The Final Frontier: E&P's Low-Cost Operating Model

CHAPTER 2The New Agenda

Industry leaders face seemingly conflicting imperatives to cut costs in response to a supply glut with low liquids and natural gas prices, but also to invest in the needs of the business—facing much higher‐cost resources, such as deep‐water projects, unconventionals, oil sands, and difficult international frontiers.

Companies (and countries) are adjusting to lower oil and gas prices, but many of the actions being taken are not consistent with longer‐term needs for investment and sustainable growth. Furthermore, sadly, some of these actions are unsustainable, or at best, one‐time gains and not scalable across new future production.

A new strategic agenda and operating model where cost transformation is premised on a capabilities‐driven strategy can resolve these seemingly conflicting imperatives—to cut costs sustainably while investing in the future of a business.

UPSTREAM COST TRANSFORMATION

Upstream project deferrals, spending cuts, and vendor concessions were the first tools to cut costs and conserve cash, but now we are in the midst of an important cost transformation with companies and countries adjusting to “lower‐for‐longer” prices. Cost initiatives that deliver the greatest impact and bring the most value to an enterprise are not only “large‐bucket” spend items but initiatives that are both sustainable over a full cycle and scalable across each unit of production—effectively unit costs, rather than period costs (see Figure 2.1).

Figure 2.1 Illustration ...