The lower priced environment spooks investors and puts a magnifying glass on financial leverage, debt structure, free cash flow, working capital, and cost management. Many small and mid-sized firms are scrambling to survive this “financial endurance challenge” – generating enough cash to stay afloat. Over-leveraged companies are focused on seeking liquidity. Well-hedged E&Ps experience a temporary reprieve while evaluating their go-forward investment portfolio.
Yet 3 Principles remain across the Energy Value Chain
- Price volatility is inherent to the industry
- Sharp swings in price require a rationalization of strategy
- Operational efficiency sustains
Energy companies are reacting in this lower priced environment differently – leading companies are planning for the next conquest while others are simply cutting their budgets across the board
Across the value chain, capital budgets have been reduced. Given the increased risk profiles and lower ROI in a lower priced environment, this makes sense for large capital investments. But should the same logic be applied to internal productivity initiatives? Should process improvement, operational efficiency, and automation initiatives be moth-balled until a higher priced environment emerges?
If your strategy is to sell your part of the kingdom, then this isn’t for you… But if you were planning to conquer more land and expand your empire, don’t tell your forces to stand-down just yet.
Cost management should always be a focus – operational efficiency leads to better returns.