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How Oil Companies Are Responding to the Oil Price Drop

Slashed Money
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Dramatic oil price drops in 2014 are forcing oil companies to restructure their 2015 plan to increase their efficiency to weather the storm of decreasing profits.
 
Decreasing compensation and company cuts
 
WBH Energy filed for bankruptcy last week. This announcement got many small and mid-size oil companies reassessing their future, as the drop in oil prices have caused many supporting industries to the oil and gas industry to take a more cautious approach. They have also started to pull back by postponing or cancelling their orders for services and equipment needed.
 
In addition, employees at these companies may also face uncertainty regarding their employment.
 
Mergers
 
Companies that don’t have the ability to become fully efficient themselves can merge with other companies. For example Halliburton Co. bought Baker Hughes for $34.6-billion last year in one of the largest takeovers of a US energy company in years. The merger is expected to generate annual cost savings of almost $2 billion and allows Halliburton to fill a gap in its tool belt of oilfield services which is technology to boost production in aging wells.
 
Increase spending plan
 
And going against the current industry norm, energy companies like Encana have plans to increase their 2015 spending plan. In a press release, “the company said it would increase spending to a range of $2.7 billion to $2.9 billion in 2015 from a range of $2.5 billion to $2.6 billion in 2014. Encana made the announcement despite decreasing its outlook for oil prices and cash flow.” Some of the factors that give Encana such a positive outlook would be its low debt-to-equity ratio and its growth which exceeded the industry average of 6.3%.
 
Improving project planning
 
While trying to pursue growth, a lot of companies in the energy industry struggle with how to remain cost-effective and efficient. Their main concern revolves around whether short-term strategies will impair long-term growth. By implementing performance improvement programs, they address ongoing problems and inefficiencies within a company that enable teams to refocus on innovation and strategic initiatives. These programs can reduce drilling and completion costs by analyzing the movement on pad sites and rigs, downtime, maintenance and reliability of the operations, as well as effective operations mobilization throughout the sites. Companies that undertake these programs save anywhere from US$24m to US$100m and beyond.
 
Reducing supply chain costs
 
Companies that are looking to boost productivity are doing so by improving engineering practices and project planning. And they are broadening their supplier base to reduce supply-chain costs. A key approach is to adopt a “lean manufacturing” mindset that involves identifying certain operations that can be systematized and working with suppliers to identify efficiencies.
 
New technology
 
“If you want to reduce costs, you have to look to new technology and 80 percent of the market is using inefficient methods for drilling and completing wells,” Dan Themig, chief executive of Packers Plus Energy Services Inc. said in an interview. “We have the technology that oil companies can turn to to increase productivity and decrease costs.”
 
Major service companies like Halliburton Co.and Schlumberger Ltd. are being pressured to release sophisticated technology – such as microseismic sensors to monitor fracks a kilometre underground – in order to boost production.
 
New trends in employment
 
Improving oil industry efficiency may also cause a shift in employment. For example, Calgary-based Packers Plus Energy Services Inc. is hiring more experienced workers with highly trained talent to work the more sophisticated technology it is running.
 
According to Themig, there’s been a flurry of resumes from highly trained talent since the oil price drops. He claims to have seen “more résumés in the last four weeks than in the previous six months.”
 
Unfortunately, with diminishing budgets there will likely be a rise in unemployment amongst less skilled workers. In the Financial Post, Mr. Yager, national oilfield services leader for Calgary-based consultants MNP LP. is confident in stating: “There’s no question that we’re not going to need as many workers as we have.” He however believes: “That’s bad for the workers, but that might take the pressure off wages.”
 
The future
 
Oil price drops have unleashed a natural survival of the fittest competition amongst oil companies. Considering about 80% of oil companies are inefficient (according to Themig), who will survive? It will be the companies that are using all their means to improve efficiency to stay ahead of the game. Those that can’t keep up will fail.
 

0ba8618 Aisha Tejani
Aisha Tejani is a contributing writer of Castagra Products, a storage tank and wastewater coatings manufacturing company that is highly acclaimed for its sustainable coatings, cold weather tank and secondary containment coating applications. Castagra products are NSF-61 certified and are used by the world’s top water and wastewater contractors.