2. Surviving the
energy cycles
1Strategy
3–4 days
Work with your leadership team
to identify possible areas for cost
reduction.
Prioritize areas to focus on,
balancing cost savings generated
against timeframes needed to
intervene and implement.
2Rapid analysis
10 days
Uncover options for sustainable
cost reduction in your priority
areas.
Focus on options that maximize
savings while also building a more
efficient and agile organization.
Prepare a cost reduction plan.
3Intervention
60–90 days
Deliver and implement cost
reduction plan.
Realize cost reductions and
benefits.
When oil and gas prices fall, energy companies make decisions to reduce
operational and capital spend. We often see cost-cutting measures address
short-term costs but stop short of addressing inefficiencies in core processes.
How can your company face the current oil and gas price outlook in a way
that is both successful in the short term and sustainable in the long term? Our
three-phase approach to sustainable cost reduction focuses on strategy, rapid
analysis and interventions to help deliver cost savings while improving your
business’s efficiency and agility—allowing you to navigate the down-cycles
and be better positioned for the up-cycles.
Our three-phase approach to
sustainable cost reduction
Typical implementation time: 90–120 days
3. Common targets for cost reduction
and typical returns
Reduce
non-essential
spending
Discretionary spend is typically
the first area to get scrutinized—
and rightly so, since it’s not
essential to business operations.
Assessing and challenging this
type of spend centrally will help
reduce any resentment about
cutting these expenses.
Clarify cost
drivers and
improve
accountability
Analyzing budget data to identify
potential savings will work only
if the operating teams are properly
using the financial accounts.
Managing a cost centre as one
big pot makes it very difficult
to understand what actually
drives cost. Defining operating
cost drivers through a bottom-
up analysis and linking financial
plans to operating plans will
provide transparency, improve
accountability, and enable
measurement of cost
reduction activities.
Take control
of third-party
spend
Ensuring that sound agreements
and decisions are being made with
third parties can reduce spend and
improve supply chain leverage.
Your journey to
sustainable cost
savings
1. Operational Spend (OPEX)
Analyzing the operating budget to identify and review high-cost
areas and break them down into categories: planned, unplanned,
estimated and contingency with the purpose of removing unplanned
and unwarranted costs and centrally managing contingencies.
10-20% reduction
in budgets
Output: A re-forecasted budget that reflects requirements for needed activities and resources.
Analyzing operational contracts by category (materials, goods
and services) and consolidating spend to reduce procurement and
contracting costs, improving efficiency and monitoring supplier
and vendor compliance particularly where oil is a major input cost.
10–15X savings for
every dollar spent
Output: The spend analysis will go beyond better supply chain leverage to help achieve
sound agreements and decisions while also addressing discretionary spend.
Using value stream mapping, lean and waste elimination
techniques, the full potential of simplifying operational
processes can be realized once a baseline for managing costs is
in place. Our unique approach, Perform™, builds continuous
improvement within the organization to drive efficiency, create
capacity and increase productivity once head count reductions
have been implemented.
Proven to increase
productivity and
capacity by over
35–50% in a matter
of weeks
Output: Redefined, streamlined processes and activities that focus on core business
objectives and priorities.
2. G&A Spend
Organizational design principles: Define the key principles to
keep in mind when redesigning your back office organizational
structure including variable cost service delivery models and key
G&A benchmarks.
Savings of 20–30%
of third party /
payroll expense
savings
Output: Revised organization plan and resourcing requirements.
Assess elements of corporate overhead: Identify and eliminate
non-essential spend. Develop strict budgeting processes for
using discretional funds and instill a culture of approval before
expenditure.
Savings of 3–5%
of corporate
expenditures
savings
Output: Revised corporate budgets and expenditure policies. Assigned accountability for
maintaining and adhering to these policies.
3. Capital Spend (CAPEX)
Analyzing historical spend related to EPCM & Construction
contracts by conducting independent contractor assessments.
This will determine whether invoices and change orders are in
accordance with the underlying rates, fees, terms and conditions,
to identify billing discrepancies and errors that can ultimately
generate significant savings on capital projects.
10x savings on
engagement fees or
between 5-10% of
the contract value
Output: Cost recoveries by contract.
Assessing and re-negotiating rates and fees within capital
(drilling services, EPCM, construction, well services, equipment,
logistics) contracts to align with current market conditions
targeting areas impacted by oil as an input cost.
3–5% of contract
values by obtaining
lower rates and
fees for existing
contracts
Output: Revised rates and fees within contracts that reflect current market conditions.
Reviewing cost estimates for in-flight and future capital
projects to make sure they’re realistic and reflect the current
market situations. The revised estimates would feed the selection
analysis of whether or not to proceed with execution.
Savings of 5–15%
of project estimate
Output: Re-forecasted project cost estimates for management to assess project go or no go.
