Category Archives: Business Advice

Federal production forecast drops for 2015

The most recent report from the U.S. Energy Information Administration (EIA) projects U.S. production next year increasing by 720,000 barrels per day (bpd). This figure represents a decrease in expected production by roughly 100,000 bpd, and puts the most recent total at around 9.3 million bpd. 

This decrease marks a continuing trend from last month, when the EIA trimmed its 2015 U.S. production outlook by 100,000 bpd to an average of 9.4 million bpd. The shrinking projections are likely a result of a decline in estimated world demand. Previous forecasts for demand put year-on-year gains at 1.12 million bpd, which recently fell to 880,000 bpd, according to EIA data. 

In its report, the EIA  explained that it expects the Organization of the Petroleum Exporting Countries (OPEC) crude oil production to fall by 100,000 bpd in 2014 and by 200,000 bpd in 2015. OPEC policy has become the subject of recent debate, as member countries look to maintain market share by not acting to address sell-offs in oil markets. 

This decision has led crude prices to slip, although U.S and Brent crude seem to be holding steady for the moment. The fall in prices and estimated demand may mean that some oil drilling companies could experience a need to review their existing processes, and determine if any inefficiencies can be addressed to protect current margins.

For this task, oil and gas strategy consulting can provide the necessary insight to weather the current price dip. An above-the-fray perspective on operational processes can help identify previously overlooked overlaps in services, and help convince entrenched management about the need to regularly review existing processes. 

Oil producers return focus to operational efficiency

With OPEC's decision to maintain oil output despite falling crude prices, many analysts began to ponder the fate of the domestic shale industry. In the past five years, U.S. production has increased from 5.4 million barrels of oil per day (MMbopd) in 2009 to 8.6 MMbopd today. U.S. Energy Information Administration Administrator Adam Sieminski was quoted last month saying that by 2015, domestic production could reach even closer to 9 MMbopd.

However, the sliding price of crude has caused a reduction of capital expenditures in many operating budgets for 2015, Reuters reports. ConocoPhillips is expected to cut its capital budget by about $3 billion, or 20 percent, and refocus its efforts on activity in its Eagle Ford and Bakken shale plays. 

"Companies will come out of the growth-at-all-costs mode and begin looking for real value in the portfolios," R.T. Dukes, senior analyst for upstream research at Wood Mackenzie, told Rigzone "Companies will seek to drive down costs and improve productivity, and try and remain within their cash flow limits or the funding sources available through today's capital markets, which are now tighter than they were a few months ago."

While it is impossible to accurately predict what oil prices will reach in 2015, the current price dip will certainly impact productivity. With the unpredictable nature of the market, oil drilling companies' success will be measured by how well they can adapt to trends and improve operational efficiency. Development is expected to continue, but having a particularly productive play will not be a guarantee of success. Oil and gas strategy consulting can help to identify inefficient processes, and help organizations better leverage existing capital for maximum return. 

Avoiding ‘comfort traps’ in strategic planning

The importance of a comprehensive mid-to-long-term strategy can not be understated. A clear strategy helps all levels of an organization to work efficiently towards shared goals, and provides workers with concrete objectives, helping boost engagement and productivity. However, as any executive tasked with actually determining the strategy can attest, the process can also be incredibly daunting.

Trying to predict the future is always an intimidating prospect, especially when the wrong decision can have significant negative impact on future career prospects. Determining a clear and effective strategy requires making decisions that will eliminate certain possibilities in the future in favor of other options. The prospect of choosing the wrong path can make most executives uncomfortable, leading to many executives reverting to using low-risk solutions that the organization has already proven adept at.

The Harvard Business Review calls this "an excellent way to cope with fear of the unknown" but "a truly terrible way to make strategy." Discomfort is an unavoidable element of strategic planning, meaning that if you feel nothing but confidence about your current strategy, the likelihood is that it will not be overly effective. Effective strategy always includes difficult decisions, and taking calculated risks.

Many organizations fall into "comfort traps" that keep them from creating a plan towards a more productive and profitable future. By recognizing these traps and staying focused on specific goals and whether they are realistically achievable, it is possible to make the most out of existing resources and steer the business in a positive direction.

One of the most common traps strategists can fall into involves an over-reliance on cost-based thinking. Costs are one of the simplest elements for an organization to control, because in most cases, they enjoy the benefits that come from acting as a customer. It is not overly difficult to determine which departments need to add personnel, to expand production space or purchase the latest industry tools. After all, like any customer, these decisions can be revisited, and it is possible to stop buying a particular good or service without crippling losses.

