In today’s macroeconomic environment, the oil and gas industry faces obstacles that require quick decision making and on-demand adjustments. In the short term, these challenges include political turmoil, rapid inflation, and supply chain disruptions that can have significant impact on day-to-day operations. In the long term, the shift to renewable energy, increased government regulations, and a decrease in public and private funding on oil and gas initiatives can affect long range plans and the strategic direction of a company. Executives and leaders with the right tools to make informed decisions from operational data will deliver for internal and external shareholders.
Siloed Data Leads to a Slow Business Response
Typical companies often struggle with their lack of infrastructure to share data between departments. Organizations with a global footprint and complex department configurations need to maintain this data connectivity to sustainably perform at the most efficient levels. However, many use outdated technology, such as spreadsheets or legacy systems, for enterprise-level planning, creating silos of data. This often delays the analytical insights required for strategic decision making, hindering a company’s ability to pivot and respond to external events (not to mention the resource costs associated with maintaining these often clunky and support-intensive tools).
First COVID Stressed Demand…
While most companies were able to manage in a normal economy, the past several years have significantly impacted the oil and gas industry, separating companies that could pivot from those that could not. When the COVID-19 pandemic first started in early 2020 and much of the world went remote, the demand for oil and gas drastically declined. The oil and gas industry was amongst the most heavily impacted: At the bottom of the price dip, the price of a barrel of oil went negative, reaching -$37.63 in April of 2020 before recovering. Storage facilities were at maximum capacity, consumption rates vanished, and companies were paying to get rid of their product. Worse yet, there was no planning horizon that indicated when the market would clear. Quickly developing analytical insights became business-critical as volatility skyrocketed. The companies that could connect their operational data to their financial data were the ones able to weather the worst of it: The most successful companies made their data accessible across departments, enabling quick modeling and scenario analysis. Others, which relied on disconnected tools and manual processes to transfer data between operations and finance, were caught flat-footed.
Finance and strategy departments able to use the operational data they had access to in real time were more likely to make better decisions in these short time spans. Consider data sources like operations’ SCADA (supervisory control & data acquisition) readings, well production data, and updated land leases that are key for strategic financial planning. Having this data readily accessible via integrated systems (or better yet, in the same system) allows for far more powerful analysis and more accurate insights, enabling strategy teams to conduct various what-if scenarios in brief time periods.
…Then War Stressed Supply.
As the world was rebounding from COVID, Russia’s invasion of Ukraine led to an instantaneous jump in demand for oil and gas from US and OPEC producers. The high level of demand stressed the other end of the market-balancing equation as projects were already producing at their highest capacity to meet the post pandemic demands. Successful companies were able to deploy resources effectively due to visibility into operational productivity, capacity, and insight into which projects could stretch their capacity. Pivoting in short notice is not easy, and implementing a plan only becomes feasible with access to real time data. In this case, both operations and finance departments required immediate access to each other’s plans and forecasts.
Companies with the most visibility into operations and finance were able to increase their production capacity by acquiring other companies with the appropriate holdings. With direct access to an operational stretch, landmen’s book of business, and financial capacity to purchase other projects, companies can still stretch their production targets and generate more capacity. The key is having all the right information in one place, so leaders can make the right strategic decisions.
Connect Strategies by First Connecting Data…
The capital required to succeed in the oil and gas industry is substantial even in the best of circumstances. Having the right information at the right time is key to using that capital efficiently and making the right strategic decision for the moment. Depending on extensive integrations or manual processes for your strategic analysis keeps your company focused on yesterday’s challenges and prevents you from pivoting to meet the moment. The ability to incorporate data into forecasts or budget in real time, allows for better decision making and more precise estimates.
Oil and gas companies that have not yet embraced cloud technology have the chance to do so now, before the next big shock occurs. Clear communication and easy collaboration arise through a data ecosystem that allows you to model scenarios and pivot strategies as the market changes. This interconnected planning not only leads to greater profits but also allows companies to become champions in times of crisis.
Spaulding Ridge has worked with oil and gas companies and in other operations-heavy sectors to connect operations and finance for greater impact. We can provide not just a digitization of existing data, but a true transformation that connects departments, people, and strategies.
To hear more about how you can connect operational and financial data at your company, contact us here.