Most Canadian oil patch companies (92%) report having either minimal or no long-term strategic cost management strategies actually in place, finds a survey by EY.
“Our survey finds that most companies reacted quickly when oil prices collapsed in late 2014, but have only implemented tactical and short-term measures to manage their costs in the current economic environment,” says Lance Mortlock, EY’s Canadian Strategy Services Leader. “In the face of what may be a longer-term shift in prices, organizations really need to be more long-term and strategic in their approach.”
The biggest issue companies are facing is achieving needed cost reductions, while maintaining the capacity to run the business with fewer resources. Still, close to half of respondents haven’t implemented a central group or team to focus on their cost management agenda.
“Our survey results indicate respondents understand conceptually the impact that lower oil prices will have on the industry, and they’ve responded by making dramatic and rapid short-term cuts in headcount, capital and expenses,” says Mortlock. “But few have turned their attention to achieving more sustainable structural change.”
Barry Munro, EY’s Canadian oil & gas leader, adds, “The oil and gas sector has experienced periods of uncertainty before, but this time is different. The industry is undergoing a structural shift, from an era when businesses were built around a ‘resource scarcity’ model to a new era where businesses will have to thrive in the face of ‘resource abundance.’ ”
EY’s report notes that in a resource abundance world, future commodity prices won’t preserve or rescue high-cost projects or unconventional plays with higher operating costs.