Point de vue
Covid-19’s impact on oil, gas, and chemical organizations
Guidance for oil, gas, and chemical executives
The impact of Covid-19 and the oil prices war are proving to be a two-pronged crisis for oil, gas, and chemicals companies. Oil prices are dropping due to failed agreements on production cuts and the need for chemicals and refined products is slowing from industrial slow-downs and travel restrictions in the wake of this global pandemic.
Oil, gas, and chemicals companies are in the midst of a two-pronged crisis : an oil price war and the impact of Covid-19. Oil prices dropped dramatically a few weeks ago when OPEC and Russia failed to agree on production cuts. This oil supply/demand imbalance is occurring in tandem with depressed need for chemicals and refined products stemming from industrial slow-downs and travel restrictions in the wake of Covid-19. Consequently, the short- to medium-term outlook for high-cost producers, smaller operators, and those companies with high levels of debt appears to be more challenging now than ever.
Potential long-term impact on oil, gas & chemicals companies
Large oil, gas and chemicals companies are responding by cutting capital and operational expenditures,which will filter down to suppliers and oilfield services companies. This suggests :
- Inefficient and highly leveraged companies may face a liquidity crises, with some being forced out ofbusiness.
- US shale producers will be particularly under strain if the supply glut and depressed prices continue.
- Some of the larger, healthier companies may alter or accelerate their plans to diversify into otherenergy segments, prompting a change in business model.
- In the wake of lay-offs and furloughs, companies may face a shortage of skilled labor when the marketrebounds.
Key questions executives and boards should be asking
- How can we maintain the safety of our people first?
- How do we make sure our assets (e.g., oilfields, chemical plants, LNG trains, refineries, etc.) cancontinue to operate in an environment where everyone feels at risk
- How do we assess and mitigate supply chain risk, including the risks among different countriesHow do we retain our talent so we have access to sufficient skilled labor when the market recovers?
Practical next steps
Oil, gas, and chemicals leaders will be defined by what they do along the three dimensions of managing acrisis: respond, recover, and thrive. Some key next steps include :
- Assess whether the company has the financing to continue, balancing the trade-off between immediate needs and what has been promised to the market in terms of returns, dividends, sharebuy-backs, etc.
- Consider if the crisis can be used as a catalyst to rethink how work is done, such as acceleratingadoption of digital capabilities.
- Determine what the future of work will look like and align talent strategies for the new environment.
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