Analyzing the Future of the Oil and Gas Industry

• Total cost of ownership (TCO) can serve as the North Star. Operators are moving beyond upfront costs to consider long-term factors such as maintenance, efficiency, and reliability. Historically, cost-focused operators have been hesitant to consider performance-based structures or long-term agreements that align incentives with service providers, but leading operators are rethinking this paradigm to create value at scale.
• Analytics or AI can be embedded into supply chain workflows. Operators are using digital tools, such as AI-driven contract monitoring, to detect leakage points and source-to-pay optimization to build smarter, more resilient operations.

Doubling down on commercial integration

Oil and gas production in the United States has outpaced the infrastructure needed to get products to market, increasing the premium for those who control these flows. This is especially true for gas, due to the large interconnected global market for liquefied natural gas, and exacerbated by the global data center industry increasingly looking to gas as a source of energy.

Operators are therefore seeking more control over paths to market, both to protect their access and to capture the arbitrage of price dislocations that have become more frequent as volatility grows. The increase in midstream consolidation speaks to this trend, as midstream organizations rush to maximize their share of this value pool.

Operators can stick to the status quo of the traditional exploration and production (E&P) model—that is, focus on optimizing production and cede commercial margins to third parties—but they risk falling behind their peers who are adapting for the new era. Sophisticated operators are integrating information flows into their commercial approach to optimize their entire system, either through increased midstream participation, enhanced marketing and trading capabilities, or both.

Price/cost discovery is just one example of the many ways that information flows can be used to optimize systems. Those who successfully transform their commercial approach typically see a 3 to 8 percent netback increase—presenting a very real advantage over peers who are not seizing this opportunity.

Rewiring for scale

The scale and uncertainty that characterize shale’s new era necessitate operating models fundamentally different than those that have been inherited. The ability to rewire organizations to meet these new conditions will likely be a differentiating factor. Operators that succeed will be those who understand the value centers of their portfolio and build organizations to deliver efficiency at scale across them.

One common theme will be the importance of standardized workflows to drive efficiency at scale. AI may play an increasing role in this process, and operators can future-proof their organizations for these shifts by developing a digital capability-building plan and creating a governance framework to manage risks associated with AI adoption.

FAQs

Q: How can operators leverage TCO to create value at scale?

A: By considering long-term factors such as maintenance, efficiency, and reliability, operators can make strategic decisions that align incentives with service providers and optimize their operations for increased value.

Q: What are some key trends in commercial integration in the oil and gas industry?

A: Operators are increasingly seeking more control over paths to market, integrating information flows into their commercial approach, and leveraging AI and analytics to optimize their systems.

Conclusion

The next chapter of the shale revolution will require organizations in the oil and gas industry to adapt to new complexities and opportunities. By focusing on TCO, embracing digital tools, and reorganizing for scale, operators can position themselves for success in this evolving landscape.