Recently, Kuwait Foreign Petroleum Exploration Co. (Kufpec) Chief Executive Officer, Nawaf S. Al-Sabah, called out his peers by noting that many companies lose sight of long term goals during price downturns and risk falling behind the competition. This was echoed by Saudi Aramco’s Muhammad Al-Saggaf, warning against the reduction of innovation in an economic slowdown.
Competing forces are nothing new to the energy industry. The valuation of upstream companies is largely built upon the need for ever increasing proven reserves while keeping a handle on the value of production (i.e. the cash flow to fund it). But when market conditions make it more difficult, it’s easy to lose focus on the broader goal. So what’s the broader goal? Certainly, its growth, but the caveat is how to do so in a scalable fashion.
Exercise your Long term strategy while being cognizant of today’s market pressures.
If your goal is to get fit, or be in shape next year, it’s unlikely that a pause in your exercising regimen will allow you to meet that goal. Similarly, companies that do not optimize and innovate everything from their back office, supply chain, and operations will find themselves at a cost disadvantage versus their peers operating in the top quartile and that gap will increase coming out of a downturn.
Willing or not, you’ve entered the race – get in shape if you’d like to enjoy the ride.