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Managing for long-term profitability
Managing for long-term profitability T. Don Stacy
Oil companies such as Amoco Canada are now rushing to overturn corporate structures and cultures that took generations to create and nurture. They are doing so in order to survive in the difficult times the Canadian oil industry is facing: rising costs, increasing government rent sharing, and expectations of modest price increases. The overhaul needed is in three parts: the first involves rationalization of properties and staff reductions; the second, increasing productivity of the human resources of the firm through a thorough-going change in the corporate philosophy. The third calls for royalty and tax regimes that create a favourable economic environment. Keywords: Rationalization;
Productivity; Human resources
In Quebec, there is an old French adage that translates roughly as ‘The more things change, the more they stay the same’. It’s a popular saying because in one way or another it seems to apply to the whole spectrum of human experience. But I am about to demonstrate that there’s at least one notable exception: the economic situation of Canada’s oil and gas explorers and producers - the more things change, the more they keep changing. Over the past five years or so, the economic climate for the oil industry has changed dramatically, and that change is permanently altering the basic structure of oil companies as well as the way they do business. We do know that, in shape and size, the industry will never again resemble what it was 10 years ago. But what will the new shape and size be? I do not know, but whatever emerges will depend jointly on the ability of the industry to adapt efficiently to a totally new environment, and on government fiscal policies that will either foster or discourage further development of Canada’s petroleum resource. T. Don Stacy is Chairman Amoco Station
of the Board and President,
Canada Petroleum Company M, Calgary, Alberta, Canada
Ltd, PO Box 200, T2P 2H8.
0957-l 787/91/050405-05 @ 1991 Butterworth-Heinemann
Ltd
Ten years ago, major oil companies had relatively large staffs. Their organizations were invariably technically advanced, but they were essentially bureaucracies run in a strong top-down management style. Today, the same companies are boldly making 180-degree turns in long-held corporate philosophies. These changes usually include rationalization of assets. But the most drastic ones are seen where people, organization, structure and decisionmaking are involved. But why are companies such as Amoco Canada rushing to overturn corporate structures and cultures that took generations to create and nurture? The reason is simple: survival. Historically, oil company earnings were substantial. They could, and did, easily support the cost of an elaborate hierarchical, almost military, management structure, and of whatever technology it took to get the job done. In the mid-1980s it became clear that the good old days of the oil industry were never going to return. The industry has reacted by looking at its basic assets, which are its properties and people, and asking itself how it can get far larger returns out of both. Whatever the answer, it has to be radical. Band-aid solutions will not restore economic viability. In Canada, the situation is grim for the upstream petroleum industry. According to the Petroleum Monitoring Agency and the Canadian Petroleum Association, return on capital employed for upstream oil and gas companies was 3.9% in 1989, less than half of that for Canadian non-financial industry in general. And this figure was not just a blip on the charts. Return on capital employed has averaged about 4% over the past five years. Although the Golf crisis-induced oil price rise increased returns for 1990, the industry’s rate of return for the first half of the year was 3.1%. I would also like to comment that the spike in oil prices has had virtually no effect on average natural gas prices, which actually decreased over several years, and increased only marginally in 1990. Companies must base their planning on oil prices
405
Managing for long-term profitability
Gross
n *
revenue
Depreciation
,()A’: Expenses
.
. .
. . . . . . . . . . . . . . . . . . . . . . . . _ . . . . ., . . . . . . . . . . . . 5-1 : ._.,.,.,.,.,_,.,.,.,.,.,. .Operating costs. . . ‘. ._ . . ‘, ‘. . . ‘. ‘. ‘. ‘. ‘. ‘. ‘. ‘. . . . .
.,
.
1986
1987
Figure 1. Canadian Source: Petroleum
upstream
Monitoring
1988
1989
oil and gas gross revenue
1990
and net income.
Agency.
