By Younas Chaudhary
Over the last four decades, I have seen many price fluctuations in the oil & gas market. We are now in a unique situation where we have low oil prices and a global health crisis. If you are a small, medium or large operator in Kansas, Oklahoma, Texas, or any other location, below are a few tips on what you should have done yesterday!
1. If the oil price is $30 per barrel, you should cut costs to operate your business at $25 per barrel. Make reductions to your major basic field costs immediately, such as the costs for your pumpers, electricity, chemicals, water hauling and other expenses.
2. Adjust your General & Administrative (G&A) expenses to include reductions in your payroll, consultant fees, rent, office utilities, insurance, and legal fees. You must cut non-essential G&A costs to survive.
3. Meet with your staff frequently, share ideas for cost reductions, and on how you can be profitable at $25 per barrel. If only five wells are profitable at $25 per barrel and you have a total of 10 oil producing wells, shut down the other five wells immediately. Let the other wells produce just enough to maintain your assets.
4. Start negotiating with major vendors and inform them of your intent to cut costs. This includes office staff, pumpers, chemicals, water hauling, and power companies. Make sure that you can optimize cost reductions to make a profit.
5. You will look like a hero when oil prices go up if you can effectively control costs now.
6. Have a sense of urgency and don’t wait to address issues. If you don’t act now, you will be in a very unfortunate situation where you will have no control and no options.
7. If you have made timely cost reductions and adjustments, your financial institutions will trust you more. Inform and update them about the cost-cutting strategies you are doing now so that you can gain their trust and confidence.
8. When oil prices are down, it is a good time to think about diversification. Consider buying real estate with a positive cashflow to hedge against lower oil & gas pricing.
9. Be a mature leader during a crisis. Keep a positive, happy face and let your staff know that things will be better.
10. Your actions will speak louder than words, so, walk your talk. Always remember that you will be on a roller coaster ride in this business.