Positioning For A Sustainable Future In The Oil & Gas Sector
The word sustainability simply reminds us of things we need to do that will keep us in business for decades. This could also mean short term decisions and adjustments that prepare for a much longer term. Many businesses in Africa do not have plans for sustainable future. Many companies in Africa drill an oil field till they cannot find any more oil in the subsurface. Companies in Africa always think exploration is not for African Oil producers. Here in Africa, many national oil producers have a more gigantic and heavenly structural head office building far better than what the IOCs have. The cost of this buildings are enough to do exploration for more than 5years if they truly had the focus of making the business of oil production a long term.
There is a company in Africa that has more than 200 abandoned wells. Wells that have been previously drilled, have it oil tapped, and then moved on to the next. They have little time for workover or re-entry. It is only crisis that could make this happen. There is always a race to become the highest Oil & Gas producer in Africa without much sustainable plan. This has led to many companies who have rilled, produced and sold the future of their business in less than 3years, and already out of the crude business at the early stage.
The reality staring at everyone now is that, cheap oil might stay longer than we think. The Oil price forcast for 2016-2017 is between $40-$50. How well are companies positioning themselves to this reality? How well are the Petroleum Engineers, Drillers, etc ready for a salary reduction, how flexible are drilling contractors on their day rate. The reality is that, Oil is no longer $100; many contracts made during the boom will have to be reviewed for proper positioning for the cheap Oil.
The real game changer will be the Oil producers. Now is not the time to run the race of the highest Oil producer in Africa, but a time to review production cost and probably arrive at a cheaper cost of production in order to maximize profits. The cheap oil era has been and will always be the best time to look into more sustainable way of doing business which might include;
- Reducing gas flaring
- Making budget for exploration
- Investing in modular refinery
- Reducing Production Cost
- Exploring new markets for gas,oil,etc.
African countries often look up to developed countries for innovation and hope one day that Africa will look like United States and the likes. We often forget that developed countries are also not going to be static, In fact, by the time African countries are looking a lot more like the United States and the likes, these developed countries would also have been far better. To prove this, the world started extraction of Oil & Gas through conventional drilling. Over years, the days of easy Oil & Gas drilling were over for some countries hence they developed never methods to get Oil & Gas and ‘Fracking’ was invented.
The whole world thought that Fracking was a mirage and kept counting the number of working rigs in the United States for possible indication that production will drop. To our utter dismay, new technologies were made in favour of fracking such that fewer rigs are now needed in operation yet the volume of production kept soaring sending prices downward. The fear of Iran joining the supply glut has already made prices fall more than 20% since it announcement.
All these are clear indications that, the need for a sustainable future most especially in Africa is inevitable. This is not the time to have massive lay-off and lose your best hands to your competitors. Management needs to have a critical analysis and dialysis of their current business operation, the market condition and how well they can position themselves first,
- To survive the down-market
- Remain stronger even after the market
Perhaps, the biggest problem companies are likely to face now is how to survive the storm of which end is not insight and no one seems to know. The only thing everyone seems to be sure of now is that Oil prices will rebound but uncertainties are to what price and how many companies will be around when the market finally recovers.
Companies can also use this opportunity to build their own crude transporting system by investing in their own process and production pipeline facility to cushion the dependence on the IOCs’ asset.
Perhaps, now is the best time to engage more with host communities to foster relationship and re-orientate the communities on the current trend in the industry and why previous monetary agreement is no longer feasible and openly re-negotiate a favourable one for both parties.
All these would help position African Oil & Gas companies for a sustainable Future going forward.