Comments: Weathering the Recession

Abstract

Editor's column A new report sheds light on how oil and gas firms have weathered the recession, and whether the firms" management believes that the industry is experiencing permanent structural changes in addition to the significant economic downturn. Released on the eve of the SPE Offshore Europe conference, the report concludes that companies generally fall into one of two categories and that the determining factor is company leadership and corporate culture. Although the entire industry has been affected by the recession and the cyclical nature of oil prices, the study sought to discover why some firms are more resilient and optimistic when facing economic and other challenges. The "Riding the Rapids" survey was put together by the Aberdeen School of Business and the Production Services Network consulting firm and was based on interviews with senior leadership from oil and gas operators and service companies. The research was then debated and discussed in panel sessions held in Aberdeen, Houston, Calgary, and Abu Dhabi. Companies were split on how they viewed current economic challenges. More than three-quarters of the companies said they had been affected in some way by the banking meltdown and the oil-price volatility of the past year and a half. But just over half (51%) claimed they were immune or only moderately affected by the current economic downturn and seemed to welcome the challenges the downturn posed. In sharp contrast, 49% of the companies surveyed "felt exposed and less in control of their destiny, stating they had been seriously or very badly affected by the current recession." The more optimistic firms saw the recession as only one of several contextual factors driving change in the industry. They also saw more signs of economic and industry recovery occurring in the second half of this year, which could lead to an industry rebound in 2010. Management in these companies were focused on restructuring their companies to become "leaner and meaner" in days to come to perform more efficiently. Not surprisingly, these firms often had a product line that was more economically inelastic, diversified offerings, and sound management practices and sturdy financials that were already in place. Some saw a practical opportunity to the boom and bust economic and price cycles the industry weathers—it allows the industry to periodically realign itself to current economic realities, streamline costs, and emerge as a more efficient sector. The more vulnerable cited the banking crisis in particular as a factor, as the lack of access to capital and funding harmed the ability to secure finance for projects and new developments and affected cash flow throughout the supply chain. They also cited a lack of skilled workers. The industry faced that problem before the recession and economic difficulties only made matters worse for some firms, which laid off workers even in light of the technical-talent shortage. Other firms in this category also complained about the lack of help and incentives from government, even as it bailed out other industries.