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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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Port Gdańsk w czasach pandemii nie zwalania. Kontynuuje inwestycje

Port Gdańsk w czasach pandemii działa bez przerw. Terminale bez przeszkód przyjmują i obsługują statki. Nie zwalnia tempo inwestycji.

W obsłudze statków i kontrahentów uruchomiono procedury zapewniające bezpieczeństwo pracownikom terminali i klientom. W administracji przestawiono się na pracę zdalną.Po rekordowym 2019 roku, w którym w terminalach przeładowano łącznie ponad 52,15 mln t ładunków, od połowy pierwszego kwartału br. port działa pod presją zawirowań na rynku transportu morskiego spowodowanego pandemią koronawirusa.

Praca terminali oraz Zarządu Morskiego Portu Gdańsk przebiega bez zakłóceń i zachowana jest pełna zdolność operacyjna

 – podkreśla Łukasz Greinke, prezes Zarządu Morskiego Portu Gdańsk.

Łukasz Greinke - Prezes Zarzadu Morskiego Portu Gdansk S.A fot. Marek GRZYBOWSKI
Łukasz Greinke – Prezes Zarzadu Morskiego Portu Gdansk S.A fot. Marek GRZYBOWSKI

Bezpieczeństwo w porcie w dobie pandemii Covid-19 postawiono na pierwszym miejscu. W porcie wprowadzono procedury bezpieczeństwa ustalone przez Głównego Inspektora Sanitarnego oraz Dyrektora Urzędu Morskiego w Gdyni, Straż Graniczną i Państwową Straż Pożarną. Zgodne z wytycznymi wymienionych służb ostre procedury wdrożyli również operatorzy terminali i użytkownicy portu. A trzeba podkreślić, że w obrębie portu działają również stocznie w tym Grupa Remontowa, a w ścisłym sąsiedztwie terminali działa Pomorskie Centrum Logistyczne i inne podmioty. Ruch samochodowy, kolejowy w porcie generują więc liczni użytkownicy, a na akwenach portu wewnętrznego pływają jednostki z załogami wielu użytkowników nabrzeży. Chroniąc pracowników i kontrahentów przed rozprzestrzenianiem się pandemii wszystkie podmioty działające na terenie Portu Gdańskiego wprowadziło pomiar temperatury pracowników jak i gości wchodzących do obiektów i na tereny zakładów. Zarząd Portu działa świadcząc wszelkie niezbędne usługi, opierając się częściowo na pracy zdalnej.

GDANSK PORT WEJSCIE STATKU fot. Marek Grzybowski
GDAŃSK PORT WEJŚCIE STATKU fot. Marek Grzybowski

Przeładunki w Gdańsku w I kwartale br. były mniejsze niż tym samym czasie ubr. o 8,3% i w efekcie dokerzy przeładowali w terminalach łącznie prawie 11,3 mln t drobnicy, ładunków masowych i płynnych. W gdańskich terminalach obsłużono ponad 760 statków, odnotowując kilkanaście zawinięć więcej niż w I kwartale ubr.

– Ten poziom spadków jest porównywalny z poziomem spadków jakie notuje obecnie największy port europejski w Rotterdamie. Jesteśmy, jako Port Gdański, elementem globalnej gospodarki, zawijają do nas regularne linie oceaniczne, z którymi wiąże się światowa wymiana handlowa, a ona w dobie COVID-19 cierpi z uwagi na mniejszy popyt – wyjaśnia Łukasz Greinke, prezes Zarządu Morskiego Portu Gdańsk i dodaje, że .w porównaniu z rokiem ubiegłym ponad dwukrotnie wzrosły przeładunki zbóż, a o około 30% więcej przepompowano LPG. Taśmociągi i dźwigi przeładowały o prawie 6,5% więcej ładunków masowych suchych.

GDAŃSK PORT PÓŁNOCNY 2 FOT. GRZYBOWSKI
GDAŃSK PORT PÓŁNOCNY FOT. MAREK GRZYBOWSKI

W pozostałych grupach ładunkowych odnotowano spadek przeładunków paliw o około 17%, węgla (o 27,5%) oraz drobnicy, której było o 1,2% mniej niż w I kwartale ubr. Suwnice w terminalu kontenerowym przemieściły o 2% mniej kontenerów, zbliżając się do 500 tys. TEU. Pandemię odczuł poważnie ruch promowy, w efekcie czego przewozy ro-ro zmniejszyły się o około 24%. W porcie skutki pandemii dało się odczuć we wszystkich terminalach. W wyniku tego w marcu tego roku spadek podaży ładunków o 23% w stosunku do marca ubr. Terminale w Porcie Gdańsk przeładowały w tym miesiącu 34 mln t ładunków, podczas gdy w marcu ubr. było ponad 4,4 mln ton.

