The New Face of the US Oil Industry: Thinking Lean

The US oil sector is a vital industry for industrial manufacturers all over the country. Components on oil rigs and exploratory drilling operations wear out quickly, a booming oil industry could mean a big payday for businesses manufacturing their products. However, recently the oil industry in the US and abroad has faced a turbulent market as prices dropped to record lows in 2015. As the Organization of Petroleum Exporting Countries (OPEC) began pumping oil at a record pace, US shale prices dropped dramatically leading to rigs closing down and manufacturers struggling to make up for the lost business. Now as oil recovers a bit, shale producers are ready to show the world just how lean they’ve become as they needed to cut costs in order to survive in this new market.

A year ago oil industry leaders from around the world met in Houston, Texas to discuss the state of the industry. Saudi Arabia’s energy minister had some words of warning for US shale drillers which were struggling with the worst price crash in a generation. “Lower costs, borrow cash or liquidate,” said Ali Naimi.

More than 100 of these US shale drillers have gone bankrupt since the start of 2015 but the companies that survived are thinking about business a little differently. Leaner, faster and more efficient, they needed to learn how to thrive with oil hovering around $50 a barrel. OPEC is currently following their production cut promise but prices are still not near to pre 2015 levels. This is creating a new kind of oil producer, one focused on longevity and lean thinking. It could prove invaluable if and when the next oil crash comes around.

“The shale business is rejuvenated because of the difficulties it has been through,” said Ben van Beurden, CEO of Royal Dutch Shell PLC.  This could also mean a rejuvenated manufacturing industry even if the prices crash once more. If these producers can keep their doors open during the next price dip, manufacturers will still be in high demand as they supply their industrial components.

Lean is a concept manufacturers have been following for quite some time, now the oil industry is taking note. In a day where oil is over $100 a barrel, sometimes, efficiency takes a back seat to productivity. However, in this new business landscape, oil giants are realizing that they need to shape their business around a volatile market. If they can survive low prices by focusing on keeping their processes lean, they have an opportunity to profit even more when prices rise. This will not only have an impact on the oil industry, but the manufacturing industry and the overall economy will benefit as well.

Sources:
http://www.industryweek.com/growth-strategies/leaner-fitter-faster-us-shale-20-challenges-opec-again
http://www.investors.com/news/shale-producers-will-soon-reveal-how-lean-and-mean-they-really-got/
https://www.dailyfx.com/crude-oil