that can be sustained in normal circumstances. On that basis, the industry forecasts a 2% real increase in annual crude oil prices. Should that happen, return on capital employed would be about 5 to 6%; better than now, but still well below levels that would attract investment. Remember that the actual average rate of return on capital employed for the past five years has been 3.9%. What the Canadian Petroleum Association calls ‘a range for a healthy industry’ requires crude prices of about US $40/bbl for the benchmark West Texas Intermediate crude under the current Alberta fiscal regime. That kind of sustained price level is on every oil executive’s personal wish list. But it’s totally unrealistic. Figure 1 is a snapshot of the upstream industry’s actual gross revenue and net income. Operating costs eat up the largest part of expenses, followed by depreciation and interest in that order. Together they eat up a hefty 71% of revenue. It’s also apparent that the share of gross revenue represented by royalties and taxes is growing. For example, Alberta royalties have been taking an ever-increasing share of gross revenue since 1986. Grants were eliminated, and other relief, such as royalty holidays for enhanced recovery and heavy oil, is ending. The effects of this squeeze are substantial. Production is declining far faster that it otherwise would have to, and existing reserves are not being exploited fully. The reason is clearcut: even if there were no longer-term price uncertainties, few additional exploration investments would be justifiable under the current fiscal regime. Thus, the number of wells drilled has dropped regularly every year since 1980. Also, in the past five years the companies that supply services and equip-
406
._ .
. . . . . . .
ment to explorers and producers have had an even rougher ride than oil companies. The rainbow of service industries, from caterers to truckers to suppliers of pipes and pumps, has seen hundreds of bankruptcies, a massive loss of jobs and a large slide in industry economic activity. This is not all. Operating costs over a six-year period have risen steadily. What worries the industry even more is the much steeper curve representing operating costs as a percentage of gross revenues. In 1984, they accounted for less than 20% of gross revenues, but by last year that percentage had risen to more than 35%. As we can see from Figure 2, the lower production by well is a large part of the reason for higher operating costs. As output per oil well steadily decreases, the number of wells needed rises, and the operating cost per barrel of oil produced climbs. To summarize general trends, profits are inadequate and falling, while costs and the government’s share of total revenues are increasing. Furthermore, despite brief windfalls like that created by the Kuwait crisis, it’s unrealistic to expect more than slight price increases over the medium term. How can companies such as Amoco Canada make an acceptable return for shareholders, keep the industry from shrivelling and contribute to the economic health of the region and the nation? I think the solution has three parts, which I now discuss in turn.
RATIONALIZATION The first is rationalization, the most obvious immediate remedy for petroleum explorers and producers. Over the years, almost every petroleum
UTILITIES
POLICY October
1991
Managing for long-term profitability
20 10 0
Figure
1980
1981
2. Production
1982
1983
1984
per well: Alberta
Source: Canadian Petroleum
Association,
gradually acquired interests in scores of scattered properties that account for a small part of revenues but a major portion of administrative and operating expenses. Typically, 20 to 30% of a company’s properties has represented 80 to 90% of its reserves and production. Most of the remainder is essentially expensive overhead that cripples earnings. This kind of situation is not unique to the oil industry. In almost any organization with a sales force, for example, a small percentage of salespeople will account for the great majority of sales. When Amoco Canada acquired Dome Petroleum in 1988, oil company rationalization was already well under way. Largely as a result of a series of acquisitions, Dome’s properties were the most widely scattered of any in the Canadian oil patch. When other companies were beginning to rationalize, Amoco Canada found itself with these scattered holdings, despite the advantage of a large overlap in properties partly owned by both Dome and Amoco Canada. The company also inherited two dissimilar organizations and management philosophies that had to be merged into a single entity. Furthermore, since the company had promised to offer a job to virtually all employees of both companies, a large organization, overstaffed and complete with two sets of managers, was part of the price paid for the merger. Rationalization of properties had been a central part of Amoco Canada’s plans ever since the company committed itself in 1987 to acquiring Dome Petroleum, and the process began even before the merger papers were signed in September 1988. However, most large property sales had to wait until well after the merger date, and with the other Canadian majors going through a similar process
company
UTILITIES
POLICY
October
1991
1985
1986
1987
conventional Alberta,
1988
1989
oil.
Canada.
there was buyer’s market in land and in producing properties. Despite these handicaps, rationalization is paying off for the company. By the end of 1989 properties with equivalent oil production of nearly 13 000 bbl/day had been sold. Also, thanks largely to the rationalization programme Amoco Canada’s long-term debt has been reduced by about a billion dollars from a high of $4 billion. One fringe benefit of rationalization by the majors is a sharp increase in startups of small oil companies in the past couple of years. These small operators can keep their overheads low and run profitably marginal operations that lose money for larger organizations. The other aspect of rationalization is flattening the organization structure and reducing staff and other overheads to cut operating costs permanently. Since September 1988, when Dome was acquired, we have reduced staff by about 1 000 to 4 300, almost totally by attrition and by voluntary early retirement or separation. The company has also made considerable progress in flattening and streamlining the organizational structure, although the payoff is only now beginning to be evident. The reorganization at Amoco Canada was particularly large, because two complex and totally different organizations and two sets of management had to be merged and reshaped that had operated with very different philosophies. Merging the two accounting systems, for example, has been a major challenge only now being completed. To this point, the formula for making an exploration and production company more efficient seems clear-cut: that is sell off the least profitable properties, flatten the organization and cut staff. Keeping ahead of the peak in technology helps, and Amoco Canada has always been a leader in that area.
