How oil and gas companies can respond to unprecedented disruption

Copyright © 2020 Accenture. All rights reserved.Copyright © 2020 Accenture. All rights reserved.
A SHOCK TO
THE SYSTEM
How oil and gas companies can
respond to unprecedented disruption

Copyright © 2020 Accenture. All rights reserved.
Supply and Demand Shock
2
The current oil and gas (O&G)
market environment is
unprecedented.
We are experiencing a
supply and demand shock.
…an action plan to rebuild post
the crisis…
…and a roadmap to reinvent and
build resilience beyond that…
This cycle require measures that enable
an agile response in the near term...
…so energy companies and the
industry can eventually thrive

A one-two punch is causing a ripple
effect across every O&G sector.
3
THE SITUATION

In the market
• Demand destruction could exceed 10 million
BPD for 2Q20
• Impact from demand destruction will
overshadow any supply shock from an OPEC
decision
• Oversupply will persist for several months
• The onset of a global recession will affect
natural gas demand, limiting supply
adjustment
The Situation
4
Implications
• US light tight oil (LTO) pure play companies and the upstream sector
are in a much weaker position now than the last crisis in 2014
• Downstream companies will see margin expansion from cheaper crude
• But they’ll also experience volume reduction from recessionary
pressures and response to the virus
• Oilfield and equipment services companies (OFES) will be hit by
reduced activity and a price squeeze
• Integrated gas will continue to see margin pressure, providing no
cushion to integrated players

-4
-12
-7
-4
-7
The Situation
5
2020 demand could be 8 to 18 million BPD lower than planned
Demand destruction from COVID-19 is shaping up to be massive
• About 60 million bpd is used
in transportation – road, sea
and air.
• A 20-40% contraction in
transportation in Q2 is
~12-24 million bpd
reduction in crude oil
demand
• A global recession will put
further pressure on the
remaining 40 million bpd of
non transportation demand
High Low
Full Year3Q20 4Q202Q201Q20Planned
-7
-11
1
-24
-17
-24
-8 to -18
Demand Destruction Due to COVID-19
Million bpd

The Situation
6
Oversupply can lead to low prices not seen in decades
Market balance faces a double whammy
0
15
30
45
60
75
90
105
120
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9
MarginalCashCost($/Barrel)
Oversupply
Demand Driven
OPEC+ Oversupply
OPEC+
Unplanned
Supply
Increase
Full Year 2020
Demand
Contraction
Total
Oversupply
Global Planned
Growth
Global Crude Supply-Demand Balance
Million bpd
High Low
Planned Supply – Tight Market
OPEC+ Oversupply
7.76.6
2.8
16.5
20.3
0.6
0.5
1.0

Copyright © 2020 Accenture. All rights reserved. 7
Today’s environment is unprecedented:
Companies need to take dynamic and
holistic actions today—more than in any
previous cycle
THE SITUATION

Copyright © 2020 Accenture. All rights reserved. 8
… take a five-step approach…
SO, WHAT CAN THEY DO?

1. SET UP A 24/7 VIRTUAL
COMMAND CENTER TO DRIVE
DYNAMIC DECISIONS

Set up a virtual command center
to drive dynamic decisions
10
Centralize internal and external information
IN THE MARKET INTERNAL
• Leading indicators for changes in the COVID-19
situation
• OPEC+ actions
• Government response to COVID-19 and
stimulus for the economy
• Operational risks to business continuity
• Financial risk and capacity

Set up a virtual command center
to drive dynamic decisions
11
Take an action-oriented
risk management and
business continuity
optimization approach
Stand up a 24/7 virtual space1
Build intentional plans for business
operations
2
Re-base scenarios and risk tolerance
for unknowns3
Deploy action plans4
Mitigate second-order consequences5
Rigorously screen for locked-in value6

2. PUT COMPETITIVENESS
ON A FAST TRACK

Put competitiveness on a fast track
13
Overcoming cash challenges and delivering fast results are now a top priority
• COVID-19
• Business
continuity risks
• Fragile supplier
ecosystem
• Over-burdened
management
• Competing
priorities
Cash
Forensics
Working Capital
Forensics
Organization
Forensics
Eliminate non–
working third-party
spend
Minimize working
capital
Simplify and
streamline the
organization
$120-270mn1 20+ % 30% reductionPotential impact
Rapid value-based solutionsChallenges
Data-
driven
Analytics/
AI enabled
Dedicated
experts
Proven
opportunities
Committed
results
1) For a representative third-party spend of $1bn

14
Zero-base everything
Zero-based cost execution
principles must be…
RAPID
CO-CREATED
CASH FOCUSED
HAVE A SURGICAL FOCUS
BALANCE RISKS
BE DELIVERED EFFICIENTLY AND
REMOTELY
…but also must…

