How Oil & Gas Companies Can Succeed During an Economic Downturn
Given tough economic times in Alberta, it can be challenging for oil & gas companies and their suppliers to weather the storm. Here are five tactics for staying on top when the odds are stacked against you.
1. HAVE FORESIGHT AND ECONOMIC PLANNING
It’s hard to predict the future, but it is vital to prepare for the worst if the economy begins to slow down. Struggles stem mainly from a lack of foresight and sound economic planning to withstand a down cycle. Companies that are over-leveraged and not able to cover their expenses because of excessive costs and commitments and are forced to significantly downsize and dilute their capital structure; some even will go into bankruptcy.
2. PRUDENTLY MANAGE FINANCES
Companies facing economic downturns need to remain in a strong financial position with sufficient working capital to fund operations and meet all commitments for the foreseeable future.
Prudently managing financials enables companies to adapt their business plans accordingly and not compromise corporate growth in the process. In turn, they can continue to pursue strategic acquisitions as well as exploration and development drilling opportunities. At the same time, prepared firms can keep focus on becoming a leading, profitable company while maintaining the highest standards in health, safety, and environmental compliance.
3. ESTABLISH A STRONG TEAM APPROACH
The success of any company, no matter what the size or the industry, is dependent on the strength of the team that is in place. Be sure the assembled team can learn from one another and work well together. This unity and knowledge sharing will provide the highest probability for a favourable outcome.
4. DON’T OVERCOMMIT
A lot of companies do not have the capital to withstand a down cycle. These companies over leverage, and when the market turns down, they are not able to cover costs. The best strategy is to formulate a strategy based on long-term sustainability by carefully building value on actual assets and documented potential. This will help companies progress even during downturns.
5. EMBRACE CHANGE
During recessions, it takes leaders to inspire and encourage employees to be creative in dealing with new variables, especially if this overlaps with a change in the leaders themselves.
A strategic change in executive leadership can bring about a shift in a company’s near-term focus, such as towards low expenditure in field production optimization opportunities, and reducing costs by farming out higher-risk initiatives and entering appropriate joint ventures.
Moreover, during a downturn, it is even more crucial for executive team leaders to ensure the i’s are dotted and the t’s are crossed, and for the company to remain nimble, on point, and on strategy, while being committed to operating with the highest standard of integrity.
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