407
Managing for long-term profitability
INCREASING BUSINESS EFFECTIVENESS AND PROFITABILITY But how can an organization with a shrunken staff and decreased spending increase its business effectiveness and its profitability? This is one solution: throw out the hierarchical structure and the philosophy that built it, dismantle the bureaucracy and stop manufacturing traditional organization clones. In short, the second part of the solution to the economic problem is a quantum increase in the productivity of the personal. As mentioned earlier, it cannot happen without a total change in corporate-management philosophy. At Amoco Canada, as with other leaders of Canada’s upstream petroleum industry, it has been worthwhile to study the success of Japan’s industrial companies, and to apply the resulting insights to our very different culture, environment and human requirements. One of the most striking characteristics of the successful large Japanese company is the universal sharing of common goals. A few years ago Komatsu had a goal summed up in two words: ‘Beat Caterpillar’: every employee was bought into that goal. And the result? Komatsu did beat Caterpillar. At Amoco Canada like other major companies in the oil industry, thousands of working hours and a few million dollars are spent formulating what the company is, what unique strengths there are, where the company wants to go, and how to get there in the short and long term. It is not a top-down directive. Every employee is involved at least to some degree in this process, and every performance evaluation is based on how effectively he or she has contributed to the achievement of these goals. Managers are learning that their job is not to pass on directives from high, but to help build and support teams dedicated to achieving common goals. Once there were rigid walls between departments and between junior and senior levels. Now interdepartmental teams are tackling problems and solving them faster. In fact, several current key projects depend for their success largely on short-circuiting some traditional department barriers between exploration and production groups. At the outset of this new management drive more than a year ago, every employee spent two days at department meetings learning the principles of Amoco Performance Management and relating personal work goals to those of the department and
company. Later, more time was spent with fellow employees and supervisor drawing up a specific work plan that formed the basis of the individuals performance assessment, which in turn was reached in lengthly discussion with the supervisor. Presently, in a second round of the process, employees are spending a day and a half reviewing the plan in departmental groups, identifying areas that require change and drawing up new plans to make those changes happen. All the managers, including myself are devoting a large percentage of their time to making sure that this basic organizational change happens. Beyond my duties on various task forces, I hold a lunch every Wednesday for about two dozen employees, to give them an opportunity to find out at first hand what is on the mind of their CEO. Beyond these initiatives are a number of other programmes, all aimed at increasing employee involvement. The new management philosophy is aimed squarely at increasing productivity, but at the same time it enriches the employee’s working life. The nonsupervisory employee used to follow orders and procedures, even if they didn’t seem to make much sense. The emphasis is now on making optimum use of people’s talents to achieve clearly defined objectives. This ‘human approach’ is also better suited to today’s typical graduate, who wants a job that is personally fulfilling, doesn’t rate job security high on his/her list of priorities, and is less likely than past generations to submit meekly to bureaucratic rules. Realistically, a brave new world like this one is not created and brought to its full potential in a few months. But Amoco Canada is fully committed to this new vision, and at this stage there is no going back, even if we wanted to. The liberation of the full potential of each employee is our corporate prescription for achieving more with fewer people. Each major Canadian upstream company has its own formula for rationalization and for tapping employment potential, but virtually every company is going in the same general direction. To sum up, rationalization is the first part of Amoco Canada’s formula for a healthy major company in the upstream petroleum industry. The second is a total change in management philosophy to allow employees to greatly increase their productivity. The first is well under way, and although it will take years rather than months to achieve the full benefits of the second the company is totally committed and well past the point of no return. These two initiatives will trim away the inefficiencies in the corporate structure and substantially improve the company’s economic competitiveness.
UTILITIES
POLICY
October 1991
Managing for long-term profitability
But beyond these, a third element is essential to success. That missing element is a government royalty and tax regime that will provide a suitable return for those who manage petroleum resources, creating an economic environment that encourages continued substantial investment in oil and gas explora-
UTILITIES
POLICY October
1991
tion and development. The dividends, in the form of increased investment, jobs and energy security for Alberta and for Canada, will be substantial. Industry and government should work cooperatively on a formula that will be of greater long-term benefit to both parties than is the current fiscal regime.
