CHINA SCOTON OILFIELD EQUIPMENT CO., LTD.

How to Avoid Being Dragged By Oil Price Fluctuation

Maintain a high level of awareness of crisis consciousness, regardless of the fluctuation of oil price.

Since the price of oil is out of control, we must focus on what can be controlled, especially investment and operating costs.

The diversification of project is regarded as a key means to resist the uncertainty of the current low oil price environment.

Oil market is just like the sea. Oil prices ebb and flow, show high volatility. The oil price crisis, in particular, the rate has fallen more than 80%, which is the biggest in the past 40 years, and the industry has suffered from bankruptcy, defaults and layoffs. But in this sorrowful situation, the oil industry is more sober and eager to ponder what exactly they should do to avoid being dragged by oil prices. At this session, several oil companies have shared their experience of being strong and transformative in this condition. And there are three common experiences are notable and worthy.

First, maintain a high level of awareness of crisis consciousness, regardless of the fluctuation of oil prices. Fatih Birol said, since the new century, the oil price was at a high position for many years, which made the oil industry into a sense of security, but in fact, the weakness in this industry becomes more and more, especially the cost of inflation for 10 years. At the general assembly, many industry representatives said that since the price of oil is out of control, we must focus on what can be controlled, especially investment and operating costs. In the future, regardless of the price of oil, it must be a continuous process to cut the cost.

Second, we will continuously develop the structure and investment strategy with the core of "profitability". The international oil company is following the trend of oil price, focusing on the company's development strategy, consolidating its main assets, stripping out non-core and inefficient assets. Between 2015 and 2016, the four other major international oil companies, except Exxon Mobil, spun off around $10 billion. The industry is more focused on smaller but faster repayment investment projects.

On the investment strategy, the delegates talked about managing two relationships. On the one hand, we must deal with the global and local relationship. Exxon Mobil says, because it is difficult to predict which type of project, such as shale gas, deep water or LNG project, will be the best performers in the situation of lower oil prices, you should put all your eggs in one basket instead of putting eggs in different basket. These "baskets" have a common feature, which is they are good in low oil prices, and they can bring greater benefits when prices rise in the future. In short, project diversification is a key way to ward off uncertainty in the current low oil price environment. On the other hand, deal with the current and long-term relationship. Shell's CEO Fan Bodeng said that considering the oil prices will fall and rise, oil company streamlines the investment but at the same time, they also should add, not destroy their ability of sustainable development. The key is to be prepared for investment, and to be able to compete at any price and cost level.

Third, adopt a variety of means to optimize costs, especially to focus on structural, sustainable costs. From 2014 to 2016, oil companies continuously optimized their production processes and costs, resulting in a 30-50% fall in the break-even cost of many projects. With the recovery of future investment, the industry is also concerned about whether costs will rise again. Experts at the conference noted that the cost of the oil industry's entire industrial chain has declined over the past few years, and that a significant portion is structural and sustainable. For example, in terms of technology, digitalization enables the oil and gas industry to achieve higher drilling success rate, higher recovery rate, lower outage rate and higher capacity utilization ratio. In terms of management, focus on "doing less" rather than "doing more", such as the relentless efforts in process reengineering, streamlining and standardization, which make efficiency improvements and costs fall.
Related Article
  • TEL:+86-029-62827813
  • FAX:+86-029-62827812
  • EMAIL:sales@scotonpetro.com
  • ADDRESS:Hi-Tech Development zone, Xi'an China