Over the last decade, Dick Cooper has seen many changes in the oil and gas industry. As the Canadian Energy & Resources practice leader and a consulting partner at Deloitte with more than 25 years' experience, he has witnessed our Canadian oil and gas sector come of age. “Canadian companies are now competing on the world stage,” says Dick. “We’ve been through tremendous consolidation, intermediate players have all but disappeared, we have seen the emergence of the trusts, and of course the oilsands have attracted global players and their capital.”
“The major independent Canadian companies all have the capacity to become strong global competitors if they continue to make the right decisions regarding how to create and add value,” says Dick. With clients including Devon Energy, Husky Energy, EnCana, Suncor, Talisman and Burlington Resources, Dick has the necessary perspective to help companies make the most of their resources.
Higher oil prices are generating more cash — to invest where?
With the uncertainty of world events and growing global demand, the current environment has seen a rapid and significant run-up in oil prices. “Oil has been averaging well above the $40 US per barrel range, has set record highs above $50 and is demonstrating some staying power,” says Dick. “There will be more cash available. And now the question becomes one of how and where to strategically deploy this wealth to sustain a value-creating enterprise.”
That’s where Deloitte’s experience as a firm comes in. Dick and his colleagues have assisted upstream, downstream and oil sands organizations globally. “We can help an organization understand whether they are doing the right things, enough of the right things, and if they are doing the right things right,” says Dick. “There many actions that a company can take to improve performance," he explains. "We can assist our clients by focusing on the things that matter most — those that have the greatest impact on value.”
Mapping value across the enterprise
To support Deloitte’s focus on shareholder value, they have developed a proprietary tool — the Enterprise Value Map. It helps an organization visualize how and where value is created in their enterprise. “Companies can plot their initiatives and projects on the map, and we help them assess how their actions support their stated strategies and objectives," says Dick. "Whether an organization is trying to identify which parts of their enterprise create the most value or which levers have the greatest impact on shareholder value, our value-mapping tools and capabilities can help. ”
Where is the value in IT?
When it comes to identifying and quantifying value, information technology represents one of the more challenging areas for the oil and gas sector. According to research undertaken by Deloitte, oil and gas companies spend only about 15-20 cents per barrel on information technology. That’s much less than other industries in general. “And much of this spending goes toward core maintenance activities that keep the existing systems running,” Dick observes. “This shouldn’t be too surprising since our research indicates that most CIOs feel that they are being measured primarily on costs versus value created,” says Dick. “The challenge for most oil and gas IT departments is to demonstrate how and where IT adds value and how it can contribute to productivity improvements, innovation and growth for the enterprise. We believe our experience, supported by our methods and tools, can be helpful in these efforts.”
Automation can bring on more wells…faster
When Deloitte’s oil and gas team applied the value map at one upstream company, they found that the company was significantly increasing the drilling budget, but missing opportunities to improve the supporting process and accompanying information flow for moving from prospecting to completions and production. “By better synchronizing data and automating the notifications and approvals, they would be able to bring on more wells days or weeks earlier,” says Dick. “The financial benefits available were in the millions.” That’s an IT opportunity worthy of investment.
A tool for communication and buy-in
Another organization used the value map to better communicate how and where IT-enabled projects were supporting value-creating activities. “They had grown rapidly through acquisitions and mergers, and the IT function was always in a ‘fire-fighting mode’ — it had become primarily a maintenance activity. And that’s not good, because this industry is information dense and information dependent,” says Dick. “We helped the company elevate IT to incorporate a more strategic-level perspective, one that could drive long-term growth and innovation, and developed a way to communicate its value.” An important communication objective was to recognize that investments in technology do contribute in various ways to value creation.
An eye on the oil and gas future
In addition to assisting clients with their current challenges, Dick and his team of industry specialists make it their business to stay abreast of industry trends. For the past 12 years, they’ve produced the Canadian Oil & Gas Industry Outlook Survey. This annual survey takes the pulse of senior industry executives on their outlook for the industry. Some of the key observations from the 2004 survey included:
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Merger and acquisition activity in the Canadian oil and gas industry is higher than at any time over the past three years. Trusts are looking to combine to become more competitive.
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Most oil and gas organizations believe increased transparency in reserves reporting and more stringent governance and control requirements will lead to higher investor confidence.
What’s the outlook for your oil and gas organization?
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Do you have a good understanding of how value is created in your organization?
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Are your activities and initiatives consistent with your value-creation strategies?
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Do you understand how your IT spend is creating value?