15
To achieve savings fast, combine top-down and bottom-up capabilities
TOP-DOWN
BOTTOM-UP
AI DRIVEN FINANCIAL/
OPERATIONAL VISIBILITY
!
!"#
$
𝑚𝑒𝑡𝑟𝑖𝑐! = 𝛼𝑚𝑒𝑡𝑟𝑖𝑐# ±
𝛽𝑚𝑒𝑡𝑟𝑖𝑐% ± ⋯ ± 𝛾𝑚𝑒𝑡𝑟𝑖𝑐$
“SHOULD COST”
MODELS
PRESCRIPTIVE
ANALYTICS
KNOWLEDGE
BASE
PROPRIETARY
BENCHMARKS
VALUE
SPRINTS

3. BOOST LIQUIDITY

Boost Liquidity
17
Focus on immediate, short term actions to free up cash
combined with capital and portfolio restructuring
Quick relief in 30-60 days
Stress-test all new projects
to reduce spend while
preserving optionality
CAPITAL/PROJECTSWORKING CAPITAL
Phase and control the
speed of portfolio actions
PORTFOLIO

Boost Liquidity
18
HIGH RISK LOW RESILIENCE
• Working capital management
• Debt restructuring
• Short-term cash focused
• Going concern viability
• Rapid restructuring
HIGH RISK HIGH RESILIENCE
• Rephase committed capital
• Explore options to reallocate capital
to margin generating businesses
• Explore options to realize cash
through divestment
• Consider non-cash asset swaps in
key acreage regions
LOW RISK LOW RESILIENCE
• Explore options to release
working capital
• Stop all capital expenditures
• Divestment of
assets/businesses to free up
capital
LOW RISK HIGH RESILIENCE
• Reduce capital expenditure and
revisit dividend commitments
• Renegotiate supplier contracts
• Acquire opportunistically in the
short term if funding available
• Explore larger more strategic
acquisition options for medium
and long term
Customize activities
based on your company’s
risk and resilience

4. BUILD OPERATIONAL
RESILIENCE

Build Operational Resilience
20
Ensure business
continuity and structure
for new activity levels
PROTECT AND OPTIMIZE
Create a digital workplace to
enable safe and productive
ways of working
CONNECT TEAMS
Flex work and workforce provide
variability across commodity
lifecycles
SCALE FOR THE FUTURE
…by creating a connected and flexible workforce

Build Operational Resilience
What is the true level of
resilience in my supply chain and
does it match the level required?
What needs to change in my
operations to ensure ongoing
agility and resilience?
How should I reshape my
supply chain in the immediate
term – fast track approval of
new suppliers, re-distribute to
more suppliers?
What do my direct suppliers
need from me to be able to
continue to meet my needs
e.g., visibility, lead times, order
volumes, price?
What activities and functions are
especially impacted by Covid-19:
logistics, manufacturing, cross-
boarder buys and how can I
adapt?
21
…by strengthening supply chain resilience for business continuity

5. LEVERAGE SUPPORT
INFRASTRUCTURE

Build flexibility into your cost structure
Leverage the Support Infrastructure
…by adjusting cost base
and leveraging technology
Consolidate and outsource back office
operations to realize a flexible cost structure
Enable pay-per-use models
Engage in technology collaboration
Divest IT data centers and generate
upfront cash
Rationalize applications and optimize IT
maintenance cost
Enable pay-per-use models
23

…by reducing fixed costs
using partners’ assets
Enhancing scope by rapidly building in
flexibility and digitizing “the functions”,
can drive up to 50% efficiency
Transforming captive infrastructures
with digital accelerators and platforms
from specialized partners
Developing creative commercial
frameworks in the sellout process
generates upfront cash and efficiencies
in the long run
24

Highly efficient, economical and
flexible cost structure
Outcome-based pay-per-use models
Consolidated demand to drive higher
economies of scale and greater
negotiation power
...by leveraging economies
of scale through integrated
shared services
25

Release working capital
(>30%)
Taking the right steps now can
lead to considerable benefits
Improve free cash flow
(>20%)
Enhance ability to cover dividend
and debt obligations
Mitigate impact on top line and
bottom line (>10%)
Secure employees and
enhance employee satisfaction
26
Secure supply chain and
key partners
Ensure business continuity
Enhance trust and relationships
with customers

Meeting the challenge
Challenging times call for intelligent measures—traditional
and non-traditional. While the industry has dug itself
out of other shocks, it is now faced with disruption at
an existential, system-wide and player level—risks that
will test its tenacity and durability. And while it may
force some players to fold, those that emerge will be
leaner and stronger.

DISCLAIMER: This document is intended for general informational purposes only and does not take into account the reader’s
specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent
permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation
and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax
advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals.
Copyright © 2020 Accenture All rights reserved.
Accenture, its logo, and New Applied Now are trademarks of Accenture.
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How oil and gas companies can respond to unprecedented disruption