Energy firms can’t rely on price spikes, says EY

The Canadian oil and gas industry is undergoing a fundamental structural shift and can no longer rely on cyclical commodity price improvements to achieve optimal business performance, according to an EY report.

Read: Energy portfolios must factor in pricing

Top performing companies are managing this shift with a new approach to performance improvement.

“Increased cost structures and flat commodity prices are creating a greater need for lean business models across the oil and gas sector,” says Lance Mortlock, partner in EY’s Oil and Gas practice. “That’s where performance improvement comes in. Companies can’t rely on a swing in prices to improve the bottom line. Staying competitive requires making long-term structural changes.”

The report underlines how performance improvement programs are more than just short-term, cost-cutting exercises driven by commodity price fluctuations.

“These programs can help companies achieve better performance across a variety of activities from cost optimization to asset reliability and even safety and environmental performance,” says Mortlock. “But change doesn’t happen with a short-term focus.”

Read: Look abroad for strong energy plays

Prioritizing performance improvement is just one of many challenges companies must overcome on the road to success — particularly in the oil and gas sector where companies believe improved commodity prices will alleviate squeezed margins.

Challenges that can derail program success include:

• Limited awareness of the business case for performance improvement
• Reduced understanding of the potential benefits
• Inadequate support from upper management
• Improper governance during development and implementation
• Insufficient sustainability of achieved benefits

“Performance improvement programs don’t guarantee improved performance,” says Mortlock. “Reaping the full benefits of these programs requires an incremental and planned approach that identifies common obstacles and effective strategies to address them at the outset.”

Read: Will Energy Stocks Boost the Canadian Market?

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.