Prawo Archive

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Oil and gas after COVID-19: The day of reckoning or a new age of opportunity?

he oil and gas industry is experiencing its third price collapse in 12 years. After the first two shocks, the industry rebounded, and business as usual continued. This time is different. The current context combines a supply shock with an unprecedented demand drop and a global humanitarian crisis. Additionally, the sector’s financial and structural health is worse than in previous crises. The advent of shale, excessive supply, and generous financial markets that overlooked the limited capital discipline have all contributed to poor returns. Today, with prices touching 30-year lows, and accelerating societal pressure, executives sense that change is inevitable. The COVID-19 crisis accelerates what was already shaping up to be one of the industry’s most transformative moments.

While the depth and duration of this crisis are uncertain, our research suggests that without fundamental change, it will be difficult to return to the attractive industry performance that has historically prevailed. On its current course and speed, the industry could now be entering an era defined by intense competition, technology-led rapid supply response, flat to declining demand, investor scepticism, and increasing public and government pressure regarding impact on climate and the environment. However, under most scenarios, oil and gas will remain a multi-trillion-dollar market for decades. Given its role in supplying affordable energy, it is too important to fail. The question of how to create value in the next normal is therefore fundamental.

To change the current paradigm, the industry will need to dig deep and tap its proud history of bold structural moves, innovation, and safe and profitable operations in the toughest conditions. The winners will be those that use this crisis to boldly reposition their portfolios and transform their operating models. Companies that don’t will restructure or inevitably atrophy.

A troubled industry enters the crisis

The industry operates through long megacycles of shifting supply and demand, accompanied by shocks along the way. These megacycles have seen wide swings in value creation.

After the restructurings of the early 1980s, the industry created exceptional shareholder value. From 1990 to 2005, total returns to shareholders (TRS) in all segments of the industry, except refining and marketing companies, exceeded the TRS of the S&P 500 index. Oil and gas demand grew, and OPEC helped to maintain stable prices. Companies kept costs low, as memories from the 1980s of oil at $10 per barrel (bbl) were still acute. A new class of supermajor emerged from megamergers; these companies created value for decades. Similarly, the “big three” oil-field service equipment (OFSE) companies emerged. Political openings and new technologies created opportunity for all.

From 2005 to January 2020, even as macro tailwinds such as strong demand growth and effective supply access continued, the global industry failed to keep pace with the broader market. In this period, the average of the oil and gas industry generated annual TRS growth about seven percentage points lower than the S&P 500 (Exhibit 1). Every subsegment similarly underperformed the market, and independent upstream and OFSE companies delivered zero or negative TRS. The analysis excludes companies that were not listed through this period (including some structurally advantaged national oil companies, and private companies).

Exhibit 1

In the early years of this period, the industry’s profit structure was favorable. Demand expanded at more than 1 percent annually for oil and 3 to 5 percent for liquefied natural gas (LNG). The industry’s “cost curves”—its production assets, ranked from lowest to highest cost—were steep. With considerable high-cost production necessary to meet demand, the market-clearing price rose. The same was true for both gas and LNG, whose prices were often tightly linked to oil. Even in downstream, a steep cost curve of the world’s refining capacity supported high margins.

Encouraged by this highly favorable industry structure and supported by an easy supply of capital seeking returns as interest rates fell, companies invested heavily. The race to bring more barrels onstream from more complex resources, more quickly, drove dramatic cost inflation, particularly in engineering and construction. These investments brought on massive proved-up reserves, moving world supplies from slightly short to long.

Significant investment went into shale oil and gas, with several profound implications. To begin with, shale reshaped the upstream industry’s structure. As shale oil and gas came onstream, it flattened the production-cost curve (that is, moderate-cost shale oil displaced much higher-cost production such as oil sands and coal gas), effectively lowering both the marginal cost of supply and the market-clearing price (Exhibit 2).

More: https://www.mckinsey.com

About the authors: Filipe Barbosa is a senior partner, Scott Nyquist is a senior adviser, and Kassia Yanosek is a partner, all in McKinsey’s Houston office. Giorgio Bresciani is a senior partner in the London office, where Pat Graham is a partner.

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ANTI-COVID-19 – Cluster anti-crisis shield

The Baltic Sea and Space Cluster has launched the BSSC ANTI-COVID-19 anti-crisis shield. This is a special website on the Cluster’s website www.bssc.pl, where members of the Cluster inform about their activity during the pandemic and offer for other maritime business participants. The portal is also available to other companies and institutions related to maritime economy, education and research of the sea.

