead of commodity service providers.