How to Get Through a Downturn

by Andreas Exarheas, Assistant European Editor

The latest fall in oil prices has hit the energy industry hard. Figures have dropped from over $100 per barrel in 2014 to as low as $27 per barrel this year and a variety of oil and gas companies have responded in different ways in a bid to survive the downturn.

Some energy firms have reacted to the dramatic price reduction by streamlining their operations while others have largely resisted this path, taking a more relaxed approach in the hope that the value of crude bounces back soon. While both tactics have their supporters, GE’s Chairman and CEO Jeff Immelt has suggested that oil and gas companies looking to weather the current crash should be more inclined to the former method, rather than the latter.

Speaking at the 17th GE Oil & Gas Annual Meeting in Florence, Italy, at the start of February, Immelt outlined GE’s efficacy at surviving market crashes, highlighting the firm’s aviation business in the process:

“We know cycles. We’ve lived through cycles, we know how to lead a company through cycles … [After 9/11] we saw … the destruction of the commercial aviation business around the world. We saw as power deregulated in the United States, we went from shipping more than 200 gas turbines in the United States to four in one year.”

Turning his attention to the current energy sector crisis, Immelt outlined the need to cut costs and highlighted his own company’s “lean” nature. Despite this cost-cutting however, Immelt has advised oil and gas companies to follow GE’s approach and continue investing in their own brands:

“We grew our investment in R&D [research and development] last year … we’re working on financing to try to provide better CAPEX [capital expenditures] to OPEX [operational expenditures] transitions … We haven’t blinked during this crisis. We’ve kept investing, we’ve kept driving and we’ve made the company better and we plan to continue that progress in the future.”

Immelt, who became CEO of GE in 2001, also emphasized that companies should just “focus on what they control” during the downturn, in reference to the current low oil price. The GE frontman told energy firms to only look at data and facts too, as speculation can often lead to confusion, which is unhelpful in the current business climate.

Self-reliance was another trait that Immelt urged oil and gas companies to adopt. The GE CEO suggested that energy firms should depend on themselves to implement structural change rather than wait around for external industry pressures to influence their behavior:

“At GE we believe in self-help, we believe in action. Taking costs out on our own. Having a strong balance sheet on our own. Taking opportunities on our own … I look at deals like Shell and BG as self-help. They’re going to get a bunch of people that criticize them, we’re not going to know the answer for a couple of years, but they’re moving, they’re acting.”

Speed and flexibility were also championed as vital characteristics a company will need in order to survive this downturn, as well as future market crashes:

“You’ve got to stay fast and flexible … We’re going to be here three years from now, five years from now, ten years from now and you’ve got to take the actions that really protect the future.”

In a warning to oil and gas firms that believe they can get through the downturn by doing nothing in the hope of a speedy oil price recovery, Immelt stated that the situation is unlikely to improve any time soon:

“We live in a time of slow growth and volatility. It’s unlikely to change anytime soon … You have to just keep driving productivity and investment in the cycle we’re in today. You have to learn to act in the face of uncertainty.”

When concluding his talk, Immelt implied that the current oil price crash did come with some positives. The GE leader claimed that these downturns are “good for us” and that they toughen up the industry, producing “better leaders” as a result. If this is true, at the very least the oil and gas sector can look forward to a more robust structural system in the years to come.

GE_IMMELT_WEB_02

GE Chairman & CEO Jeff Immelt Source: GE Oil & Gas

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