Firma dobrze widziana. Business Centre Club przyznał Portowi Gdańsk tytuł „Firma dobrze widziana”. To kolejny tytuł kapituły BCC za zaangażowanie społeczne Portu Gdańsk i realizowanie idei odpowiedzialności społecznej biznesu. Warto przypomnieć, że Zarząd Portu Gdańsk wspiera od lat Fundację Pomocy Społecznej na Rzecz Dzieci „Pan Władek”. Kilka lat temu została ona wyróżniona odznaką honorową „Primus in Agendo” za zasługi na rzecz polityki społecznej.

– Zarząd Morskiego Portu Gdańsk pragnie pogratulować Fundacji tego wyróżnienia. Pan Władek robi rzeczy niezwykłe. Skala pomocy, którą niesie, jest ogromna. Jesteśmy dumni z tego, że założyciel Fundacji wywodzi się z Portu Gdańsk

 – gratulował Fundacji prezes Łukasz Greinke.

W czasach pandemii Port Gdańsk aktywnie wspiera walkę z koronawirusem, kupując sprzęt dla pomorskich strażaków i szpitali. Państwowej Straży Pożarnej Zarząd Portu przekazał 10 namiotów z pełnym wyposażeniem. Włączył się również w zakup analizatorów do diagnostyki zakażeń SARS-CoV-2, w które będą wyposażone laboratoria pomorskich szpitali.

– Szpitale i personel medyczny potrzebują naszego wsparcia tu i teraz. Dlatego niesiemy pomoc tam, gdzie jest ona najbardziej potrzebna. Doceniamy ogromny trud i odwagę służby zdrowia, jaką wykazują się każdego dnia w walce z epidemią. To trudny i wymagający czas dla nas wszystkich. Jesteśmy razem w trosce o nasze zdrowie i bezpieczeństwo naszego kraju.”

 – mówił w czasie przekazania sprzętu prezes Portu Gdańsk.

GDAŃSK PORT TERM. ZBOŻOWY FOT. MAREK GRZYBOWSKI
GDAŃSK PORT TERM. ZBOŻOWY FOT. MAREK GRZYBOWSKI

Inwestycje trwają. Na terenie gdańskiego portu kontynuowane są inwestycje o łącznej wartości 3,5 mld złotych. Realizowane są przez Urząd Morski, PKP PLK i Zarząd Morskiego Portu Gdańsk. Na konferencji podsumowującej 2019 r. zapowiadano, że wnajbliższych trzech latach ZMP Gdańsk ma zamiar wydać na inwestycje blisko 1,3 mld zł. W 2019 r. przeznaczono na nie około 390 mln zł, z czego 51 mln zł pochodziło z budżetu Unii Europejskiej. W ubr. przyjęto od Doraco wyremontowane Nabrzeża Mew i Obrońców Poczty Polskiej, które wykonywane są w ramach trwającego w porcie projektu „Modernizacja toru wodnego, rozbudowa nabrzeży oraz poprawa warunków żeglugi w Porcie Wewnętrznym w Gdańsku”. Obejmuje on inwestycje o wartości ponad 110 mln euro.

– Koronawirus nie przekreśla naszych planów i nie zmienia naszego podejścia do tego jak port będzie dalej się rozwijał. Traktujemy obecną sytuację jako anomalię, z którą bardzo szybko się uporamy i dalej będziemy wykorzystywać nasze położenie geograficzne oraz budowaną obecnie infrastrukturę do zwiększania znaczenia Portu Gdańsk na mapie Europy

 – podkreśla prezes Greinke.

