The Influence of the Oil Price on Upstream Oil & Gas Logistics

Since mid-2014 we have witnessed a steep decline in the price of oil, with a significant drop over the recent months. As you may know, this has had a significant impact on operations within the Oil & Gas industry; however most operators (and governments) anticipated a price level far above $80 USD, while in reality the price was $27 USD for Brent crude oil in January 2016.

The first action item for an organization facing financial pressure is to challenge current expenditures and question the need of any planned future investments. The main challenge is finding the right balance, making sure to correctly identify and differ between non-crucial and crucial expenditures. It is well known that savings on the wrong item may cause an over expenditure over the following years.

Due to the pressure of the financial market, short term orientated decision making within an organization can be very risky, as the effect on the mid to long term development of the organization is left entirely out of site.

Example: One of our clients wanted to avoid an expenditure on a state of the art tracking technology. However, there was no tracking technology (or simple tools) in place for the material along the supply chain. At the same time, the client was aware that his employees were constantly having issues tracking and locating material for:

• Multiplication of orders
• Missing PODs for returns or deliveries (of high importance when it comes to High cost rentals)
• Missing counter measuring of your vendors
• Etc.

In the given example, the expected financial benefits paid the investment needed back  within 15 months, while the prediction showed an 18 month span. In other words it means that if the investment was not taken back in time, there would be an ongoing overspend on materials and rentals every single month.

We as Allyn International (Allyn) identified the needed investment in order to capture the needed savings and challenged the client accordingly. We took all steps needed in order to convince the client about the investment in our role as a neutral and independent advisor, with the most crucial part of being a multilayer business case splitting up benefits and estimates in different layers and strictly differentiate between hard savings and additional positive effects on the Supply Chain and its management.

 

Contributor: Mischel Aleksic

Allyn International Services, Inc. (Allyn) is a privately-owned supply chain management, tax and customs consulting firm established in 1992. Services comprise of supply chain & logistics management, global trade compliance and US tax compliance. Allyn offers customized solutions to meet your global needs with offices in Fort Myers, Fla., Shanghai, PR China, and Prague, Czech Republic.