Are we on the verge of another California gold rush, boom market or depression? No one knows. What is certain; risk mitigation must be central to any business model.
This year may be especially challenging for the oil industry. Recently, conventional wisdom is downgrading average crude oil prices for 2019. Reasons include a plentiful supply and the other usual suspects.
This pundit tends to agree with a trading WTL trading range averaging in the mid $50s/bbl. There is likely more downward pressure than upward. If true, hopes for top/bottom line growth may not materialize.
The sector can continue to experience market difficulties, consolidations/spinoffs, reductions in force, etc. However, this need not be the fate for many.
For several years several studies have suggested that significant value is available if organizations in the oil sector implement and sustain a high level of Operational Excellence. Typical opportunities include:
- Improved HSE
- Cost Savings
- Improved Asset Performance
- Increased Production
The resulting impact on the Balance Sheet and Net Income Statement can be substantial. The implication is that Earning per Share will also grow.
The upstream sector has already undergone Austrian economist Joseph Schumpeter’s (1883-1950) Creative Destruction—some might refer to this process as disruption. This is widely attributed to information technology and fraking.
Therefore, any hopes that stronger crude prices will somehow ‘save’ the organization are misplaced. The clear strategic hope lies with Operational Excellence.
Since we know that ‘hope is not a strategy,’ only effective business processes will add shareholder value. Time to roll up your operational sleeves and get to work.
What is Your Organization’s Excuse for Not Implementing Operational Excellence?