W 2020 r. kontynuowane są więc prace przy nabrzeżach i torach wodnych. Niedługo będą ogłaszane przetargi na modernizację infrastruktury. Dostęp od strony lądu poprawią inwestycje kolejowe. PKP Polskich Linii Kolejowych kontynuuje projekt pt. „Poprawa infrastruktury kolejowego dostępu do portu Gdańsk”. Trwa przebudowa ponad 70 km torów oraz wymiana 221 rozjazdów. Zmodernizowane będzie 13 przejazdów kolejowo–drogowych i przejść dla pieszych. Przebudowane są 3 mosty, 2 wiadukty oraz 18 przepustów. Nowy wiadukt z drogami dojazdowymi powstanie nad torami stacji gospodarGdańsk Kanał Kaszubski. Z kolei Urząd Morski w Gdyni realizuje projekt „Modernizacja toru wodnego do Portu Północnego w Gdańsku”. Jego celem jest zwiększenie szerokości toru w dnie i zwiększenie jego głębokości technicznej. Poszerzenie toru pozwoli na dwukierunkową żeglugę jednostek oraz zapewni bezpieczeństwo statkom wpływającym do i wypływającym z Portu Gdańsk. Prace kosztują 161 mln złotych, a unijne dofinansowanie wyniesie 85% kosztów projektu. Z nowego toru wodnego statki będą korzystać już latem br. Port Gdańsk radzi sobie więc z pandemią i przygotowuje się na trudne i lepsze czasy.

Tekst i zdjęcia: Marek Grzybowski

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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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3 things chief legal officers can do now to become more cyber-savvy

Action #1 Understand the cyber threat environment
The National Council of Information Sharing and Analysis Centers
(ISACs) helps organizations in various industries share information
that can protect their facilities, personnel, and customers from
cyber and physical security threats and other hazards. Members
have access to information and tools to help them mitigate risks
and enhance their cyber resilience.

Action #2 Look into the existing cybersecurity program

Most organizations today have some form of cybersecurity strategy.
While knowing the technical details may be of some value, it can be
more useful for legal executives to understand its scope and, at a high
level, how effectively it addresses cyber risks the organization faces.
In particular, you should be familiar with four areas of the cybersecurity
strategy and the program in which that strategy is executed.
Cyber risk profile
Understand the processes by which cyber risks have been identified
and prioritized for your organization. How often is the profile updated?
How does it account for a quickly evolving threat environment?

Program governance
Assess who across the enterprise is involved in cybersecurity program
oversight. Who sets policies and procedures? What internal controls
are there for compliance? What resources and programs are in place to
predict, detect, and respond to cyber incidents, and how much does
the organization spend on cybersecurity annually? Are the programs
insourced or outsourced? How are employees and business partners
educated and trained about cybersecurity, and how is the effectiveness
of that monitored over time?
Cybersecurity safeguards
Determine what resources, both human and digital, are in place to
defend the organization. How is the cyber perimeter defined? What
security measures protect each type of device and the networks to
which they have access?
Cyber incident response and remediation
Identify existing disaster recovery plans for responding to data
breaches and other cyber incidents and determine if they meet any
applicable industry standards and regulations. If a breach occurs, what
public disclosures and other actions are required? How quickly can the
organization react to shut it down? Do existing plans go far enough not
only in meeting requirements, but also to remediate the issue in such
a way to build additional resilience so it’s not likely to happen again?

Action #3 Apply a legal point of view

With a clearer view of the cyber threat environment and the organization’s program for addressing it, legal executives can look upstream to determine where legal should be involved, both strategically and in discrete activities.
Strategically
Bring a legal perspective to the cyber risk assessment, prioritization, and mitigation process. Have an active voice in how the organization views cyber risk and how key elements of a cybersecurity program address
those risks. As the organization expands its cyber footprint into new geographic areas, stay on top of legal and regulatory implications.
Tactically
As new business initiatives are undertaken (for example, new product development, digital expansion into new markets, thirdparty relationships, and many others), take a seat at the planning table to represent the legal point of view. For example, if an organization allows employees to use company-owned or their own mobile devices for business purposes, review the approach and help establish related parameters for access and usage.
Operationally
Insert legal into the process of monitoring cybersecurity programs. Make sure legal has adequate representation early on in the event of a cyber breach or other incident. Play a more active role in remediation
efforts to help mitigate risk to the organization and prevent similar future
events. To enable more effective strategic, tactical, and operational engagement, consider deeper training in cyber issues for your legal
department or a subset of the department.

MORE: Deloitte Report: Tech Bytes Part 3: Cyber Three things chief legal officers can do now to become more cyber-savvy