Profitable at $50 Oil – Getting Beyond Cut and Cope Part 2

To thrive in the new $50 per barrel oil price environment, the most adaptable companies will have to move beyond the current mode of Cut and Cope, and transform to a nimble, lean, more efficient business model. Innovators will challenge the costly and cumbersome paradigms that have come to characterize today’s E&P Operating Model. Sustained $50 oil will drive oil companies to rationalize operational elements and return to a fundamental set of core competencies, all aligned to maximize earnings and cash flow. The first step for many E&P operators will be taking a hard look at some of the following areas of opportunities: 

  • Expansive Support Organizations – The proliferation of functions not directly related to a core E&P value chain: Continuous Improvement, Organizational Capability, Operational Excellence, and various Technical Authorities, among others.

  • Decentralized / Matrix Organizational Structures – Expansive support functions gave rise to matrix organizational structures that dilute accountability and drags on decision velocity.

  • Capital Project Delivery Processes - Project Delivery Processes struggle to scale the administration between a $5B project and a $1.5M project. The result - when Capital Projects are typically executed by external service providers the cost is increased. Time, literally, is money.

While these are only three of the many opportunities to develop new ways of operating across the E&P space, those that climb back to profitability will be streamlining project lifecycles by improving accountability, eliminating variation, and the incidence of value leakage (rework, waiting, etc.). Applying LEAN discipline to the entire E&P value chain at both the strategic level and tactical level will drive organizations to develop new behaviors, build capability and learning new ways of working.  For more information about LEAN-Thinking Outside the Toolbox click here.

Bill Duffy

As a Vice President, Bill delivers client programs, cultivates client relationships, mentors junior members of the organization and supports thought leadership efforts. He thrives on the collegial, family-like atmosphere at the firm, and strives to further promote this culture. His pragmatism is reflected in one of his favorite sayings, “Hope is not a strategy.”