A new study divides companies into those that are “tough” and those that are “vulnerable” when navigating the recession

Oilweek—Recession, what recession? A fortunate few, 19 per cent to be exact, according to a new survey of oil and gas senior executives, considered their companies immune to the impacts of the global recession and still “very successful.” Another 32 per cent of the participants in this Robert Gordon University Aberdeen study said their companies are just “moderately affected.”

”These are the ‘tough ones,’” explained Bob Keiller, chief executive officer of Production Services Network, a specialist provider of engineering, operations, and maintenance services to the owners of energy assets around the world.

Keiller sat alongside Dr. Roger Gibbins, president and chief executive officer of the Canada West Foundation, and Greg Pollard, transaction advisory partner with Ernst & Young, in a panel discussion of the Robert Gordon University study findings in an event in Calgary early last month called Riding the Rapids.

As for the not so tough ones, the vulnerable 49 per cent, 27 per cent said they were “seriously affected” and 22 per cent said they were “very badly affected.”

The data was collected over a two-month period from 31 in-depth interviews with senior executives from majors and contractors across the oil and gas sector, as well as from consultants and corporate banking executives closely associated with the industry.

While the almost 50-50 split between “tough” and “vulnerable” companies is an interesting finding in itself, even more interesting was the discussion around how oil and gas leaders were steering and sustaining their businesses through the current global recession.

“Many of the tough ones are seeing opportunities in the current economic climate,” Keiller said. “These companies see product demand, geographic spread, market diversity, good management, and solid financials as key.”

Drawing out the distinction more clearly, Keiller said most of the factors that the tough companies talked about were internal and, to a large degree, within their control. The vulnerable group, on the other hand, was much more exposed to external influences, and talked mainly about the global banking crisis, commodity prices, and the lack of government support.

In a time when cash is king, the oil and gas industry as a whole is focusing on core activities and core services. This is leading to longer-term plans and projects while avoiding the need for new debt. Oil and gas companies generally aren’t making the acquisitions they planned to do and they are cutting back spending and even holding back on innovations and improvements.

“Only a very small number are seizing the opportunity to make new investments,” Keiller said. “The majority have shed people and jobs, and over a quarter have frozen salaries and bonuses.”

Ernst & Young’s Greg Pollard said his company had done a survey recently that echoes many of the key findings of the Robert Gordon University study. He named four key trends among companies successfully weathering the recession.

“Cash flow management is a top priority for senior management,” Pollard said. “A lot of that is reducing costs and being very proactive in supply chain management.”

There is also a shift to alternative sources of financing as conventional forms of financing dry up. These are often internal sources, such as selling off assets and non-core revenue streams.

Companies currently tend to focus on keeping key accounts rather than looking for new accounts, and many are narrowing their supplier base down to a handful through the negotiation of longer-term contracts and master services agreements on a global basis.

“Sixty-two per cent of gas and oil companies say that their relationship with suppliers is a key priority,” Pollard said.

As for the future of the recession, it isn’t surprising that companies that have done well are more optimistic than those that are suffering.

Citing the Robert Gordon University study, Keiller said 31 per cent of the participants saw green shoots and signs the economy was beginning to rebound. another 16 per cent were “cautiously optimistic,” while 53 per cent said they believe the economy is still firmly in the grip of recession and that any “green shoots” some may see are a delusion.

Playing a bit of a devil’s advocate, Gibbins noted the strong psychological inclination for people to credit themselves for success and to blame others for failure.

“You see the ripples of this in companies that have done well, saying, ‘Well yes, it’s because I had control and a good business plan,’” Gibbins said. “Companies that have done poorly say, ‘If it wasn’t for the damn banks, we’d be fine today.’ Untangling the reality of that becomes difficult.”

Like any good study, this one sparked a lot of interesting questions for Gibbins—questions without simple answers. For example, is there something special or different about this particular recession that makes it unique? Will it be transformative?

Clearly there are some differences. This recession is more global, widespread across many sectors of the economy, and recovery may be slower than expected.

Gibbins provided two answers to his own questions.

“Outside the oil and gas sector, people continually say the world has changed,” he said. “There’s no doubt the world has changed, but there’s very little clear thought about what the nature of that change may be and what the new normal might look like.”

For an oil and gas perspective, referring to a bumper sticker in the early ‘80s, “Dear lord, give us another boom and I promise not to piss this one away,” Gibbins suggests this may turn out to be nothing more than another in a long line of recessions.

“We have to acknowledge that a lot of good companies have been blown away by conditions beyond their control,” he said. “And a lot of bad companies have prospered because of conditions beyond their control. It’s still an open question whether good business planning gives companies the tools they need to survive.”