When a cyclical industry requires resilience
It’s a given that in cyclical industries like oil & gas, flush times eventually give way to lean times before booming again. When it became clear that the latest up cycle was losing momentum, a European offshore drilling operator braced itself for the downturn to come. Specializing in the deepwater sector, the company operated semisubmersible and drill ships. Although the business had inked plenty of contracts for the year ahead, it would face significant overcapacity risk once those existing contracts were fulfilled.
Company executives engaged AlixPartners to review the business from end to end and build strategies for keeping it as financially sound as possible during the down cycle. In particular, the executives wanted us to identify potential savings on both the operating expenses (OPEX) and capital expenditures (CAPEX) fronts.
Drilling deep into OPEX and CAPEX reveals savings opportunities
As our first step, we helped the company set up a program management office to serve as the command center for its ongoing OPEX and CAPEX reviews. We also defined a financial baseline that the company could use to gauge the impact of performance improvement measures currently under way and those they planned to implement in the future.
We then launched the first phase of the program, zeroing in on OPEX, which totaled nearly half a billion dollars per year for this company. We proposed ways to reduce the costs of offshore staffing, the costs of the operations of the company’s ships and other vessels, and the costs of shoreside operations. In the second phase, we examined CAPEX related to the company’s drilling assets. These cost hundreds of millions of dollars each and typically are the major sources of costly downtime for an offshore drilling unit. Here we analyzed lessons learned from previous drill ship CAPEX reviews to identify improvement ideas in areas like asset optimization and the use of third-party services.
When it really matters
AlixPartners’ efforts helped this company identify cost management opportunities that would position it to weather the down cycle. Our OPEX review uncovered more than $100 million in potential savings, and the company committed to implementing a large percentage of the initiatives we proposed. We also spotlighted opportunities to capture additional OPEX savings, which management decided to evaluate for possible implementation in the future. Within 12 months of the program’s launch, the company had realized 100% of those savings and is currently implementing a phase two project to further reduce its cost base.
Meanwhile, our CAPEX analysis revealed nearly $30 million in potential savings, exceeding management’s target. All told, these improvements put the operator in the strongest possible position to weather the challenges that the inevitable down cycle would bring.