Since the decline in oil and natural gas prices since 2014, there’s been a massive shift among independent operators in the U.S. to find their footing amid crude price declines and worldwide political triggers in changing the global pricing. Thanks to the hydraulic fracturing technology that has opened up the doors to more-easily accessible shale oil, we’ve entered into an era of oil abundance.
Ernst and Young has come out with an interesting report explaining how operators can move with the market to protect themselves from the financial bottoming-out so many independent operators are currently going through. We have no affiliation or ties to Ernst and Young, but I found the article interesting to see as a whole how the independent operators (our entire client base) is handling the rocky oil and gas climate today.
The article offers three ideas for sustainability despite low commodity prices: operational excellence, aligned capital structure and building the right portfolio.
Low oil and gas prices affect everyone in the industry — no matter what mix of oil and gas commodities you handle, how much financial strength you have or what part of the United States you’re in. By focusing on your operation to make it as agile as possible, you take a look at your office processes, systems and personnel to streamline how fast you can make decisions and on how much is actually needed to make your organization function without continuing to sink funds.
Aligned Capital Structure
To adapt to shifting investor expectations, Ernst and Young suggests managing how your cash flows and cover debt payments right now. To move forward into the future, operators will need to step away from mega-projects with high operational risks involved, and focus on projects that require less capital and shorter payback periods to allow your company to move forward.
Building the Right Portfolio
In today’s climate, many operators are selling off assets in a larger scale to stay afloat as prolonged low pricing continues to plague the industry. As more and more assets continue to enter the market, companies who can identify and close on assets that will help them not only grow in the future, but also give them equity to help ease concern over market uncertainty are the ones that will come ahead when the prices begin to rise once again.
Source: SherWare Blog