Big Changes for Big Oil
Big Oil has weathered its fair share of turbulence in recent years. But to what extent is the low oil price impacting the performance of supermajors? And, importantly, how can the effect on operational excellence be minimized?
The ‘reserve-replacement ratio’ is a commonly used metric indicating the performance of Exploration and Production companies. It compares the volume of proved reserves with the volume of oil and gas produced in a single year. For years, the long-term sustainability of an organization was judged by its ability to exceed simple replacement of the reserves they produced, indicating an ever-increasing reserves base and growing future cash flow. In recent years, many companies have been unable to find reserves to replace production, which indicates the difficulty of gaining access to prospective acreage. Last year, the seven biggest publicly traded energy companies realized a reserve-replacement ratio of just 75 percent.
Low oil prices have hit capital budgets this year, resulting in cutbacks to drilling programs. We can only assume the level of new reserves discovered and proved this year will suffer – further lowering last year’s ratio.
What’s more, just last month Marsh, an insurance broker and risk adviser, highlighted a pattern of oil price drops followed by an increase in the frequency and size of major incidents. So, the industry is faced with two linked but distinct challenges: performance is down, and the risk of incidents is up.
But in every challenge, there is an opportunity. The oil price is cyclical – we expect it will recover…eventually. Now, more than ever companies must maintain operational excellence. That way, when prices recover, they are in the best position to reap the benefits.
One way supermajors can maintain healthy operations is by employing enterprise software to help mitigate incidents, increase productivity, and improve operational and financial performance. If employees are enabled to work more efficiently together – regardless of department, position, or location – then everyone across the organization is empowered to make smarter, safer, and better-informed decisions – giving executives confidence in the operation of their assets across the board.
NOW is the time to provide decision-makers the tools they need to achieve operational excellence, reduce overall risk, and ultimately improve performance. The future of the industry depends on it!