409
Oil companies such as Amoco Canada are now rushing to overturn corporate structures and cultures that took generations to create and nurture. They are doing so in order to survive in the difficult times the Canadian oil industry is facing: rising costs, increasing government rent sharing, and expectations of modest price increases. The overhaul needed is in three parts: the first involves rationalization of properties and staff reductions; the second, increasing productivity of the human resources of the firm through a thorough-going change in the corporate philosophy. The third calls for royalty and tax regimes that create a favourable economic environment. Keywords: Rationalization;
Productivity; Human resources
In Quebec, there is an old French adage that translates roughly as ‘The more things change, the more they stay the same’. It’s a popular saying because in one way or another it seems to apply to the whole spectrum of human experience. But I am about to demonstrate that there’s at least one notable exception: the economic situation of Canada’s oil and gas explorers and producers - the more things change, the more they keep changing. Over the past five years or so, the economic climate for the oil industry has changed dramatically, and that change is permanently altering the basic structure of oil companies as well as the way they do business. We do know that, in shape and size, the industry will never again resemble what it was 10 years ago. But what will the new shape and size be? I do not know, but whatever emerges will depend jointly on the ability of the industry to adapt efficiently to a totally new environment, and on government fiscal policies that will either foster or discourage further development of Canada’s petroleum resource. T. Don Stacy is Chairman Amoco Station
of the Board and President,
Canada Petroleum Company M, Calgary, Alberta, Canada
Ltd, PO Box 200, T2P 2H8.
0957-l 787/91/050405-05 @ 1991 Butterworth-Heinemann
Ltd
Ten years ago, major oil companies had relatively large staffs. Their organizations were invariably technically advanced, but they were essentially bureaucracies run in a strong top-down management style. Today, the same companies are boldly making 180-degree turns in long-held corporate philosophies. These changes usually include rationalization of assets. But the most drastic ones are seen where people, organization, structure and decisionmaking are involved. But why are companies such as Amoco Canada rushing to overturn corporate structures and cultures that took generations to create and nurture? The reason is simple: survival. Historically, oil company earnings were substantial. They could, and did, easily support the cost of an elaborate hierarchical, almost military, management structure, and of whatever technology it took to get the job done. In the mid-1980s it became clear that the good old days of the oil industry were never going to return. The industry has reacted by looking at its basic assets, which are its properties and people, and asking itself how it can get far larger returns out of both. Whatever the answer, it has to be radical. Band-aid solutions will not restore economic viability. In Canada, the situation is grim for the upstream petroleum industry. According to the Petroleum Monitoring Agency and the Canadian Petroleum Association, return on capital employed for upstream oil and gas companies was 3.9% in 1989, less than half of that for Canadian non-financial industry in general. And this figure was not just a blip on the charts. Return on capital employed has averaged about 4% over the past five years. Although the Golf crisis-induced oil price rise increased returns for 1990, the industry’s rate of return for the first half of the year was 3.1%. I would also like to comment that the spike in oil prices has had virtually no effect on average natural gas prices, which actually decreased over several years, and increased only marginally in 1990. Companies must base their planning on oil prices
405
Managing for long-term profitability
Gross
n *
revenue
Depreciation
,()A’: Expenses
.
. .
. . . . . . . . . . . . . . . . . . . . . . . . _ . . . . ., . . . . . . . . . . . . 5-1 : ._.,.,.,.,.,_,.,.,.,.,.,. .Operating costs. . . ‘. ._ . . ‘, ‘. . . ‘. ‘. ‘. ‘. ‘. ‘. ‘. ‘. . . . .
.,
.
1986
1987
Figure 1. Canadian Source: Petroleum
upstream
Monitoring
1988
1989
oil and gas gross revenue
1990
and net income.
Agency.
that can be sustained in normal circumstances. On that basis, the industry forecasts a 2% real increase in annual crude oil prices. Should that happen, return on capital employed would be about 5 to 6%; better than now, but still well below levels that would attract investment. Remember that the actual average rate of return on capital employed for the past five years has been 3.9%. What the Canadian Petroleum Association calls ‘a range for a healthy industry’ requires crude prices of about US $40/bbl for the benchmark West Texas Intermediate crude under the current Alberta fiscal regime. That kind of sustained price level is on every oil executive’s personal wish list. But it’s totally unrealistic. Figure 1 is a snapshot of the upstream industry’s actual gross revenue and net income. Operating costs eat up the largest part of expenses, followed by depreciation and interest in that order. Together they eat up a hefty 71% of revenue. It’s also apparent that the share of gross revenue represented by royalties and taxes is growing. For example, Alberta royalties have been taking an ever-increasing share of gross revenue since 1986. Grants were eliminated, and other relief, such as royalty holidays for enhanced recovery and heavy oil, is ending. The effects of this squeeze are substantial. Production is declining far faster that it otherwise would have to, and existing reserves are not being exploited fully. The reason is clearcut: even if there were no longer-term price uncertainties, few additional exploration investments would be justifiable under the current fiscal regime. Thus, the number of wells drilled has dropped regularly every year since 1980. Also, in the past five years the companies that supply services and equip-
406
._ .
