Three major factors have combined to create a perfect storm in the sector.
First and foremost, the surplus in oil production is depressing oil prices and stifling cash flow.
Secondly, the existing debt overhang is exacerbating that issue to critical levels.
And last but by no means least, the so-called ‘great crew change’ as the impending retirement of senior expert professionals over the next five years is leaving a talent vacuum in its wake.
It might seem like things are bleak, but business chiefs who can successfully steer their organisation through this challenging period will be set to prosper.
So what should the successful leader consider as he or she negotiates these challenges?
As part of a new study of what it takes to succeed in the sector, we analysed market conditions and took in the views of a range of key strategic players in the sector.
From this research, four key areas of focus emerged – namely growth, costs, funding and externalities.
Get those four factors under control and you give your organisation the best chance of success in the most volatile and competitive era the sector has ever seen.
There is no getting away from the fact that you will need to be ruthless when it comes to projects with a high degree of uncertainty and those in the early stages of development which can be killed without much fuss. There is no reason however that the current environment should lead to a growth paralysis mindset. There could be valuable growth opportunities right now, for example via M&A or by continuing investment in nationally important, high-profile projects with longer-term value.
Now is not the time to panic. Concentrate your asset sales on those not central to long-term strategy where possible. Organisations with a strong core focus are always better prepared in times of extreme stress or volatility. Where redundancies are inevitable, manage them carefully to account for skills-gap impact, and ensure readiness for future growth when the oil price rebounds.
In the near term for many, survival is going to be the priority, but do not lose sight of a credible growth story for the longer-term. To give your organisation the best chance of attracting funding, ensure the security of your current income stream, even if it is reduced. That stability is key to ensuring there is a consistent stream if income. With minimising risk and exposure critical at the moment, explore non-debt options for funding. For example, with specialist equity investors who play exclusively in the oil and gas sector. In short, private equity funds are going to be your friends.
It may seem too long-term to provide the kind of immediate safeguards you require right now, but your organisation should aspire to a clear and respected voice on key sector issues such as the advocating role of government, whether via regulations and global transparency frameworks, or tax incentives to support reduced revenues. On a similar note, the inevitable short-term fire-fighting should not come at the expense of the long view. You should also be looking at on-going evaluation of strategic issues such as climate change policy (COP 21), and its implications in the near and longer term.
Faye Chua is ACCA’s portfolio head – business insights, leading ACCA’s future research and its global research and insights programme with a focus on the future directions of business and the accountancy profession across a range of subjects and disciplines. Faye has over 10 years of experience in research across different sectors of the economy and has worked in North America, Asia-Pacific and Europe.