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How oil and gas companies can respond to unprecedented disruption

Oil and gas companies can take a five step dynamic and holistic actions today to overcome the crisis.

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How oil and gas companies can respond to unprecedented disruption

  1. 1. Copyright © 2020 Accenture. All rights reserved.Copyright © 2020 Accenture. All rights reserved. A SHOCK TO THE SYSTEM How oil and gas companies can respond to unprecedented disruption
  2. 2. Copyright © 2020 Accenture. All rights reserved. Supply and Demand Shock 2 The current oil and gas (O&G) market environment is unprecedented. We are experiencing a supply and demand shock. …an action plan to rebuild post the crisis… …and a roadmap to reinvent and build resilience beyond that… This cycle require measures that enable an agile response in the near term... …so energy companies and the industry can eventually thrive
  3. 3. Copyright © 2020 Accenture. All rights reserved. A one-two punch is causing a ripple effect across every O&G sector. 3 THE SITUATION
  4. 4. Copyright © 2020 Accenture. All rights reserved. In the market • Demand destruction could exceed 10 million BPD for 2Q20 • Impact from demand destruction will overshadow any supply shock from an OPEC decision • Oversupply will persist for several months • The onset of a global recession will affect natural gas demand, limiting supply adjustment The Situation 4 Implications • US light tight oil (LTO) pure play companies and the upstream sector are in a much weaker position now than the last crisis in 2014 • Downstream companies will see margin expansion from cheaper crude • But they’ll also experience volume reduction from recessionary pressures and response to the virus • Oilfield and equipment services companies (OFES) will be hit by reduced activity and a price squeeze • Integrated gas will continue to see margin pressure, providing no cushion to integrated players
  5. 5. Copyright © 2020 Accenture. All rights reserved. -4 -12 -7 -4 -7 The Situation 5 2020 demand could be 8 to 18 million BPD lower than planned Demand destruction from COVID-19 is shaping up to be massive • About 60 million bpd is used in transportation – road, sea and air. • A 20-40% contraction in transportation in Q2 is ~12-24 million bpd reduction in crude oil demand • A global recession will put further pressure on the remaining 40 million bpd of non transportation demand High Low Full Year3Q20 4Q202Q201Q20Planned -7 -11 1 -24 -17 -24 -8 to -18 Demand Destruction Due to COVID-19 Million bpd
  6. 6. Copyright © 2020 Accenture. All rights reserved. The Situation 6 Oversupply can lead to low prices not seen in decades Market balance faces a double whammy 0 15 30 45 60 75 90 105 120 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 MarginalCashCost($/Barrel) Oversupply Demand Driven OPEC+ Oversupply OPEC+ Unplanned Supply Increase Full Year 2020 Demand Contraction Total Oversupply Global Planned Growth Global Crude Supply-Demand Balance Million bpd High Low Planned Supply – Tight Market OPEC+ Oversupply 7.76.6 2.8 16.5 20.3 0.6 0.5 1.0
  7. 7. Copyright © 2020 Accenture. All rights reserved. 7 Today’s environment is unprecedented: Companies need to take dynamic and holistic actions today—more than in any previous cycle THE SITUATION
  8. 8. Copyright © 2020 Accenture. All rights reserved. 8 … take a five-step approach… SO, WHAT CAN THEY DO?
  9. 9. Copyright © 2020 Accenture. All rights reserved.Copyright © 2020 Accenture. All rights reserved. 1. SET UP A 24/7 VIRTUAL COMMAND CENTER TO DRIVE DYNAMIC DECISIONS
  10. 10. Copyright © 2020 Accenture. All rights reserved. Set up a virtual command center to drive dynamic decisions 10 Centralize internal and external information IN THE MARKET INTERNAL • Leading indicators for changes in the COVID-19 situation • OPEC+ actions • Government response to COVID-19 and stimulus for the economy • Operational risks to business continuity • Financial risk and capacity
  11. 11. Copyright © 2020 Accenture. All rights reserved. Set up a virtual command center to drive dynamic decisions 11 Take an action-oriented risk management and business continuity optimization approach Stand up a 24/7 virtual space1 Build intentional plans for business operations 2 Re-base scenarios and risk tolerance for unknowns3 Deploy action plans4 Mitigate second-order consequences5 Rigorously screen for locked-in value6
  12. 12. Copyright © 2020 Accenture. All rights reserved.Copyright © 2020 Accenture. All rights reserved. 2. PUT COMPETITIVENESS ON A FAST TRACK
  13. 13. Copyright © 2020 Accenture. All rights reserved. Put competitiveness on a fast track 13 Overcoming cash challenges and delivering fast results are now a top priority • COVID-19 • Business continuity risks • Fragile supplier ecosystem • Over-burdened management • Competing priorities Cash Forensics Working Capital Forensics Organization Forensics Eliminate non– working third-party spend Minimize working capital Simplify and streamline the organization $120-270mn1 20+ % 30% reductionPotential impact Rapid value-based solutionsChallenges Data- driven Analytics/ AI enabled Dedicated experts Proven opportunities Committed results 1) For a representative third-party spend of $1bn
  14. 14. Copyright © 2020 Accenture. All rights reserved. Put competitiveness on a fast track 14 Zero-base everything Zero-based cost execution principles must be… RAPID CO-CREATED CASH FOCUSED HAVE A SURGICAL FOCUS BALANCE RISKS BE DELIVERED EFFICIENTLY AND REMOTELY …but also must…
  15. 15. Copyright © 2020 Accenture. All rights reserved. Put competitiveness on a fast track 15 To achieve savings fast, combine top-down and bottom-up capabilities TOP-DOWN BOTTOM-UP AI DRIVEN FINANCIAL/ OPERATIONAL VISIBILITY ! !"# $ 𝑚𝑒𝑡𝑟𝑖𝑐! = 𝛼𝑚𝑒𝑡𝑟𝑖𝑐# ± 𝛽𝑚𝑒𝑡𝑟𝑖𝑐% ± ⋯ ± 𝛾𝑚𝑒𝑡𝑟𝑖𝑐$ “SHOULD COST” MODELS PRESCRIPTIVE ANALYTICS KNOWLEDGE BASE PROPRIETARY BENCHMARKS VALUE SPRINTS
