The American oil market crashed below $0 a barrel this week; an unprecedented historical low.
The “stage set for a ‘most uncertain’ future,” was already indicated by early earnings. With a precipitous 60% price drop since January, flatlining this week and even dipping into negatives, oil & gas companies across the board are cutting budgets, hunkering down and halting operations.
While many vendors, suppliers and companies survived the oil pricing shocks in 2014 -2016, the current situation feels different. With global supply cuts in the works, the U.S. has already cut its production forecast for the year by more than 1 million barrels a day. So what does this mean for companies?
For starters, an epic industry shakedown is playing out. Companies that come through this “Corona Crisis” will need to function in a “lower forever” price environment. This means figuring out how to run a leaner, more efficient business. To do that oil & gas companies must look at current operational processes and find places that can be improved upon. Whether now, within the next year or decade, implementing innovative technologies will play a major role in the transformation of how business is executed.
The Wave of Digital Workflows
Paper-based workflows are resource-intensive and prone to error. From spreadsheets and paper tickets to back-office disputes and sluggish reconciliation processes, doing business on paper is slow and expensive.
As part of the coming digitization wave in response to market conditions, oil & gas companies will implement blockchain-powered smart contracts to solve complex service contract pain points. For example, services contracts often charge an invoice fee on every commercial transaction. Typically, this seems like no big deal, but in accumulation, the dollars add up quickly into the multimillions. Blockchain technology delivers visibility, transparency and accuracy to all counterparties in a digital workflow to empower the streamlining of operations and eliminate superfluous invoice fees.
A Sea Change for Contracts
Gone are the days of paper contracts as well. From now on, industrial contracts are being rewritten as performance-based smart contracts that utilize measurable field data Industrial Internet of Things (IIoT) sources (including sensors, meters and other existing systems) to qualify the satisfaction of bound terms.
Whether paying for power or density by the hour or for distance by the foot, it will no longer be acceptable or desirable to negotiate rates on thousands of tools along with tens of modifiers to complete a single project.
Visibility into Real-Time OPEX
Reducing contract leakage and gaining insight into daily accruals will enable the companies left standing to stay atop of shifting OPEX. In deploying smart contracts, players will leverage real-time digital data streams to automate back-office financials that transform the current methods of issuing invoices, payments, government reporting and so on.
In lean operating times, real-time financial management can make all of the difference. Daily accruals instead of monthly, and insight into spend give power back through comprehensive visibility into real-time OPEX and overall financial health.
The Future Will be Nimble
As oil & gas companies turn to technology to progress the industry beyond the current crisis, it is important to be aware that once everything that is measurable is measured, real-time vendor surveillance and spend management will remove the gray contract areas of yesteryear.
In difficult times, seeking out compelling value-adding technology like blockchain-backed smart contracts offers a surefire way to capture efficiencies and cost savings. Lean, nimble and smart companies will not only survive, but thrive.