Volume: 4 | Issue: 1

Welcome to 2015: Combating the Uncertainty of Low Oil Prices

As I wrote this article in early January, oil prices from USD 50/bbl to USD 60/bbl have been sustained for several weeks, and energy-related stocks have fallen significantly below their 52-week highs and 30% below in some cases.

Many of us have seen this before and have lived through times in which the catchwords “synergies,” “streamlining,” and “rationalization” were used to describe the inevitable budget cuts and headcount reductions.

Will this downturn be any different? Only time will tell, but there is a glimmer of hope even with these oil prices because we, as an industry, had already begun to address escalating capital costs and project efficiencies as shown by a number of articles published in Oil and Gas Facilities last year.

As we return to work from our holiday breaks, we are beginning to see reactions from the industry that we have seen before: reprioritization of projects and deferral of nonessential planned work. Of course, cost management and operational discipline encompass all segments of our business, but in times like these the facility world is often at the forefront primarily because of the breadth of our business and the wide-ranging capital and operating expenditures in our portfolios.

A key question for many of us now is: What do we cut and what do we defer? In the past, there have been two “easy” targets: hiring and maintenance. Sometimes, the cuts have been too deep. If a company is large enough, the effects of past hiring decisions driven by low oil prices are evident: The folks with 10–15 years of experience are very low in number or are missing entirely. So far, I am seeing signs of reduced hiring in the near term, but no hiring moratoriums as yet. Some operators seem also to be continuing with their graduate hiring programs, which is a good sign that we may have learned from past mistakes.

Maintenance is also a potential minefield, but I am hopeful in this regard. Risk-based data-driven tools are so much better today than even 5 years ago. Additionally, our zeal in process safety should guide us to avoid making short-term decisions that deliver long-term negative consequences.

Unfortunately, despite my current optimism, our track record is not good. During hard times in the ’90s, I saw entire fields turn off corrosion inhibitors, scale inhibitors, and other key oilfield chemicals. The results in almost all cases were predictable: While lower operating expense targets were achieved, infrastructure sustained long-term damage.

Hopefully, we now realize that optimization, not elimination, is the key with production chemicals. I learned long ago that oil production is a chemomechanical process, and that chemical engineers hold the key to optimizing process plants. These two thoughts should be kept on top of our minds as we seek to lower our operating expenditures in lean times.

Understanding how the chemical and mechanical processes interact is the key to operating effectively, whether producing oil or treating water or gas. It really can be that simple.

I would also suggest that we push to optimize our operations, try something new, or develop an improved system. An oil price of USD 50/bbl will certainly provide this opportunity.

A couple of areas that will almost certainly come under scrutiny in all sectors of our business will be travel and training expenses. These are controllable costs and typically do not affect production, thus making them the low-hanging fruit. For some of us, rationalization will mean the elimination of attending an annual conference, taking an external course, or visiting an exhibition to see the latest and greatest technology.

This, however, should not mean a year of no professional growth. There are many ways in lean and mean times to develop professionally and expand your knowledge. Fully exploiting your SPE membership is one
of them.

Here are some ideas for consideration:

To combat the uncertainty brought by USD 50/bbl oil price, I propose that facilities engineers adopt the role of the optimist. As British statesman Winston Churchill famously stated, “The pessimist sees difficulty in every opportunity. The optimist sees opportunity in every difficulty.”

I suspect that facilities engineers will need to be creative, innovative, and opportunistic as we face the year ahead. My New Year’s resolution is to be an optimist and look for opportunities in these difficult times. Will you join me?


Paul S. Jones is the subsea unit manager at Chevron and a past SPE technical director of Projects, Facilities, and Construction.

He is a member of the Editorial Board of Oil and Gas Facilities.