Since the decline in oil and natural gas prices since 2014, independent operators in the U.S. have struggled to find their footing. 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. So how do you sustain your business when oil floods the market?
Ernst and Young ‘s recent report explains how operators can move with the market to protect themselves from a financial bottoming-out. 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 three ideas for sustainability despite low commodity prices suggested were: operational excellence, aligned capital structure and building the right portfolio.
Low oil and gas prices affect everyone in the industry. Make your operations as agile as possible by looking at your office processes, systems and personnel. These three factors decide how fast you can make decisions, and what funds are needed to make your organization function.
Aligned Capital Structure
Manage 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. Instead, focus on projects that require less capital and shorter payback periods to allow your company to move forward.
Building the Right Portfolio
Many operators are selling off assets in a larger scale to stay afloat. As more and more assets continue to enter the market, companies gain assets that will help them grow in the future and increase equity are the ones that will come ahead when the prices begin to rise once again.