This Year’s Budgeting Season Requires Creativity
Right now, operators are looking ahead at the next calendar year to set their budgets. As the villain of 2020, COVID-19 has wreaked havoc on the oil & gas industry — it crashed the market, gutted companies left and right, forced layoffs and slashed budgets, among other consequences that continue to transpire. Suffice it to say that it’s been a difficult year and, considering the deep impacts of the circumstances, budgeting for 2021 will be no small feat.
Two Things are True
Two uncertainties that will underscore budgeting decisions involve managing risk around price and the continuous impact of COVID on demand. As industry looks to forge a new normal for production, decisions will evolve as these items fluctuate.
With price uncertainty, companies are generating dynamic plans that can react quickly to price changes. With a baseline projection between $45 and $50 a barrel, producers are turning to technology as a creative way to unlock flexibility, setting themselves up to be able to respond quickly to market changes while capturing value.
Augmenting with Technology
In traditional years, oil & gas companies would look at the level of well and rig activities in conjunction with demand statistics to decipher how much capex to spend to grow existing production in line with projected pricing. This year, that route is obviously a struggle with many operators looking to lower costs while maintaining production in a lower-forever pricing environment.
According to a recent poll of oil & gas executives by Ernst and Young, 92% of executives agree that their operations will have to change, with 80% currently investing in at least a moderate amount in digital technology. The same survey also reports that companies are evaluating digital technologies including data analytics, cybersecurity, data science, design thinking, blockchain, artificial intelligence among others. The imperative is to drive production efficiencies and transform operations.
Implementing Smart Contracts
With the high up front costs necessary to implement and deploy many of the digital technologies listed above, one route that is gaining traction is that of blockchain-based smart contracts.
Accompanied by zero to low startup costs through a subscription to an existing interconnected blockchain network like that of GumboNet, smart contracts can reduce the costs of doing business across commercial transactions. This season, leveraging technology in the current market — especially Data Gumbo smart contracts — offers a boon to budget planning.