Senior Director, Energy Practice
Alvarez & Marsal
The energy industry was in rough shape when 2020 started and the COVID-19 pandemic has only created more difficult terrain. In a Q&A with ABF Journal, Craig Jones, senior director of the energy practice at Alvarez & Marsal, shared his perspective from more than 20 years in the energy industry on the obstacles energy companies are currently facing and how turnaround professionals can address them.
As this storm continued to grow, Craig Jones joined turnaround firm Alvarez & Marsal, as senior director of its energy practice in April. In a Q&A with ABF Journal, Jones outlined how a lack of discipline and uneven commodity prices had the industry on bad footing to start 2020 and how the COVID-19 pandemic caused further deterioration, leading to unique challenges for companies and turnaround professionals.
Jones: Broadly speaking, the energy sector was already facing major headwinds in 2019, particularly in oilfield services, and specifically within pressure pumping. Most of the issues were self-inflicted due to operators’ and service providers’ lack of capital discipline in prior years. As a result, there was excess capacity of horsepower, inventory, rental assets and new competitors in the market. This overcapacity, coupled with the operators’ sourcing strategy to commoditize products and services used in drilling, completions and production, resulted in substantial margin erosion across the oilfield services space. Additionally, these cost reductions may have given operators a false sense of sustainability for reduced level of effort (LOE) costs, alleviating the pressure to look internally with the same sense of urgency.
How was the energy sector faring prior to COVID-19? Has the pandemic altered the course or pushed it forward?
When do you expect there to be a leveling out in the energy sector, if any at all?
In the best of times, what do turnaround professionals need to focus on when working with struggling energy companies?
How has that changed in the current environment? How will it affect the relationship into the near- and long-term future?
Jones: The only change I see is that many companies are attempting to make these changes internally as they consider consulting spend discretionary. The key for companies will be determining when that approach makes sense and when complexity, risk or urgency necessitates looking for a third-party partner to drive the results needed at the pace required.
Craig Jones is the senior director of the energy practice for Alvarez & Marsal.
