It is well recognized that at a national and international level, the oil and gas industry has been extremely hard hit by the downturn in commodity price. More than 350,000 jobs have been lost since oil prices started to tumble in 2014, and Oil & Gas UK has estimated 120,000 jobs linked to the North Sea will have gone by the end of this year.
It’s no surprise, then, that the word “survival” is one of the first uttered by every CEO we have spoken to in the past 18 months from any company in our sector.
While this response is appropriate and understandable, it has also left us asking questions about the degree of priority being given to strategy in these challenging times. Has strategy slipped off the agenda completely as most companies battle for survival? Are business leaders making a choice between survival and strategy? Or is strategy at the heart of survival in an increasingly changing world?
For us, the clue is in the answer to what we believe our simplest definition of strategy to be—the formulation of a deep understanding of where you are, what you’ve got, and where you want to get to—and then implementing this strategy as a continual process.
Unfortunately, strategy is often the business function to which we allocate the least resource both in good times and bad, and this can have the most disproportional detrimental effect. Not alone when survival is the priority, strategy can become the soft target.
While this problem is relatively recent to the energy industry due to the circumstances it now finds itself in, it has been a historic issue in other sectors.
A study across a range of industries covering a 10-year period highlighted the negative impact of getting the strategy wrong. In the study of 103 companies showing significant value loss, strategic blunders were the primary culprit a remarkable 81% of the time.
Over the past six months, we’ve noticed that every one of the companies that seriously engages with us on strategy is actually successful and has already been managing the downturn quite well prior to any discussions with us.
Our initial belief was that these companies were not battling survival, and therefore had resources to allocate to forward strategy. However, we soon realized that our assumption was wrong.
After further examination, we found the success of these companies had been based on an inherent tendency toward strategy for many years prior to the downturn. They seemed to have developed an in-built inquisitive disposition toward changes in external factors and an understanding of how they should respond to enable them to progress. None of this should have come as a surprise to us: having an active, even cultural strategic process gives all of us the best chance of dealing with external change and uncertainty.
So, if your strategy has slipped off the agenda, it is critical to reinstate it.
We all need to continually review strategy as we work our way through the ongoing industry crisis. Our acute focus on survival just now can lead to us effectively having no active strategy or a miss-timed strategy. The development of a strategy does not require a massive investment of time or money; it is more about an initial review session followed by continual reviews on a 'little but often' basis. A little can go a long way and be extremely valuable.
Strategy development can be undertaken with or without an external resource; however, we at Vinstra would recommend you consider the value of an external, experienced resource partner to initiate or revive your strategic process in parallel with your already challenging day-to-day operations.
We believe we are experiencing a once in a lifetime period of such seismic change within the energy industry. Hence, it is a time to be pro-active, and have your antennae up, looking at all the development routes in front of you. The alternative, of keeping your head down and just turning the handle, waiting for your previous markets to return, is a very dangerous tactic indeed.
These exciting times will inevitably throw up many more fresh opportunities for those who are primed for them. The exact same opportunities will float by those who are primed and those who are not. Those who are not will miss the opportunities directly under their noses; those who are primed, who have an active and cultural strategic process, will be prepared to grasp these opportunities with both hands. This is something we have personally experienced many times in the past. Keeping your strategic focus continually active is akin to ensuring that you are awake at the critical times when the best opportunities come along.
All of the above is applicable at the business level; however, it is also just as relevant at a personal level in your career and life.
Therefore, remember to keep that strategic process awake. Make sure you use strategy to continually understanding where you are, what you’ve got, what is happening around you and where you could get to, and the most valuable opportunities will appear.
Ciaran O’Donnell and Duncan MacPherson are co-directors of Vinstra, a firm that specializes in enhancing value in the energy sector.
Recommended Reading
IKAV and VTTI to Buy Majority Stake in Italy's Adriatic LNG Terminal
2024-03-27 - The closing of the deal to buy majority stake in the Adriatic LNG terminal by VTTI and IKAV is expected in the second half of the year.
ARM Energy Sells Minority Stake in Natgas Marketer to Tokyo Gas
2024-02-06 - Tokyo Gas America Ltd. purchased a stake in the new firm, ARM Energy Trading LLC, one of the largest private physical gas marketers in North America.
Eni, Vår Energi Wrap Up Acquisition of Neptune Energy Assets
2024-01-31 - Neptune retains its German operations, Vår takes over the Norwegian portfolio and Eni scoops up the rest of the assets under the $4.9 billion deal.
NOG Closes Utica Shale, Delaware Basin Acquisitions
2024-02-05 - Northern Oil and Gas’ Utica deal marks the entry of the non-op E&P in the shale play while it’s Delaware Basin acquisition extends its footprint in the Permian.
Vital Energy Again Ups Interest in Acquired Permian Assets
2024-02-06 - Vital Energy added even more working interests in Permian Basin assets acquired from Henry Energy LP last year at a purchase price discounted versus recent deals, an analyst said.