Within the last two years, upstream oil companies have faced over 70 percent drop in their revenues, as barrel prices dipped from $90-$100 to below $30 per barrel. And for the commodity producers, it is not yet Uhuru. Business experts at Morgan Stanley believe the free-fall is well on its way to the $20 range and lower.
The collapse of oil has benefited countries that consume oil and other oil derivatives, at the expense of oil-producing countries such as Nigeria. For a country heavily dependent on crude oil, the negative impact from recent oil prices is greater in Nigeria than in other exporting countries because lower oil revenues decisively affect its public finances. Consumption has declined on all levels, and in both private and public sectors, employers struggle to meet overheads and other financially-related obligations. Nigeria’s foreign exchange index is also not spared as the Central Bank of Nigeria has had to devalue its currency twice in one year, as a result of falling oil prices. While a generality of enterprises businesses have been affected, oil and gas and other manufacturing companies have been most impacted.
As part of austerity measures to mitigate the price crash, key players in the industry have cut capital and operational expenditures and headcount, deferred major capital projects and pushed for better prices with their suppliers. According to the Financial Times, the world’s big energy groups have shelved $200 billion of spending on new projects. This comes amidst wider retrenchment by the industry which has seen thousands lose their jobs. The former National Industrial Relations Officer of Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Hyginus Onuegbu recently said Nigeria’s oil and gas companies have cut about 120,000 direct and indirect jobs, as a result of low oil prices. Despite their efforts, a lot more has to be done to evolve the industry into a leaner, stronger oil and gas sector.
In a report from Wood Mackenzie tagged ‘M&A Outlook for 2016’, its Corporate Analysis Research Director Luke Parker stated that, should oil prices remain low, companies will be forced to sell assets and merge businesses in order to free up capital, cut costs and survive amid growing financial pressures. Industry players will have to concentrate in areas which they have proven capabilities and nurture their outperforming assets, while shutting down lagging liabilities permanently. To emerge leaner and more agile, outsourcing specific technology or business process functions is a proven way of reducing both capital and operating costs. This enables the company to transfer the need to make significant capital expenditure, such as large investments in technology infrastructure, to its vendor at much lower costs.
To remain profitable, oil and gas companies must also consider how to gain operational efficiencies through improved use of technology. With rapidly shrinking budgets, business leaders have little patience for high-priced, long-term IT slogs; “I would rather pay for something over time with a predictable budget and SLAs than have a large, one-time outlay with lots of execution risks,” a CTO who pleaded anonymity said.
In light of this, the Chief Executive Officer of MainOne, Ms. Funke Opeke, has advocated Information and Communications Technology (ICT) for improved cost efficiency in Nigeria. During a media session recently, she identified the role of ICT in driving down costs and optimizing operational efficiency for oil and gas companies, to enable them operate profitably. She noted that changes across the global oil and gas sector require new models to managing information, analyzing seismic patterns, and optimizing outcomes in both downstream and upstream operations. “ICT can enable end-to-end automation of production process, from instrumentation and field-data capture to data management and integration, advanced analytics and forecasting and visualization. Companies now are using data analytics before they drill to ensure new wells deliver the most crude oil. Technology offers a robust platform to give oil and gas players better bang for their buck”. Ms. Opeke also stressed that aside the cost efficiency and flexibility of the applications, IT solutions can ensure high productivity and called for the adoption of Data Centre colocation and Enterprise Cloud solutions. “Oil and Gas companies can leverage outsourced Data Centers to streamline their business and reduce duplication of roles carried across different business units, at cheaper and predictable OPEX costs. Companies do not need to build out: IT can deliver everything to you as a service; Data Centers, Colocation, Cloud and Big Data. We understand corporate decisions to cut costs and believe that our superior Data Center and Connectivity solutions can assist your businesses to maintain operational efficiency during this challenging period”, she said.