By Sarah Byrne
ONGOING depressed commodity prices have evoked talk of innovation and collaboration but are industry players ready to work together? Apparently not, according to Geoffrey Cann, Deloitte Australia national director for oil and gas.
Speaking with Oil & Gas Australia, Mr Cann said in the midst of the oil price collapse, companies have taken the industry playbook off the shelf and are working their way down through the playbook.
“The playbook has a few pretty straight forward elements,” he said.
Although there has been a lot of talk about innovation and collaboration, Mr Cann explained that companies are not yet at the stage where they are ready to do so.
To date, companies have been reviewing their supply chain spend and working with suppliers and services companies for price reductions.
Mr Cann pointed out these reductions in costs are not sustainable in the long term.
Halting capital spend, exploration activities, and expenditure on business improvement initiatives that don’t look like they will release cash in the short term is the second step companies have been following, Mr Cann said, with reducing inefficient equipment and trimming the company’s head count as the next steps in the playbook.
Selling off assets that no longer generate returns meeting the company’s needs and getting rid of non-core assets will be the next step for companies struggling in the current oil price environment, Mr Cann said.
“We have yet to see that start to happen, but this is coming.”
Following on from the sale of assets, companies are expected to trim their dividends before moving towards innovation and collaboration, according to Mr Cann.
“When things get quite painful the next step is for companies to start to innovate.”
“As long as this price decline keeps with us for the next 18 months, then we will start to see some very innovative things begin to take place in oil and gas,” he said.
National oil companies are not as likely to follow the same playbook as commercial oil companies, as their principal goal is energy security and national employment opportunities, he said.
Mr Cann said with oil companies trying to behave “squeaky clean”, industry collaboration and innovation is blocked by the desire to maintain a clean reputation and to steer clear of anti combines behaviour.
“It takes a really long time and a lot of lawyers before the industry can come to grips with how it is going to collaborate new technologies that could deliver a benefit to the whole industry without triggering anti combine reviews,” he said.