However, when planned revenue fails to arrive, all of the hours spent carefully analyzing costs are called into question. This is because with cost-based strategic thinking, the organization is making all the decisions. But for revenue, customers are the driving force. With an over-reliance on a cost-based strategy, leaderships can learn a hard lesson that long-term revenue is not always accurately forecastable. The ability to forecast costs is a different animal entirely than predicting revenue. Planning out future costs may help instill confidence, but it does not mean that revenue is guaranteed to follow.

One of the most common symptoms of falling into the cost-based thinking trap is when strategic discussions focus more heavily on expanding existing profit channels instead of finding ways of generating new revenue. After all, it returns to the fear of the unknown. The only way to truly avoid this trap is to create a culture that embraces calculated risk, and realizes that strategy is not about perfection, but rather mitigating potential risk.

Every truly effective strategy will involve executives making a bet on the company's future. Strategic business consulting can help leadership shed some of their fear of making strategic choices, and avoid falling into "comfort traps" that can endanger growth.

Houston creates institute focusing on oil and gas law

As the country moves closer to energy independence, there is significant demand for experts on the laws and regulations that shape the oil and gas industries. The result is a new institute focusing on oil and gas law at Houston's South Texas College of Law.

Announced earlier this week, the program will instruct students on industry best practices and help them develop applied petroleum-related transactional, title and regulatory practice skills, according to the Houston Chronicle. Stakeholders from the oil and gas industries will serve on an advisory board, guiding course structure and regulatory focus. 

"With the United States in the midst of an historic energy transformation and Houston at the heart of it, South Texas College of Law knew it was the right time to establish the Oil & and Gas Law Institute," President and Dean Donald Guter said in a statement. "Our goal is be the national leader in oil and gas law education. The needs are great, and we believe there is no better place to have this Institute than at South Texas College of Law in downtown Houston."

Houston has indeed emerged as the heart of the country's current energy boom, home to dozens of oil and gas production organizations, including almost every industry leader. This makes it an ideal place for students pursuing a career in energy regulation to learn real-world skills. 

For those organizations seeking insight into the best means of navigating the convoluted regulatory pathways for the industry, Houston oil field management consulting could provide the necessary insight. As increasing legislation is placed on the industry at a time of slipping prices, organizations should take every precaution to ensure compliance. 

Is your organization's supply chain ready for the challenges of the future?

Today's organizations serve a population with little patience. The break-neck pace of change and introduction to new technology puts intense pressure on supply chains to be more efficient, smarter and more agile than the competition. 

The reactive model of supply chains that served in the last decade will no longer cut it in today's fiercely competitive markets. Modern supply chains need to be anticipate and address issues before they arise, through the use of advanced analytics and a thorough understanding of the needs and practices of their customers. If one organization is not able to get the right product to the right location at the right time, rest assured that a competitor will be ready and willing to step in and deliver. 

Moving the supply chain to the cloud has helped many organizations become more agile and better serve the needs of their business partners. Paired with advanced analytics, a cloud-based solution can deliver the information and insight necessary to make critical decisions and increase efficiency. 

Forbes recently explored the experience of the U.S. General Services Administration (GSA), which manages a $1 billion business that provides packaged consumer goods, office supplies, hardware and other products to the U.S. government, military and civilian customers. The agency turned to the cloud to create a more efficient operations model, as well as reduce its carbon footprint. 

An organization is able to grow and advance only as quickly as its supply chain allows. A supply chain management consultant can help organization identify and correct inefficiencies, as well as take advantage of the proper novel technologies that help to minimize risk and enjoy better end-to-end visibility. 

Exploring the rise of SaaS ERP

Software as a Service has been rapidly rising in popularity. Unlike traditional ERP, which requires a purchase of a software license, the SaaS model allows for ERP to be rented for a set time, usually as a cloud-based system. SaaS first gained market share by providing a cost-effective option for smaller organizations, but the solution is now steadily being adopted by mid-to-large size organizations.

In late 2011, Aberdeen Group found that companies willing to consider an ERP SaaS solution grew to 52 percent of those surveyed, while those willing to consider a hosted ERP solution dropped slightly to 65 percent, with some companies responding they would consider either solution. The appeal of the SaaS model is based on cost savings and faster implementation time, but the system is not also without its drawbacks.