. . . . . . .
ment to explorers and producers have had an even rougher ride than oil companies. The rainbow of service industries, from caterers to truckers to suppliers of pipes and pumps, has seen hundreds of bankruptcies, a massive loss of jobs and a large slide in industry economic activity. This is not all. Operating costs over a six-year period have risen steadily. What worries the industry even more is the much steeper curve representing operating costs as a percentage of gross revenues. In 1984, they accounted for less than 20% of gross revenues, but by last year that percentage had risen to more than 35%. As we can see from Figure 2, the lower production by well is a large part of the reason for higher operating costs. As output per oil well steadily decreases, the number of wells needed rises, and the operating cost per barrel of oil produced climbs. To summarize general trends, profits are inadequate and falling, while costs and the government’s share of total revenues are increasing. Furthermore, despite brief windfalls like that created by the Kuwait crisis, it’s unrealistic to expect more than slight price increases over the medium term. How can companies such as Amoco Canada make an acceptable return for shareholders, keep the industry from shrivelling and contribute to the economic health of the region and the nation? I think the solution has three parts, which I now discuss in turn.
RATIONALIZATION The first is rationalization, the most obvious immediate remedy for petroleum explorers and producers. Over the years, almost every petroleum
UTILITIES
POLICY October
1991
Managing for long-term profitability
20 10 0
Figure
1980
1981
2. Production
1982
1983
1984
per well: Alberta
Source: Canadian Petroleum
Association,
gradually acquired interests in scores of scattered properties that account for a small part of revenues but a major portion of administrative and operating expenses. Typically, 20 to 30% of a company’s properties has represented 80 to 90% of its reserves and production. Most of the remainder is essentially expensive overhead that cripples earnings. This kind of situation is not unique to the oil industry. In almost any organization with a sales force, for example, a small percentage of salespeople will account for the great majority of sales. When Amoco Canada acquired Dome Petroleum in 1988, oil company rationalization was already well under way. Largely as a result of a series of acquisitions, Dome’s properties were the most widely scattered of any in the Canadian oil patch. When other companies were beginning to rationalize, Amoco Canada found itself with these scattered holdings, despite the advantage of a large overlap in properties partly owned by both Dome and Amoco Canada. The company also inherited two dissimilar organizations and management philosophies that had to be merged into a single entity. Furthermore, since the company had promised to offer a job to virtually all employees of both companies, a large organization, overstaffed and complete with two sets of managers, was part of the price paid for the merger. Rationalization of properties had been a central part of Amoco Canada’s plans ever since the company committed itself in 1987 to acquiring Dome Petroleum, and the process began even before the merger papers were signed in September 1988. However, most large property sales had to wait until well after the merger date, and with the other Canadian majors going through a similar process
company
UTILITIES
POLICY
October
1991
1985
1986
1987
conventional Alberta,
1988
1989
oil.
Canada.
there was buyer’s market in land and in producing properties. Despite these handicaps, rationalization is paying off for the company. By the end of 1989 properties with equivalent oil production of nearly 13 000 bbl/day had been sold. Also, thanks largely to the rationalization programme Amoco Canada’s long-term debt has been reduced by about a billion dollars from a high of $4 billion. One fringe benefit of rationalization by the majors is a sharp increase in startups of small oil companies in the past couple of years. These small operators can keep their overheads low and run profitably marginal operations that lose money for larger organizations. The other aspect of rationalization is flattening the organization structure and reducing staff and other overheads to cut operating costs permanently. Since September 1988, when Dome was acquired, we have reduced staff by about 1 000 to 4 300, almost totally by attrition and by voluntary early retirement or separation. The company has also made considerable progress in flattening and streamlining the organizational structure, although the payoff is only now beginning to be evident. The reorganization at Amoco Canada was particularly large, because two complex and totally different organizations and two sets of management had to be merged and reshaped that had operated with very different philosophies. Merging the two accounting systems, for example, has been a major challenge only now being completed. To this point, the formula for making an exploration and production company more efficient seems clear-cut: that is sell off the least profitable properties, flatten the organization and cut staff. Keeping ahead of the peak in technology helps, and Amoco Canada has always been a leader in that area.