Many institutions and enterprises operating in the maritime economy have not slowed their activity despite the pandemic. It changed the forms of operation, implemented security procedures, switched to remote work or activities in smaller teams. Ports and shipyards are still active on the international market. Additional requirements arise, as the clients of these enterprises are often people from outside Poland. The initiative works under the slogan: BSSC Anti-crisis Shield.

The main mission of the BSSC Cluster is to integrate maritime business, science, administration and the community. Cluster BSSC promotes cooperation, commercialization and positioning of our members on international markets. Therefore, the information is in both Polish and English. Members operate under the slogan: We help people and Maritime Business. Photo: Marek Grzybowski

More info: https://glosgdyni.eu/klaster-na-pandemie-anty-covid-19-klastrowa-tarcza-antykryzysowa/

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How companies operate on the office market during COVID19

Walter Herz consulting company conducted a survey to check how companies are coping with the current situation on the office market and what effects does home office bring

It turns out that only 10 per cent of companies before the outbreak of the epidemic did not provide the possibility of remote work of employees. The vast majority, as much as 90 per cent of enterprises had previously enabled this form of work for its staff.

In the opinion of the majority of respondents, productivity at work provided remotely did not drop at all or decreased only slightly. Moreover, according to one-third of respondents, their work efficiency even increased during the epidemic.

Over half of the people who took part in the survey hold management positions, and 16 per cent work as executives. 50 per cent of the surveyed enterprises employ between 50 and 250 people, one-third has up to 50 employees, and 16 per cent are companies employing over 250 people. The majority are companies related to the IT industry, banking and insurance.

The biggest challenge for people working at home turned out to be the ergonomics of the workplace and the physical environment in which they currently work, including work – life balance related to performing tasks at home. The respondents have definitely less difficulties with establishing business contacts and equipment for work, as well as communication technologies.

– One of the most tangible changes that COVID19 has brought is the form of communication with clients. As much as 75 per cent of companies today use video channels for it. Only a quarter have not introduced such service – informs Bartłomiej Zagrodnik, Managing Partner / CEO at Walter Herz.

– It is also worth noting that among the surveyed representatives of companies there are not many who see the vastly negative impact of the current situation on the functioning of the company. Most of them confirm non-favorable impact of the quarantine on the company’s operations. A small percentage of respondents indicate a neutral impact of the epidemic on the company – says Krzysztof Foks, Analyst at Walter Herz.

Among the most pronounced difficulties and challenges that arose with the virus, most people listed a change in the organization of office work, longer hours and processes, and the need to introduce such a form of work, so that the continuity of activities and ongoing tasks of the company are maintained. In addition, difficulties related to limiting the number and size of the meetings were pointed out, which extensively affects efficiency. The respondents also noticed a decrease in the number of orders and productivity, associated with fear of becoming ill.

In order to prevent infection, companies primarily switched to remote work. Also, attention to disinfecting the rooms has increased. Company meetings were limited to the necessary minimum. Decisions to freeze certain activities and processes were also made.

Building managers and owners focused on maintaining exceptional cleanliness of common areas in the office buildings. In addition, offices introduced changes in handling correspondence and deliveries on the premises, as well as functioning of the reception. What is more, tenants and employees were provided with disinfectant liquids, and access to buildings was limited.

Almost 95 per cent of office building owners recognize the impact that the state of epidemic emergency introduced in our country has on their business. About 87 per cent of respondents admitted that tenants contact them in order to obtain information on actions they can take in the current situation.

Most office buildings owners also mention a negative impact that changes introduced in social life have on the process of construction and arrangement of the leased space. One-third of respondents had difficulty interpreting the impact of quarantine on construction sites, and 13 per cent of respondents saw its positive impact.

However, almost 70 per cent of office building managers, confirm the adverse effects of current restrictions on contract negotiations. Over 30 per cent of respondents do not see any obstacles to negotiations.

Opinions differ on the impact of COVID19 on the current functioning of office buildings. Half of the respondents do not see much impact, while the other half indicate that it is negative or definitely negative.

According to almost 90 per cent of the surveyed building owners and managers, the current situation also negatively affects the number of inquiries about the available office space. Only 11 per cent of investors see no problem in this aspect. However, almost 80 per cent respondents predict the decline in the number of inquiries in the upcoming months. What is more, almost 70 per cent also foresees a decrease in the number of begun processes in the near future.