Using SaaS ERP typically knocks up to seven months off the implementation time, with the completion of SaaS projects taking just under a year on average. Typically, traditional ERP solutions take up to 18 months to install on an on-premise server. With SaaS ERP, hardware and maintenance expenses are replaced with a subscription cost. 

Although SaaS has a lower up-front cost and more rapid implementation time, it is not the ideal solution for every organization. On-premise ERP solutions are often more appropriate for more complex organizations with unique operations. Ultimately, the decision on which ERP strategy to explore comes down to an analysis of your organizations needs. Many larger organizations may find SaaS solutions are beneficial for branch offices or to add functionality to their existing systems, but a full-scale switch to SaaS ERP could come with unacceptable sacrifices of control, security and functionality.  Strategic business consulting can help to determine which options are right for your organization. 

Specialized, dependable ERP resources can be difficult to find just when you need them most.  Sometimes, even large-scale initiatives require a short-term expert. Seeking strategic staffing services can be a great way to contain project costs while gaining access to top talent.

Texas Petro Index hits record high

The Texas Petro Index (TPI), a barometer of oil and gas industry activity in the state compiled by economist Karr Ingham, has hit 308.4, setting a new record. The figure also marks the index's seventh consecutive monthly increase, and eighteenth rise in the past 19 months, according to Natural Gas Intel.

Ingham attributed the steady growth to global geopolitical tensions that have driven demand for oil, as well as the advancements in technology that have allowed such a drastic increase in production in the past five years.

"At year-end 2013, the prevailing expectation was that crude oil prices could soften modestly in 2014, and that might have been the case absent the tensions between Russia and the Ukraine and events in Iraq," Ingham told the press at a presentation at the Petroleum Club in downtown Houston.

"Crude oil prices have risen thus far in 2014 and averaged over $100 in June. The effect of those price increases has been to bring about an uptick of activity in the Texas E&P [exploration and production] sector."

According to the index, the number of active oil and gas rigs in Texas has risen 6 percent from last year's figures, reaching a total of 891. Industry employment has also hit record levels, currently standing at approximately 297,800.

The growth has been driven by crude oil, and the new drilling techniques that allow access to previously inaccessible reserves, including portions of the Eagle Ford Shale formation in south Texas.

During this period of sustained growth, oil and gas strategy consulting may become necessary as organizations seek to take advantage of relaxed restrictions on exporting crude oil, and the price of domestic crude continues to rise. In order to make the most of these fortuitous circumstances, organizations often require experienced industry insight that is not colored by internal politics. 

Keeping large projects on track

As the economy continues to recover and access to capital is expanding, many organizations are seizing the opportunity to launch long-planned major projects that were put on the back burner until more favorable market conditions arrived. These initiatives often involve vast resources and multiple teams within an organization coordinating efforts, and if they are not deployed correctly, it can have serious negative consequence on market standing and consumer perception.

However, because most of these projects have been in the works for an extended period of time, there can be a rush to execute them quickly and start seeing some form of ROI. This is an understandable – but possibly ill-advised trend. Large and complex projects warrant a thorough evaluation of risks – internal, external – before they can be executed well.

The arguably near-infamous Healthcare.gov project is presently evidence of this. The project originally was built around a two year schedule and $94 million budget, bold aspirations for an unprecedented effort. As many now know, the project met extreme criticism upon arrival, including the firing of the of the primary IT company involved. End-user purchases through the system were about 90 percent lower than projected, and the final budget tallied over $319 million.

This type of scenario is not confined to the federal realm, as CFO.com is quick to point out. An average Fortune 500 company, for example, spends nearly 6 percent of revenue on capital projects, 40 to 60 percent of which fail to meet their schedules, budgets or both, according to the source.

One of the major reasons for failure is that organizations approach large, capital projects in the same manner as they approach smaller, more commonly seen initiatives. Estimating the costs and challenges of a large project is much more difficult than budgeting a smaller project, as there are significantly more moving parts and unknowns that make large projects more prone to uncertainty and unplanned events. This makes traditional estimating processes and budgeting less certain, leading to frustration when project budgets reach the ceiling well before launch.

Having access to a program management consultant that holds first-hand knowledge of the challenges involved and budgeting practices for large-scale projects can save an organization significant frustration as well as capital resources. Unfortunately, many organizations' experience with small-to-mid-size projects may not translate perfectly to a large project. To protect a project's value and accelerate its completion, organizations would be well-advised to include experienced leaders with a proven track record of bringing projects successfully to market.