With falling oil prices, shedding staff is exactly the wrong thing to do

F1F9 FINANCIAL MODELLING EXPERTS

Author:

Daniel Prinsloo

Published:

29 Jan 2015

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With the oil price down more than 50% since June, oil companies are shedding staff and cutting costs. Today Shell announced that cutting investment by $15bn over 3 years. They’re not the only ones. Sasol also announced that it’s delaying its huge Louisiana project as part of its cost cutting measures.

With falling oil prices, shedding staff is exactly the wrong thing to do.

I recently received a message from a contact on LinkedIn His question to me was:

“How do you see the short-term future for economic and financial modellers in the oil and gas sector? Jobs are being shed and capex significantly reduced, which means less modelling is needed.”

He was considering whether he wanted to stay in the oil and gas sector as a modeller or move to a different sector.

He’s right to be concerned.

The oil and gas industry is not good at managing price downturn cycles. Shareholders use short-term criteria to reward top management. It is therefore in management’s interest to act quickly and, in my experience, shedding jobs, and cutting capital expenditures is often the first thing they turn to.

But shedding jobs is exactly the wrong course of action.

When there is a downturn and things are looking tough, management needs more insight into their business. This requires more analysis and therefore more modelling. This is precisely the time to focus and increase your understanding of existing assets and future investments, to support management decision-making.

This is impossible to do when you are losing key analytical staff with the necessary economic and financial modelling skills. While the short-term benefit is realised, you leave the downturn with no better understanding of your portfolio.  Long-term you will continue to be inefficient and most likely pursue the wrong course of action.

But should my contact jump ship now?

I don’t think so. Now is an excellent time for modellers who show initiative through enhanced economic and financial analysis, to demonstrate their value to their management team. Even during this downturn oil and gas modellers will still command a premium and it is a key learning path to become a business opportunity manager in the future.

To find out more about our Energy and  Natural Resources modelling team click here

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Daniel Prinsloo
Daniel is no longer with F1F9 but we really like this blog so we have kept it.