About Walter Herz

Walter Herz company is a leading Polish entity which has been operating in the commercial real estate sector across the country. For seven years, the company has been providing comprehensive and strategic investment consulting services for tenants, investors and real estate owners. It provides extensive support for both public and private sector. Walter Herz experts assist clients in finding and leasing space, and give advice when it comes to investment and hotel projects.

In addition to its headquarters in Warsaw, the company has branches in Cracow and Gdansk. Walter Herz has created Tenant Academy, first project in the country, supporting and educating commercial real estate tenants across Poland, with on-site courses held in the largest cities in the country. In order to ensure the highest ethical level of services provided, the agency introduced the Code of Good Practice. 

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BCC: Konieczne jest wprowadzenie przepisów specjalnych

Konieczne jest wprowadzenie w Prawie zamówień publicznych przepisów specjalnych na czas trwania kryzysu w związku z pandemią

Nowa ustawa Prawo zamówień publicznych ma wejść w życie dopiero w 2021 r. W związku z kryzysem epidemicznym, konieczne są działania w zakresie zamówień publicznych na poziomie Tarczy Antykryzysowej. Tymczasem reguluje ona w zasadzie tylko kilka istotnych kwestii związanych z tą sferą gospodarki mówi dr Łukasz Bernatowicz, minister infrastruktury w Gospodarczym Gabinecie Cieni BCC. – Przewiduje się zwolnienia zamawiającego z odpowiedzialności za odstąpienie od nałożenia kar finansowych na wykonawcę, który nie dotrzyma terminu realizacji kontraktu w związku z COVID-19. Przewidziano również możliwość zmiany umowy w sprawie zamówienia publicznego, niemniej jest to rozwiązanie niewystarczające. W praktyce bowiem, w oparciu o przedstawione przepisy, doprowadzenie do zmiany kontraktu może być trudne do zrealizowania i w rzeczywistości uzależnione od decyzji zamawiającego. Jednocześnie wciąż brakuje możliwości waloryzacji kontraktów realizowanych w ramach Pzp. Trzeba też pamiętać, że decyzje w obu powyżej wspomnianych kwestiach leżą po stronie zamawiającego. Zatem jedynie od jego dobrej woli zależy, czy z nich skorzysta. To zdecydowanie za mało w obecnej sytuacji. Przepisy te powinny znaleźć obligatoryjne zastosowanie przy spełnieniu przesłanek związanych z nadzwyczajnymi okolicznościami –  uważa Łukasz Bernatowicz.

Dr Łukasz BERNATOWICZ, minister infrastruktury w Gabinecie Cieni BCC

Komentarz na YouTube: https://www.youtube.com/watch?v=Zw1CaAm_Zpo

Gospodarczy Gabinet Cieni Business Centre Club to think tank powołany w kwietniu 2012 r., aby wspierać działania prorozwojowe władz publicznych, monitorować prace resortów kluczowych dla przedsiębiorczości, rekomendować zmiany sprzyjające rozwojowi kraju, wzrostowi gospodarczemu i konkurencyjności polskich firm.

W skład gabinetu wchodzą wybitni, gospodarczy fachowcy, z których wielu piastowało w przeszłości funkcje publiczne. Więcej informacji:https://www.bcc.org.pl/strefa_eksperta/gospodarczy-gabinet-cieni/

BCC będzie codziennie przedstawiać poglądy poszczególnych ministrów Gabinetu Cieni BCC związane z obecną sytuacją.

