The past decade in the oil and gas industry has been very eventful with crude witnessing a big rise and subsequent fall during the years. Even during the period of increase in prices, upstream operator’s metrics went downhill due to the increase in cost of finding and processing new hydrocarbons. Even though there’s been an uptick in prices, they’re well below the high of $116 per barrel seen in March 2011. In the low cost environment and supply glut, the challenges for the industry as a whole will only increase. However, there is a tool available at our disposal which can address the problems faced by the industry and the industry is gradually realizing this.
Collaboration: A powerful tool at our disposal
Collaboration with companies across the industry is the need of the hour. The fact that we have the same eco-system, and all the resources bestowed upon us remain same, there should be a channel to effectively use these relevant reserves. This can be done by realizing the need for collaboration between diverse factors such as the suppliers, operational companies, availability of finance, manpower etc. Care has to be taken that there is a synergy between these components.
There are a lot of examples of effective collaboration in other industries. One of the examples which seems relevant and can be our role model is from the automotive industry, Toyota’s case in point.
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Toyota’s Case: An example which is relevant to the industry
In an interesting study prepared by Accenture, it has demonstrated how the oil and gas industry can borrow the idea of collaboration and working towards creation of Joint Efficiency Team (JET) intra or inter-organizations. Toyota, after facing problems similar to the ones faced by the oil and gas industry today, embraced a Keiretsu model, wherein the business network comprising of supply chain managers, distributors, manufacturers and financiers worked in harmony to ensure each other’s success. While establishing long term partnerships, it helps them to stay lean and focus on core requirements. The vertical partnerships along with cross-functional and cross-departmental discussions, Toyota was able to achieve 50% reduction in development time for new vehicles.
For the fossil fuels industry, it will certainly be helpful that a consensus is developed among key players about the use of world’s precious deposits and their judicial use. For companies, important metrics like the operation costs, service and maintenance and suppliers are incorporated only as per the current or running project. This in turn increases the overall cost involved for the execution of the project, only adding to the financial burden of the firm. The capital investments are huge while the profitability of such operations is on the decline.
The obvious choice here is the collaboration between the operators and suppliers group, to retain or probably, even increase the profitability, reducing the financial burden caused by the projects. An alliance between the involved industry players can help in drastically reducing the cost of undertaken projects. An alignment between manpower (like engineers, chain of suppliers, marketing executives, brand communication experts etc.) will help in the reduction of expenses substantially.
The price gap between expenses and cash earnings has fallen to $20 billion from $100 billion since 2011. The industry has traditionally followed the model of cash cuts to meet the demand and supply chain. But it has to be realized that collaboration will increase the efficiency of this sector and also the cost burden can be borne by many.
The obvious benefit from such collaboration will be that different groups of operators and suppliers will together be sharing a joint platform and will be able to address the concerns and parameters related to any particular project. A comprehensive strategy can be devised where all the concerned parties have a say about the functionality of their projects, alignment between equipment procured and technical expertise, share of profits and/or equity.
A joint co-operation between the operator and the supplier will enhance the efficiency of the project. The cost of exploration, production and logistics in the oil & gas sector are huge. The escalating expenses from specific needs of each installation, equipment, separate manufacturers with individual orders, reduces the feasibility of this current method.
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How to find the companies willing to collaborate?
We’ve identified the problem and presented the situation which will help us address the problem but it seems that there’s no solution. However, there’s one. In the contemporary scenario, we actually need a holistic and a customized platform for the oil and gas industry wherein it can leverage its business by finding companies of their interest across the globe. And, Energy Dais is one such global platform which aims to bring together the chain of companies operating in the oil and gas industry. It is the world’s first fullstream oil and gas solutions platform, helping to provide links to each of its members through effective communication between concerned parties. It endeavors to open up opportunities for manufacturing, engineering, service, trading, consulting, refining, audit and exploration organizations all around the world by overcoming barriers of culture, language, geographies and politics. The goal is to offer collaboration among the oil and gas sector providers and suppliers resulting in high profits at reduced costs. It is an imperative and radical movement in the present times plagued with depletion of energy resources.