Analysis: Pipeline Aside, Here’s What The Oil And Gas Industry Really Needs To Focus On
By Lance Mortlock, EY Canada Oil & Gas Leader
Whether it is limited pipeline infrastructure, price volatility or regulatory pressures, Canadian oil and gas companies continue to face a number of challenges that make it more difficult to operate in today’s environment.
Transportation bottlenecks are top of mind given recent news. But even with Canada stepping in to purchase the Trans Mountain pipeline, Canada’s oil and gas industry continues to face many unknowns.
As more capital floats down to the U.S. and bigger organizations begin moving assets to other parts of the world, the Canadian oil and gas industry must work to overcome the false perception that it can’t do business.
It’s not time to get comfortable. Pipelines aside, oil and gas companies should be taking stock of ways to improve resilience to help them fight through any boom or bust situation.
Active headcount management
Amid the recession, the nation saw 18 Canadian oil and gas companies file for bankruptcy from 2015 to 2017, 45,200 jobs lost in Alberta between 2014 and 2017 and a back-to-back quarterly GDP decline in 2015.
Now, as the economy recovers, Canada’s oil and gas industry is on the hunt for talent. While it’s natural for organizations to want to boost human capital when they can, companies should learn from the past. Focusing on a rational and more purposeful headcount will allow oil and gas companies to be far better equipped to manage the unexpected.
Executives are starting to take note of this, with 85 per cen of respondents in an EY and Haskayne School of Business market study indicating that “active headcount management” was either important or very important for their organizations.
Reallocate capital to optimize returns
A top priority for Canadian oil and gas companies is to reallocate capital in order to optimize returns, and invest in disruptive technology and assets that drive the highest return.
The study found that thriving companies in good cash positions traditionally turn to building and acquiring to reach economies of scale — a recent theme with increasing industry consolidation among fewer large organizations.
Managing oil and gas companies have been active with portfolio resilience, too, but tend to look at divesting of non-core assets as a way to free up funds to cover operating costs.
Explore digital enablers
Investment in disruptive technologies such as intelligent automation, data-driven decisions and blockchain — to name a few — will help support the oil and gas industry’s focus on capital and operational efficiency to reduce short-term costs, and equip businesses with the agility and sophistication required to succeed in an uncertain future.
It’s important to also remember that these technologies are not job terminators, but enhancers. They drive performance and reduce risks with human errors, freeing up time so people can focus on more strategic and value-added tasks — allowing companies to make the best use of their talent so they can remain nimble and flexible in the event of another downturn.
Build shock absorbers
Oil and gas organizations need to be able to absorb those moments in time when business is tough. These absorbers include maintaining a strong balance sheet, having access to debt financing to support cash flow, a diversified portfolio, along with the right mix of products and customers. By incorporating shock absorbers into operating activities, companies will be better positioned to regain capital and cover their current liabilities, while adapting to changing market conditions.
Many oil and gas organizations have navigated through the financial, regulatory and political pressures of the last few years, and will continue to show resiliency as the industry evolves. One thing is certain, however — those who are left have to learn from the past if they want to thrive in an uncertain future.