COVID-19

Energy Today: A Perfect Storm Requires A People-First Approach

Going into 2020, analysts predicted steady to somewhat downward pressure on crude oil and natural gas prices, perhaps even to the point where consolidation may have become necessary.  Operators also thought, being an election year, that there could be a regime change in Washington, D.C., with a new president who advocated for more restrictive policies or even a ban on domestic oil and natural gas production while also restricting the use of these products.

 

All that uncertainty aside, nobody could have predicted what we actually have three months into the year:  a price war between two energy heavyweights and a global public health emergency. This type of perfect storm is not something the government models, so it blindsided just about everyone in the industry and across the country.

 

The price war between Saudi Arabia and Russia has flooded a well-supplied market with crude oil, driving the price to levels not seen in more than two decades.  Oil and natural gas companies are looking at slashing capital expenditure budgets, cutting dividends, contemplating layoffs, and thinking strategically with respect to future energy portfolio.

 

Simultaneously, the COVID-19 virus has severely depressed demand for energy globally.  In the most recent week, the U.S. Energy Information Administration’s measure of products supplied, a proxy for U.S. demand, showed a 2.1 million barrel-per-day (bpd) decline to 19.4 million bpd.  Since measures restricting movements were introduced in the United Kingdom on March 23rd, fuel demand has fallen by 50-70% according to the Chairman of the UK’s Petroleum Retailers Association.  Operationally, less production and little available storage capacity, paired with this reduction in demand, could have consequences on the ability of pipelines to deliver product.  In a matter of two short weeks, the energy world has been hit with a perfect storm few were prepared for and no one predicted.

 

In short: the ramifications of this perfect storm are far-reaching and uncertain.  What we do know is that the oil & natural gas sector has a strong legacy of preparing for and responding to emergencies.  As critical infrastructure, the industry will endeavor to remain steadfast in their commitment to provide the safe and reliable energy we need to survive these unprecedented times.  These energy companies must not only prepare for the worst and execute during times of duress – throughout this crisis, they must communicate effectively to a variety of stakeholders.  These communications with federal/state/local authorities, employees, suppliers, and customers necessitate a unique approach.

 

People & Safety First Approach

As companies face this complex operating environment, industry leaders gas across the supply chain will face some cold-hard realities: employees will test positive for COVID-19, layoffs will occur due to the price environment and reduced demand, and restructurings will occur.   All that said, now is not a time to retreat from your community of stakeholders. Operators must double down on effective communications and your commitments to the community: put health and safety first, remain transparent, and demonstrate leadership and care for your host communities.

 

Safety first, now and always.

Every communication should begin and end with the message that the safety and wellness of employees and contractors is a top priority. This provides a frame to explain the rationale for potentially tough decisions, lay out protocols and processes in place to all stakeholders internal or external, and show leadership and care at a time when it’s needed most. Your team wants to know what the company is doing to keep them safe and expect their leaders to cascade authoritative, informative communications.  External stakeholders want a partner that is doing what is right for its people – and protecting its business operations in the process.

 

Be a leader.

Your employees are anxious. Demonstrate leadership by showing and operating with empathy. What’s happening around all of us is unprecedented with far more questions than answers available.  More than ever, employees need to trust their leadership, whatever is to come. A lack of timely and effective communication from leaders – focused on what the company is doing and why – can impact morale, create distrust, and ultimately lead to increased business risk.

 

To maintain trust, leaders need to be clear and honest with their workforce. Executives should be direct and forthcoming with employees on the impact world events may have on their business. Leaders must “walk the talk” with open, honest communication, people-first decision making and concerted efforts to arm managers and supervisors at different parts of the business to carry that message to individual employees and stakeholder partners at all levels.

 

Be consistent.

Regardless of today’s public health emergency and market factors, many sections of the energy industry simply do not have the option to pause operations. From offshore rigs to refineries and pipelines, on-site teams and close quarters are a reality of this business. As difficult business decisions are made, some employees will be displaced and others will be needed to not only work through this the crisis but pick up extra workload. The health, including the mental health, of all energy employees is of the utmost concern.  Presenting a people-driven, safety first approach to all communications will build trust and understanding at a time when operational excellence has never been more pressing.

 

But this situation is changing often, and consistent communications will be critical to keeping employees engaged. For members of the workforce who can work remote, keeping employees informed of company policies, protection of their fellow employees, and the state of the business can create added trust.

 

As the current environment appears to change on a daily basis, driven by both the public health emergency and market conditions, it is essential that employees can count on hearing from leaders. A cadence of communication should be clear – whether it is daily, twice a week, or weekly. Every organization is unique; do what works for your team. But not communicating is not an option.

 

Take questions, provide answers.

In these difficult moments, two-way communication between internal and external stakeholders and leadership teams is more important than ever. Providing channels for employees to submit questions for timely response, equipping managers and supervisors with the information they need to talk to employees, customers, contractors, or suppliers can engender greater trust and provide the tools needed to address individual worries before they escalate.

 

Moreover, the communications with federal/state/local authorities should be early and often.  The plans established under normal disaster planning scenarios must be modified for this crisis.  Those modifications must be communicated, and open channels of communication must have continuity.  Any predictable departure from ordinary course of business should also be communicated – such as needing waivers from regulations or permit requirements.  During an emergency is not the time to be establishing a relationship and initiating communications with stakeholders.

 

We don’t have all the answers on what will happen next, and that is okay. What stakeholders need to know is the company is committed to providing regular updates about what is known in a timely, consistent manner.

 

Talk to investors.

This earnings season, companies are faced with a new market reality and an uncertain road ahead. How a company communicates to its investor base can provide context in a harsh environment. Telling your story and sharing your game plan with the investment community still matters.

 

E&P companies who are primarily focused on natural gas suddenly have a more constructive narrative to share – their 2020 production is hedged at higher prices, associated gas volumes from light tight oil plays are certain to decline, and they do not have to contend with the geopolitics of oil.

 

Oily independent producers are not as fortunate. They must confront this perfect storm head on by reducing capital expenditures, preserving liquidity and defining their strategy to emerge from this crisis. The IOCs have an altogether different story – they can patiently wait to consolidate upstream acreage, protect their dividends with spending reductions, and redeploy some capital to emerging technologies with their respective portfolios.

 

Primary natural gas operators have a supply story to share to position for opportunity, while large operators looking to revalue as energy companies may take advantage of new technology investments that distance themselves from the commodity price environment.

 

Companies should be providing regular updates to investors. Many companies have created microsites or investor pages directly addressing COVID-19 and current market conditions. Global leaders have established microsites to answer questions for employees, customers, operations and investors.

 

Conclusion

The oil and natural gas value chain is driven by a commitment to people and planning. This is not our first downturn or emergency, nor our last. A solid communications strategy that provides leadership, commitment to people and safety, and transparent and continuous communications will help define the narrative as they enter a new era of changing market dynamics.

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