  16. 16. Copyright © 2020 Accenture. All rights reserved.Copyright © 2020 Accenture. All rights reserved. 3. BOOST LIQUIDITY
  17. 17. Copyright © 2020 Accenture. All rights reserved. Boost Liquidity 17 Focus on immediate, short term actions to free up cash combined with capital and portfolio restructuring Quick relief in 30-60 days Stress-test all new projects to reduce spend while preserving optionality CAPITAL/PROJECTSWORKING CAPITAL Phase and control the speed of portfolio actions PORTFOLIO
  18. 18. Copyright © 2020 Accenture. All rights reserved. Boost Liquidity 18 HIGH RISK LOW RESILIENCE • Working capital management • Debt restructuring • Short-term cash focused • Going concern viability • Rapid restructuring HIGH RISK HIGH RESILIENCE • Rephase committed capital • Explore options to reallocate capital to margin generating businesses • Explore options to realize cash through divestment • Consider non-cash asset swaps in key acreage regions LOW RISK LOW RESILIENCE • Explore options to release working capital • Stop all capital expenditures • Divestment of assets/businesses to free up capital LOW RISK HIGH RESILIENCE • Reduce capital expenditure and revisit dividend commitments • Renegotiate supplier contracts • Acquire opportunistically in the short term if funding available • Explore larger more strategic acquisition options for medium and long term Customize activities based on your company’s risk and resilience
  19. 19. Copyright © 2020 Accenture. All rights reserved.Copyright © 2020 Accenture. All rights reserved. 4. BUILD OPERATIONAL RESILIENCE
  20. 20. Copyright © 2020 Accenture. All rights reserved. Build Operational Resilience 20 Ensure business continuity and structure for new activity levels PROTECT AND OPTIMIZE Create a digital workplace to enable safe and productive ways of working CONNECT TEAMS Flex work and workforce provide variability across commodity lifecycles SCALE FOR THE FUTURE …by creating a connected and flexible workforce
  21. 21. Copyright © 2020 Accenture. All rights reserved. Build Operational Resilience What is the true level of resilience in my supply chain and does it match the level required? What needs to change in my operations to ensure ongoing agility and resilience? How should I reshape my supply chain in the immediate term – fast track approval of new suppliers, re-distribute to more suppliers? What do my direct suppliers need from me to be able to continue to meet my needs e.g., visibility, lead times, order volumes, price? What activities and functions are especially impacted by Covid-19: logistics, manufacturing, cross- boarder buys and how can I adapt? 21 …by strengthening supply chain resilience for business continuity
  22. 22. Copyright © 2020 Accenture. All rights reserved.Copyright © 2020 Accenture. All rights reserved. 5. LEVERAGE SUPPORT INFRASTRUCTURE
  23. 23. Copyright © 2020 Accenture. All rights reserved. Build flexibility into your cost structure Leverage the Support Infrastructure …by adjusting cost base and leveraging technology Consolidate and outsource back office operations to realize a flexible cost structure Enable pay-per-use models Engage in technology collaboration Divest IT data centers and generate upfront cash Rationalize applications and optimize IT maintenance cost Enable pay-per-use models 23
  24. 24. Copyright © 2020 Accenture. All rights reserved. Leverage the Support Infrastructure …by reducing fixed costs using partners’ assets Enhancing scope by rapidly building in flexibility and digitizing “the functions”, can drive up to 50% efficiency Transforming captive infrastructures with digital accelerators and platforms from specialized partners Developing creative commercial frameworks in the sellout process generates upfront cash and efficiencies in the long run 24
  25. 25. Copyright © 2020 Accenture. All rights reserved. Highly efficient, economical and flexible cost structure Outcome-based pay-per-use models Consolidated demand to drive higher economies of scale and greater negotiation power Leverage the Support Infrastructure ...by leveraging economies of scale through integrated shared services 25
  26. 26. Copyright © 2020 Accenture. All rights reserved. Release working capital (>30%) Taking the right steps now can lead to considerable benefits Improve free cash flow (>20%) Enhance ability to cover dividend and debt obligations Mitigate impact on top line and bottom line (>10%) Secure employees and enhance employee satisfaction 26 Secure supply chain and key partners Ensure business continuity Enhance trust and relationships with customers
  27. 27. Copyright © 2020 Accenture. All rights reserved. Meeting the challenge Challenging times call for intelligent measures—traditional and non-traditional. While the industry has dug itself out of other shocks, it is now faced with disruption at an existential, system-wide and player level—risks that will test its tenacity and durability. And while it may force some players to fold, those that emerge will be leaner and stronger. Copyright © 2020 Accenture. All rights reserved.
  28. 28. Copyright © 2020 Accenture. All rights reserved. DISCLAIMER: This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. Copyright © 2020 Accenture All rights reserved. Accenture, its logo, and New Applied Now are trademarks of Accenture. About Accenture Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions—underpinned by the world’s largest delivery network—Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With 509,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com.

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