With oil prices flirting with the one-time “fair value” level of US$75 per barrel, there is certainly some room for optimism within the industry. But so far companies have responded with caution, using recent improvements in revenue to return value to shareholders and leave capex spending steady.

But should prices remain elevated—and especially if future demand prospects remain robust—the impulse to increase spending will grow. The pressure to shift to a growth outlook will challenge some of the industry’s responses to the price decline, forcing companies to adopt a disciplined approach to preserve the gains of the low-price adaptation.

The price decline forced companies to take new approaches to development so they could ensure adequate cash flow to stay profitable and deliver shareholder returns. This value-focused mindset has driven a selective approach to projects, putting a premium on unconventional and other short-cycle efforts. With complexity threatening cost overruns and delays, the larger projects required for future growth had been put on hold.

But this growth will be needed sooner rather than later. While companies may need to take on more complex projects to deliver the scale required for future growth, plentiful opportunities remain to allow preference in investment decisions to potential projects offering well-developed infrastructure, favorable investment regimes, competent and capable governance of the petroleum sector, and in areas with oilfield services capabilities and capacity. And companies can do even more to ensure recent lessons learned continue to be realized.

Companies Optimized For Growth

The rising tide of higher oil prices will lift all oil company boats, but companies that continue to deliver shareholder value while pursuing growth strategies will distinguish themselves. These producers will set themselves apart and be able to tackle growth in a cost-effective manner—no matter the commodity price.

Avoiding complex megaprojects and taking advantage of lower service sector costs were two common approaches to realizing value as prices crashed. But moving forward, these will no longer be options, especially as the sector as a whole ramps up spending. Instead, preserving value while achieving growth will require a combination of cultural changes; a restructuring of the processes and organizational approaches to capital-intensive projects; and even new technologies, including a deeper, enterprise-wide commitment to digital.

In preparation, executives should ask:

  • Have we improved our cost structure and eliminated organizational barriers to shorten project cycles?
  • Does our engineering culture still demand expensive and time-consuming customized approaches to every well? Do we have an effective way of determining the real value bespoke design can deliver on projects? Would standardization deliver better economics, even with less-than-optimal production?
  • Have we maximized the use of digital in our planning, design and engineering functions to improve cost performance and project execution time?
  • Have we optimized our portfolio of future growth opportunities?
  • Have we made sustainability a priority? Reducing waste and becoming more efficient delivers substantial benefits.

An important component to all of these questions is ensuring the business has experienced project management talent in the organization—employees that are capable of driving major new developments. The lack of significant investment over the past decade may have deprived some companies of the opportunity to give employees project management skills and experience.

Managing Internal Complexity

The scale and complexity of projects undertaken will soon likely mirror those that bedeviled the industry in even a $100 oil world. Growth will require some compromises in terms of complexity, both in terms of geology and geography. But companies have the option to manage some of this complexity through digital solutions.

Digital technology is not new to the oil patch; companies have been investing in connected sensors and meters for years. But today’s technologies take digital to a level far beyond simple capture of data from field equipment. Advanced analytics, artificial intelligence and machine learning can enhance operations and improve efficiency—both in the field and in the office.

Integrating digital basics with today’s advanced analytical tools can provide transformational real-time and predictive insights. Getting it right will require companies to:

  • Look across the enterprise. Every function in the organization can benefit from these digital capabilities. It’s OK to start small and test capabilities, but don’t stop there.
  • Understand what’s available and how it can benefit. Make it a corporate priority to explore today’s technology —and to stay abreast of new developments.
  • Collaborate with technology partners. Companies that are focused on technology can bring unique ideas and awareness to your organization. They are invaluable in building and carrying out your digital strategy.
  • Invest in continual improvement. Technology is changing rapidly. Commit to making the investments needed to stay current.

The companies that get this combination correct, and are able to apply it to an overall corporate culture of enhancing efficiency and protecting value, are those that will thrive and continue to set themselves apart, even as oil prices boost returns across the industry.

David Kirsch is executive director for EY.