During the higher-priced environment, healthy returns (average of 24% ROACE) plus a focus on growth and accelerated production afforded lax cost control. Now, the industry is addressing a long-standing cost inflation issue. Wood Mackenzie asserts that average exploration costs can decrease by a third – with simplification of activities (standardization & automation) and operational efficiency improvements contributing 5% each.
With an opportunity for a $1 – $3 per barrel reduction in operating expenses available, what price environment does this investment make the cut?
Consider evaluating your cost management strategy through a different lens – one that has a similar perspective to the long-term view of your capital investments. Regardless of whether this price trough is “V” or “U” shaped, leading companies are focused on delivering additional operational efficiency gains that benefit during the trough and beyond.
While you may have already identified opportunities to improve operational efficiency, you likely face a tough sell to the Board and investors in a lower-priced environment. Position the operational efficiency investment as a way to deliver better returns versus just slashing the budget.