Surviving a Downturn with Strong Relationships in the Oil and Gas Industries

Posted by Team - 16 March, 2016



Uncertainty is no stranger to the oil and gas industries, especially in recent years as international tensions have disrupted supply chains, the public has become increasingly aware and vocal about the environmental impact of drilling operations, and as the economic downturn has caused oil and gas prices to fluctuate dramatically. In the wake of these recent changes, intensified regulatory pressures, and vastly increased public scrutiny following events such as the BP spill in the Gulf of Mexico, oil and gas companies are making big changes to accommodate the varying landscapes of their industries.

Oil and gas companies need strong relationships with their host governments in order to survive the constantly changing circumstances of their industries. Governments rely on these companies to provide utilities, fuel, and economic growth to their countries. In turn, oil and gas companies try to avoid being hamstrung by excessive regulations and reasonable access to development sites.  A strong, transparent, government-facing strategy ensures that the company is given the tools to provide their host government and its population with the best services and economic gains possible.

Relationships with Constituents, Not Just Elected Officials

Oil and gas companies need to extend their relationship-building efforts beyond recovering development costs and reaching production milestones as the population also demands local development efforts. Oil and gas companies need to hire and train local employees and turn to local suppliers for services and operational necessities. Doing so strengthens the host government’s economy not only through job growth and the revenue generated from oil and gas, but also by attracting foreign investments and driving innovation.

The general public is also becoming increasingly demanding of more sustainable energy sources. This means that oil and gas companies need to be more transparent in order to prove they’re environmentally responsible. By embracing green technologies, providing localized jobs and supply chains, and proving environmental and social responsibility, oil and gas companies can forge a strong relationship with their host government and the local population.

Changing Hands, Changing Methods

Mergers and acquisitions are becoming increasingly common in the oil and gas industries, and many chief operating officers (COOs) have had to reduce their companies’ headcounts to remain competitive.  It’s also becoming increasingly common for foreign reserve access to demand joint ventures between companies – which results in sharing the potential profits as well as the risks. The traditional structure of the oil and gas industries has been slowly but surely deteriorating due to quickly depleting local reserves, giving rise to more complex endeavors like deep sea drilling and development in inhospitable, remote locations.

A strong relationship with the host government means more profitable projects while satisfying local demands. The company has access to resource deposits, comfortable and responsible regulatory requirements, and a strong public image and reputation. In return, the government provides jobs, enforces environmentally responsible ventures and practices, and benefits economically from the company’s successes.

Maintaining Mutual Benefits

The job opportunities that an oil or gas venture creates in the host country will be one of the biggest lynchpins of a successful relationship. Governments typically want to provide as many opportunities for their citizens as possible. The company wants a reliable workforce. In some situations, tensions may flare due to governmental demands for local involvement that are enacted without discussion with the company, and these clashes can be avoided by a strong government-facing strategy and by addressing ventures at every step of the process.

Local capabilities may not meet the company’s needs, so having the government involved in reviews of the local suppliers and workforce allows for a greater mutual understanding. Allowing government figures to participate in project reviews will also make regulatory requirements more clear and provide context for streamlining any excessively stringent policies.

There’s a fine line between effective and responsible regulation and careless or incomplete industry requirements. The government must be able to account for environmentally and socially responsible regulations while at the same time ensuring that the oil and gas companies are not facing unnecessary obstacles from outdated or excessive regulation. But if any disasters occur from something that could be perceived as preventable, there will likely be a huge backlash from the public.

To summarize, a strong governmental relationship extends far beyond influence with the right players. In the face of dropping crude prices and heavy public scrutiny, joint ventures and complex operations are becoming far more common. Reliable and responsible governmental relationships safeguard companies during times of economic uncertainty.

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Topics: Oil and Gas

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