The term “integrated” often evokes a sense of unity and coherence. However, for many companies in the oil and gas sector, this integration is not yet fully realized.
Historically, both upstream and downstream segments in the sector have operated independently, each developing their own tools and processes, leading to a fragmented approach to planning. Within these segments, planning also varies across functions involved, focusing on different planning horizons and data granularity. This has created a complex web of challenges that organizations are now working through as they strive for integration in planning.
Internal demands for consistent and efficient planning approaches have always existed. But now operators face additional planning challenges as they balance the high upfront costs, uncertain returns and shifting regulatory environments that come with the addition of low-carbon investments into their portfolios. Coupled with pressures from investors demanding returns that mirror those of traditional fossil fuel investments, operators are facing dual pressures — external expectations for agility and internal demands for consistency. These pressures are compelling organizations to rethink their approaches to enterprise planning. As a result, planning capabilities are challenged but are more important than ever. This is leading some to get caught in a cycle of stop-start initiatives, unable to define an end-state vision and cohesive strategy.
However, because each operator is organized slightly differently, the question arises: who within these organizations should champion an enterprise planning transformation and lead their company into the future? As companies wrestle with these decisions, the ability to break down organizational barriers and modify existing operating models will be critical. Tomorrow’s enterprise planning operating model needs to encompass process, data, technology, organization, metrics and governance — all working towards a defined vision. The path forward demands not just champions of change, but a collective commitment to reimagining how planning is executed across the organization.
Bridge planning and finance gap
In the realm of integrated planning, no single individual can — or should — dictate the direction of initiatives. It requires a coalition of voices, including business unit leaders, finance executives and heads of financial planning and analysis, alongside asset-level leaders and planners responsible for executing the processes. These planners often find themselves stretched thin with base business, making it challenging to garner support for comprehensive initiatives.
Bridging the gap between the planning, finance and leadership communities is vital, as the reporting structure of the planning function can vary significantly depending on the organization or the type of planning involved. This variability can lead to misunderstandings about objectives and benefits. Both communities must recognize the value of collaboration to reduce workloads, simplify processes and align plans with corporate goals.
From a corporate planning point of view, finance leadership typically focuses on establishing top-down guidance and driving accountability to support the business and portfolio strategy. The goal is to position the organization to meet financial targets which have been communicated to investors. Cascading financial constraints can impact the business units, whether it be capital investments or internal initiatives aimed at structural costs reductions. Guidance is often tied to specific P&L items and may not be supported by business-level organizations, nor by using non-financial KPIs.
It is key to establish a common language when trying to close the gap between those involved in planning. At the corporate level, leadership should establish targets and plans tied to their expected P&L and investor commitments. At a business unit level, plans become more granular, incorporating business unit strategies, local nuances, and additional constraints related to regulations. When plans are not properly integrated with corporate expectations, planners are often forced to act as translators.
Closing the gap should not stop with the plan. Continuous collaboration is key - combining bottom-up realities with top-down assumptions.
To establish a cohesive planning framework, organizations should always start by standardizing corporate planning. After this foundational step, operators have a choice to make:
- Standardize business unit planning as the next step, followed by asset planning.
- Standardize asset planning as the next step, followed by business unit planning.
The choice between standardizing business unit planning or asset planning next should reflect the operator’s culture, organization and planning ambitions, aligning with the company’s strategic goals.
Organizations must take deliberate steps to understand their end-to-end planning process. Planners often receive directives without necessary context, leading to confusion and ineffective decision-making. Additionally, when leadership asks planners to run the plan for one capital expenditure scenario, and then later requests adjustments to plan for another capital expenditure scenario, it can create a cycle of time-consuming iterations that lengthens the planning cycle and inhibits agility. This also prevents planners from fully exploring the opportunity space. Providing clarity on broader objectives and empowering planners with integrated processes and tools will help ensure that plans align with corporate goals.
Establishing standardized processes, where appropriate, is essential. Many organizations seek a ready-made framework to guide their efforts, but determining which planning processes should be standardized prior to a transformation will prevent prolonged development. With the right resources, effective processes can be implemented without endless revisions.
Investment in integrated planning initiatives should be approached realistically. Unlike disruptive enterprise resource planning (ERP) implementations, integrated planning solutions can yield tangible results quickly. By reframing expectations and equipping teams with the necessary tools, organizations can dismantle barriers to investment and change, ultimately enhancing their planning capabilities and positioning themselves for success in a competitive landscape.
Don’t get sidetracked by market volatility
Market conditions play a key role in underscoring the necessity for integrated planning within the oil and gas sector. Take tariffs, for example, they introduce significant volatility that can disrupt established operational frameworks. A global international oil company (IOC) client recently articulated the challenge of responding consistently to these fluctuations, highlighting a lack of transparency and visibility in their planning processes. Without a robust integrated and agile planning solution, organizations find themselves investing countless hours in developing scenarios and mitigation plans, often leading to inefficiencies and missed opportunities.
In contrast, a well-structured planning system equipped with real-time data access can streamline scenario planning and response strategies. When organizations can quickly analyze data and model various scenarios, they are better positioned to respond effectively to market volatility. This capability transforms potential hindrances into opportunities for proactive decision-making, reinforcing one of the core tenets of effective planning: the reliance on accurate and timely data.
The increasing volatility — whether driven by price fluctuations, geopolitical tensions or tariff changes — enhances the value of enterprise planning capabilities. For supermajors, the planning process can take anywhere from six to nine months to generate an annual plan. This lengthy cycle severely limits agility and responsiveness to unexpected conditions.
As market conditions become more unpredictable, the importance of integrated planning capabilities grows exponentially. Organizations that invest in enterprise capabilities can enhance their agility, allowing them to consistently capture market share and limit downside exposure.