407
Managing for long-term profitability
INCREASING BUSINESS EFFECTIVENESS AND PROFITABILITY But how can an organization with a shrunken staff and decreased spending increase its business effectiveness and its profitability? This is one solution: throw out the hierarchical structure and the philosophy that built it, dismantle the bureaucracy and stop manufacturing traditional organization clones. In short, the second part of the solution to the economic problem is a quantum increase in the productivity of the personal. As mentioned earlier, it cannot happen without a total change in corporate-management philosophy. At Amoco Canada, as with other leaders of Canada’s upstream petroleum industry, it has been worthwhile to study the success of Japan’s industrial companies, and to apply the resulting insights to our very different culture, environment and human requirements. One of the most striking characteristics of the successful large Japanese company is the universal sharing of common goals. A few years ago Komatsu had a goal summed up in two words: ‘Beat Caterpillar’: every employee was bought into that goal. And the result? Komatsu did beat Caterpillar. At Amoco Canada like other major companies in the oil industry, thousands of working hours and a few million dollars are spent formulating what the company is, what unique strengths there are, where the company wants to go, and how to get there in the short and long term. It is not a top-down directive. Every employee is involved at least to some degree in this process, and every performance evaluation is based on how effectively he or she has contributed to the achievement of these goals. Managers are learning that their job is not to pass on directives from high, but to help build and support teams dedicated to achieving common goals. Once there were rigid walls between departments and between junior and senior levels. Now interdepartmental teams are tackling problems and solving them faster. In fact, several current key projects depend for their success largely on short-circuiting some traditional department barriers between exploration and production groups. At the outset of this new management drive more than a year ago, every employee spent two days at department meetings learning the principles of Amoco Performance Management and relating personal work goals to those of the department and
company. Later, more time was spent with fellow employees and supervisor drawing up a specific work plan that formed the basis of the individuals performance assessment, which in turn was reached in lengthly discussion with the supervisor. Presently, in a second round of the process, employees are spending a day and a half reviewing the plan in departmental groups, identifying areas that require change and drawing up new plans to make those changes happen. All the managers, including myself are devoting a large percentage of their time to making sure that this basic organizational change happens. Beyond my duties on various task forces, I hold a lunch every Wednesday for about two dozen employees, to give them an opportunity to find out at first hand what is on the mind of their CEO. Beyond these initiatives are a number of other programmes, all aimed at increasing employee involvement. The new management philosophy is aimed squarely at increasing productivity, but at the same time it enriches the employee’s working life. The nonsupervisory employee used to follow orders and procedures, even if they didn’t seem to make much sense. The emphasis is now on making optimum use of people’s talents to achieve clearly defined objectives. This ‘human approach’ is also better suited to today’s typical graduate, who wants a job that is personally fulfilling, doesn’t rate job security high on his/her list of priorities, and is less likely than past generations to submit meekly to bureaucratic rules. Realistically, a brave new world like this one is not created and brought to its full potential in a few months. But Amoco Canada is fully committed to this new vision, and at this stage there is no going back, even if we wanted to. The liberation of the full potential of each employee is our corporate prescription for achieving more with fewer people. Each major Canadian upstream company has its own formula for rationalization and for tapping employment potential, but virtually every company is going in the same general direction. To sum up, rationalization is the first part of Amoco Canada’s formula for a healthy major company in the upstream petroleum industry. The second is a total change in management philosophy to allow employees to greatly increase their productivity. The first is well under way, and although it will take years rather than months to achieve the full benefits of the second the company is totally committed and well past the point of no return. These two initiatives will trim away the inefficiencies in the corporate structure and substantially improve the company’s economic competitiveness.
UTILITIES
POLICY
October 1991
Managing for long-term profitability
But beyond these, a third element is essential to success. That missing element is a government royalty and tax regime that will provide a suitable return for those who manage petroleum resources, creating an economic environment that encourages continued substantial investment in oil and gas explora-
UTILITIES
POLICY October
1991
tion and development. The dividends, in the form of increased investment, jobs and energy security for Alberta and for Canada, will be substantial. Industry and government should work cooperatively on a formula that will be of greater long-term benefit to both parties than is the current fiscal regime.
409