Your firm has experienced a few good months recently. Whether you’ve successfully acquired wells, have a smooth land management process, efficient transportation strategies, or increased production, you feel that everything is coming up roses. Yet, in viewing your most recent quarterly reports, your margins appeared far tighter than you expected — thanks to inadequate controls on your operating expenses.
In this article, we want to provide you with actionable recommendations for reducing the operating expenses incurred by of oil and gas companies. The goal is to help you apply the right dollars to essential business functions.
What are Operating Expenses?
Businesses spend lots of money in many different ways. From paying employee salaries and benefits to creating an actual product and everything in between, funds constantly flow in and out.
Oil and gas companies must contend with such concerns more than your average business. Not only can margins depend upon whether you’re a production or services company, but your industry operates on a global level, which introduces even more volatility.
Luckily, you have control over several critical cost centers, all of which can help you reduce your spending. Commonly abbreviated as OPEX, your operating expenses include:
- Employee salaries
- Employee benefits
- Office space rent
- Technology Services
Often thought of as back-office processes, these expenditures collectively concern the day-to-day costs of running your company.
What are Capital Expenses?
It’s important to understand that OPEX does not include the costs of physical assets. Your actual equipment and tangible resources are known as capital expenses or CAPEX.
The difference between them lies in their names:
- CAPEX – the physical capital your business uses, i.e., the wells, pipes, drills, etc.
- OPEX – the operational costs of your capital, i.e., the people, services, technology, etc.
Ultimately, successful businesses learn how to strike a keen balance between the two that keeps everyone happy, motivated, and in fine working form. It starts with finding every opportunity to lower OPEX.
5 Ways Oil and Gas Companies Can Reduce Their OPEX
1. Introduce Effective Technology
This suggestion might sound like we’re recommending that you spend money. And we are! But we also believe that making investments in quality technology will lower your costs in the long run. Specifically, the right tools will help you reduce human error by streamlining manual operations, such as:
- Data collection
- Data categorization
The more rudimentary work you can take off your employees’ hands and give to computers, the more time they will have for deeper analysis and application.
2. Offer Telecommuting
Even before the COVID-19 pandemic changed the course of the modern workplace, many employers had started encouraging some personnel to work from home. Even the oil and gas industry made vital adjustments to its collective work habits by adopting video technology, digital file-sharing, and cloud computing.
Shifting more of your staff to a semi-permanent work from home arrangement lowers your OPEX because you can reduce your office space needs. Lowering your monthly rent payments means you have available funds to invest in the technology we mentioned earlier.
3. Implement Eco-Friendly Practices
While “going green” might feel like a trendy move for any office environment, it helps the earth and offers several ways to reduce your expenses.
- Reduced printing = lower paper costs
- LED light bulbs = lower energy costs
- Improved plumbing = lower water costs
- Reusable cup policy = lower kitchen supply costs
4. Investigate New Vendors
You might like the third-party companies you’ve worked with for several years, but you also might have seen their prices increase. While you can negotiate lower prices in exchange for a new contract, you can also pursue different relationships. Such options include:
- Credit cards
- IT services provider
- Cleaning company
Your search for new vendors could even unearth improved services you might not have experienced by staying with the old ones.
5. Increase Employee Satisfaction
One of the more overlooked aspects of cost reduction involves employee care. Much like one of your customers, it’s cheaper to invest in a current employee and retain them than it is to search for a new one.
Your people contribute directly to the health of the company, so they deserve your care and support. Active and engaged employees will do what’s best for the company, which means they will want to help you lower costs while increasing growth.
By investing in some of the tips mentioned above — including technology to improve their work and benefits to make them feel appreciated — you can lower your OPEX by providing an environment where your people can succeed.
H2: Lower Back Office Operating Expenses with Outsourcing
Now, we can hear you say, “What you’re proposing sounds much more complex than we pictured. We’re an oil and gas company, not a human resources firm.”
That’s an understandable response. Most businesses can’t do all of these things at once. They rightly invest most of their energy and resources into the core goods and services their customers need. Thankfully, an answer to your problems already exists: outsourcing.
By partnering with a comprehensive third-party outsourcing company, you will work with experts who can do that work for you. Typically for the price of a single in-house employee, you gain access to an entire team of experts who help you with all of your OPEX reduction projects.
As a leader in both information technology and back-office outsourcing for the oil and gas industry, EAG 1Source stands ready to assist you with improving your essential business processes. We put our expertise to work for you so that you can take care of your core business functions without distraction.