The ongoing COVID-19 crisis looks like a perfect storm for the E&P industry. Amid global shutdowns sending consumption and demand plummeting, U.S. oil prices went negative for the first time in history and Wall Street had its worst day since the last economic collapse. To call the situation unprecedented doesn’t do it justice.
Mergers and acquisitions tend to accelerate during times of uncertainty and instability. But given the scope, speed and unparalleled nature of recent events, it’s impossible to make predictions about how companies will proceed. Consolidation looks inevitable, but precisely what form it will take is uncertain.
In one way or another, this volatility will affect the energy sector. Thankfully, the oil and gas industry is resilient and has recovered from economic strain before. Prices collapsed only five years ago, yet oil and gas companies set records for domestic crude production by 2017. If any industry knows how to swing rapidly between highs and lows, it’s this one.
Realistically, though, distressed producers that lack funding options need a bold strategy to weather a downturn that could last longer and cut deeper than anticipated. A merger with a larger shale producer or a consolidation with similar-sized companies may not have been in the cards last year, but it might be the only way to survive the coronavirus pandemic. Instead of fighting against the concept of consolidation, do everything possible to ensure it works.
How IT Threatens Consolidations
Combining two companies requires a careful integration effort. That’s especially true for the IT infrastructure of each company. As the primary tool kit for everything from operations to accounting, tech must work perfectly throughout the consolidation effort and result in a system that’s stronger than what either organization had before. At least that’s the ideal outcome.
More likely is that communication or coordination issues cause IT setbacks that either delay the integration or diminish its value. Research indicates that as much as 50% of the value of a merger or acquisition relates to IT synergies. That might be an advantage for some companies, but it’s a stumbling point for others.
To a large extent, culture migrates with IT; if the systems don’t integrate perfectly, neither does anything else. This integration process is challenging even in the best of circumstances, but it becomes even harder—and more crucial—when companies rush through the M&A process to stay ahead of rapidly evolving market forces.
Merging IT Like Never Before
Throw out the playbook from any past mergers and acquisitions. The speed and scale of the current situation make any previous strategies all but irrelevant. Instead, adapt your IT integration effort to the unique demands of this moment by following three strategies:
1. Streamline Communication
IT integrations must facilitate the free flow of information. At the same time, they must overcome obstacles to that exchange — especially as people work from home in large numbers. Instead of bombarding stakeholders with information in the form of a mass email or a lengthy process manual, create forums for people to exchange information organically.
Users are more likely to accept tech changes when they feel like they’re part of the process. Plus, conversations may ingrain information better than lectures. In addition to communicating about various tech products, make sure everyone’s aware of timelines, expectations and benchmarks.
2. Enable Understanding
Subject matter experts from all companies involved in M&A should play a significant role in devising and executing the tech integration strategy. Not only do they know the respective systems better than anyone else, but they also know how to explain and teach those systems to others.
At a time when E&P companies need strategies verified to work, no one has more insight than these subject matter experts. Tap into that knowledge, and then translate it into online resources so that it’s broadly available to stakeholders throughout and across organizations.
3. Enforce Timelines
Speed matters—especially when a company’s survival depends on completing the consolidation efficiently. Use timelines to keep everyone coordinated and progressing at the same pace. Don’t think of timelines merely as schedules, though. Good timelines create a sense of structure and outline a clear statement of purpose.
Timelines are a pillar of the M&A and consolidation effort, so you’ll want to develop a realistic yet ambitious timeline. More importantly, do everything possible to follow that timeline—even if you have to make adjustments along the way.
When prioritizing best practices during a consolidation, beware of a common obstacle: funnel communication. As crucial as clear, coordinated communication is during the M&A process, it doesn’t benefit anyone to let valuable information only flow from the top down. Consider outside perspectives, particularly from individuals on the front line of the IT infrastructure. In a situation no one has faced before, everyone has something valuable to say and can help give your company the push it needs to thrive during a consolidation.
About the Author:
Vince Dawkins, president and CEO of Enertia Software, has worked with industry-leading organizations, and he has been integral in developing the Enertia application into a resource used by over 150 leaders in the upstream oil and gas industry.
New U.S. Energy Secretary Jennifer Granholm envisions oil and gas companies contributing expertise to develop low-carbon fuel sources as part of the energy transition.
Argentina needs to build more LNG capacity to accelerate the development of its largest shale play, the CEO of Pan American Energy said March 3.
Qatar Petroleum and Exxon Mobil are betting big on LNG and natural gas as the demand outlook appears promising for both.