WSKAZANIA DLA RZĄDU
  1.     Wprowadzić przepisy specjalne w Prawie zamówień publicznych na czas trwania kryzysu związanego z pandemią.   2.     Wprowadzić przepisy ułatwiające kontynuowanie lub powrót do pracy cudzoziemcom.   3.     Przygotowanie puli środków budżetowych na inwestycje publiczne, w celu pobudzenia gospodarki po ustąpieniu kryzysu.  
PODSUMOWANIE dotychczasowych działań rządu
  Pozytywy:   1.     Zniesienie odpowiedzialności zamawiającego w przypadku odstąpienia od ukarania wykonawcy, mającego problemy z dochowaniem terminu realizacji zamówienia.    2.     Zniesienie wymogu stosowania Pzp w niektórych branżach, na czas trwania pandemii.   Zagrożenia:   1.     Zbiurokratyzowanie procesu zamówień publicznych w sytuacji praktycznej niemożności uzyskania dokumentów i zaświadczeń z urzędów.   2.     Brak rozwiązań kryzysowych w zamówieniach publicznych w związku z nadzwyczajną sytuacją w gospodarce.   3.     Niewykorzystanie środków z kończącej się perspektywy unijnej.   Nowa ustawa Pzp ma wejść w życie dopiero w 2021 r. W związku z kryzysem epidemicznym, konieczne są działania w zakresie zamówień publicznych na poziomie Tarczy Antykryzysowej. Tymczasem reguluje ona w zasadzie tylko kilka istotnych kwestii związanych z tą sferą gospodarki. Przewiduje się zwolnienia zamawiającego z odpowiedzialności za odstąpienie od nałożenia kar finansowych na wykonawcę, który nie dotrzyma terminu realizacji kontraktu w związku z COVID-19.   Przewidziano też możliwość zmiany umowy w sprawie zamówienia publicznego niemniej jest to rozwiązanie niewystarczające. W praktyce bowiem w oparciu o przedstawione przepisy doprowadzenie do zmiany kontraktu może być trudne do zrealizowania i w rzeczywistości uzależnione od decyzji zamawiającego. Jednocześnie wciąż brak jest możliwości waloryzacji kontraktów realizowanych  w ramach Pzp.   Trzeba też pamiętać, że decyzje w obu powyżej wspomnianych kwestiach leżą po stronie zamawiającego. Zatem jedynie od jego dobrej woli zależy, czy z nich skorzysta. To zdecydowanie za mało w obecnej sytuacji. Przepisy te powinny znaleźć obligatoryjne zastosowanie przy spełnieniu się przesłanek związanych z nadzwyczajnymi okolicznościami.   Według ostatnich danych prawie 2 mld zł zamierzał pożyczyć rząd, aby opłacić dodatkowe wydatki na dokończenie zerwanych w tym roku kontraktów na nowe autostrady i drogi ekspresowe. W obecnej sytuacji kwota ta jest absolutnie niewystraczająca. Do tego dochodzi fakt, że miliardy złotych z bieżącej perspektywy unijnych środków nie zostałyby wykorzystane o czym dowiedzieliśmy się  niejako przy okazji przekierowania tych środków przez Komisję Europejską na walkę z koronawirusem.   Rząd musi przeznaczyć znacznie większe niż dotychczas środki na inwestycje infrastrukturalne zarówno rządowe jak i samorządowe, w celu pobudzenia gospodarki po ustaniu stanu epidemii.   W branży budowlanej niedobór pracowników może wciąż być bardzo mocno odczuwalny mimo wzrostu bezrobocia spowodowanego nadchodzącą recesją, ze względu na fakt, że wielu obcokrajowców opuściło Polskę i nie będą mogli w najbliższym czasie powrócić. Grozi nam fala bankructw przedsiębiorców związanych z tą gałęzią gospodarki, zwolnienia grupowe pracowników i  odstąpienia od realizacji kontraktów. Jeśli do tego dojdzie, błyskawicznie odczuje to cała gospodarka – budownictwo uznawane jest za barometr  wzrostu gospodarczego. Od jednego miejsca pracy w sektorze budowlanym zależy kilka miejsc pracy w transporcie, produkcji przemysłowej czy w handlu. Dlatego niezbędne jest przygotowanie planu stymulacyjnego na czas po ustąpieniu zagrożenia koronawirusem.  

Kontakt dla mediów

Emil Muciński

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The Classic Theory of Disruption

Before we look at how things have evolved, let’s briefly review why Christensen’s theory proved so influential and, indeed, disruptive to existing ideas of competitive advantage.1 Traditional strategy had been anchored on the notion of “generic strategies” in which a company could compete at the high end by differentiating, at the low end by pursuing cost leadership, or focus on serving a specific niche exceptionally well.2 Christensen illustrated a way for new entrants to cheerfully ignore these basic strategy dynamics. He showed how a new kind of dangerous competitor could wreak havoc by entering at the low end of a market, where margins are thin and customers are reluctant to pay for anything they don’t need.

The new entrant comes in with a product or service that’s cheaper and more convenient but that doesn’t offer the same level of performance on the dominant criteria that most customers expect from incumbents that have been working on the technology for years. The incumbents feel they can ignore the newcomer. Not only are its products inferior, but its margins are lower and its customers less loyal. Incumbents choose instead to focus on sustaining innovation — making improvements to the features that have been of most value to their high-end customers.

More: https://sloanreview.mit.edu