Navigating the Crude Cycle: 4 lines of attack for US E&P energy companies to achieve strategic cost reduction

Navigating the
Crude Cycle
10 strategic actions for US
exploration and production
energy companies
Copyright © 2015 Accenture All rights reserved.

Introduction
Amid volatile “how-low-will-they-go” oil
prices, exploration and production (E&P)
companies are facing strong headwinds.
Learning from past cycles, it is likely the
leaders will position themselves to win not by
slashing costs across the board but by finding
judicious ways to maximize production while
bending down the cost curve. Accenture
suggests 10 actions to consider now.

Strategic Cost Reduction – 4 lines of attack
1. Improve
Productivity
Focus only on those (core) activities
that contribute the most value to
the asset, lean out processes, cross-
functional collaboration, and use
digital to automate as much
as possible
2. Simplify
Structure
Decrease people costs and
complexity by delayering, aligning
capabilities, and streamlining
operating model
3. Lower
Consumption
Rapidly reduce non-people costs by
utilizing analytics and improving
policies and compliance to decrease
frequency and volume in key
cost categories
4. Decrease
Supplier Cost
Negotiate and realize better
pricing by strategic sourcing,
managing contract compliance
and value-led costing
Fundamentally Reduce Cost Base while maintaining or improving Asset Reliability,
Integrity, and Safety

1. Turn core suppliers
into business partners.
Meaningful change in the cost base requires
rethinking supplier relationships with a focus
on mutual value creation. Once core suppliers
are identified, longer-term agreements can be
renegotiated for immediate benefit in return
for continuing and expanding business. Revised
agreements can include risk sharing, innovation
and investment, and joint-performance targets
and incentives.

2. Obtain more favorable terms
with non-core suppliers.
Consider short-term tactics to help reduce costs and
search for more favorable terms: increasing spot buying,
extending payment terms, reducing safety stocks, moving
maintenance, repair and operations inventories off
the balance sheet (i.e., to vendors), and simplifying
supply-chain processes and channels.

3. Maximize capital efficiency through
workovers and targeted investments.
As capital availability declines, getting the biggest “bang for the buck” is critical. The
efficiency of well workovers, along with careful portfolio evaluation, can help to optimize
outcomes. Analytics can help companies reduce cost and downtime by identifying wells
with the greatest potential to boost production. Analytical tools also can supply detailed
data to help streamline planning and scheduling.

4. Flex your
acquisition muscle.
Low prices lead to acquisition opportunities.
Be ready to take advantage of the chance
to reshape portfolios to appeal to long-
term investors. The winners will move
decisively with an eye to rebalancing asset
portfolios rather than simply looking for
bargains. Selective acquisitions can help
build portfolios that attract additional
investment capital.

5. Harvest data to
improve production.
It is tempting during downturns to put the brakes on
investment. But companies can use this time to increase
uptake of digital data and boost field-operations
productivity. Examples: Mobile-enhanced field workers
can maximize productivity through route prioritization,
asset information and status. Predictive analytics can
be used to reduce equipment downtime.

6. Make scale a
genuine advantage.
As they grow, organizations can become
lethargic, weighed down by their size. To be
both large and agile, Accenture experience
suggests structuring certain functions to have
a broader reach. Greater centralization allows
information to be shared and decisions to be
made that benefit the whole organization
rather than separate business units.

7. Restructure functional operatingmodels for
long-term advantage.
Reviewing organizational structure, with an eye to enhancing efficiency and effectiveness, allows
for improved long-term outcomes in support functions:
• Consolidate functions to bring together similar capabilities.
• Relocate consolidated functions to cost-advantaged locations and consider outsourcing options.
• Continue to integrate prior acquisitions—whether assets or full businesses—to streamline and
standardize processes.

8. Modify headcount with
a scalpel, not an axe.
Companies need talent-retention strategies and
training to mature young talent for the better
times ahead. When necessary, make cuts judiciously
to the bottom-performing 10 percent of the
workforce. Some of the best talent may be open
to a change, so consider backfilling a portion of
reductions with top talent.

9. Upgrade your
planning processes.
Simplify the process to consider multiple
scenarios and to update more frequently.
Consider:
• Running multiple scenarios at several price
points. Build in leading indicators that enable
identification of emerging scenarios to
prompt decision-making and action.
• Replacing the traditional annual planning
process with a rolling, eight-quarter outlook.
Planning that is refreshed quarterly can lead
to better decision-making.

10. Zero in
on value.
Take a hard look at which activities
help deliver improved results vs.
those that merely support core
activities. This exercise helps to
prioritize where limited resources
should be refocused. The objective
is to drive the most value to the
organization while identifying
capabilities that might be
delivered more effectively through
an offshore or outsourced model.

Conclusion
Effective leaders use times of crisis to
make changes that might take years
to accomplish amid organizational
inertia when times are flush. Seize the
opportunity and take decisive action
to improve margins, increase agility
and position your company for
high performance.

Get the full report:
http://www.accenture.com/navigating-crude-cycle-ind
Follow us @AccentureEnergy

Navigating the Crude Cycle: 4 lines of attack for US E&P energy companies to achieve strategic cost reduction

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Navigating the Crude Cycle: 4 lines of attack for US E&P energy companies to achieve strategic cost reduction