Increased cost structures and flat commodity prices demand lean business models
CALGARY, Oct. 17, 2013 /CNW/ - The Canadian oil and gas industry is undergoing a fundamental structural shift and can no longer rely on cyclical commodity price improvements to achieve optimal business performance, says EY in a new report. Top performing companies are managing this shift with a new approach to performance improvement.
"Increased cost structures and flat commodity prices are creating a greater need for lean business models across the oil and gas sector," says Lance Mortlock, Partner in EY's Oil and Gas practice. "That's where performance improvement comes in. Companies can't rely on a swing in prices to improve the bottom line. Staying competitive requires making long-term structural changes."
Performance improvement: positioning Canadian oil and gas companies for success from the inside out underlines how performance improvement programs are more than just short-term, cost-cutting exercises driven by commodity price fluctuations.
"These programs can help companies achieve better performance across a variety of activities from cost optimization to asset reliability and even safety and environmental performance," he says. "But change doesn't happen with a short-term focus."
Prioritizing performance improvement is just one of many challenges companies must overcome on the road to success — particularly in the oil and gas sector where companies believe improved commodity prices will alleviate squeezed margins.
Challenges that can derail program success include:
- Limited awareness of the business case for performance improvement
- Reduced understanding of the potential benefits
- Inadequate support from upper management
- Improper governance during development and implementation
- Insufficient sustainability of achieved benefits
"Performance improvement programs don't guarantee improved performance," says Mortlock. "Reaping the full benefits of these programs requires an incremental and planned approach that identifies common obstacles and effective strategies to address them at the outset. It's a journey — not a destination."
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SOURCE: EY (Ernst & Young)
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