How we’re navigating the pandemic and oil-price downturn
I don’t claim to be an expert crisis manager. But I have experienced “black swan” events, those occurrences that are unpredictable, extremely rare and severe. And I have learned from them.
The most significant for me occurred when Hurricane Katrina hit in August 2005. I was working for Shell Oil in Louisiana then, heading environmental health and safety for its North and South America units. To help deal with the hurricane’s aftermath, I was assigned to serve on Shell’s Crisis Management Team.
Katrina knocked out telephone service and other essential services in New Orleans. On Day 1, we had no idea where our 2,000 employees were, whether they were alive or what they needed.
Our first meeting began with a briefing on our facilities – the damage, what remained and how to get them back into operation. Five minutes into the meeting, our executive vice president arrived and said, “We’re not going to talk about facilities until we have found every one of our people and helped them get what they need.” It took us 10 days to do that.
I quickly learned that, in a crisis, responding to the needs of your people is a priority. What you focus on speaks to the values of your company. And, if you empower people to do the right thing, they will, and it will happen organically and faster than you can imagine.
Now we’re grappling with the simultaneous crises of the coronavirus pandemic and the oil-price collapse. This two-headed dragon has unleashed waves of uncertainty and anxiety and sent an unprecedented economic shock around the world. But I’m reminded of another lesson from Katrina: We can’t always control our environment, but we can control how we respond to it.
And Aera Energy is responding with strategic intention.
Reacting to COVID-19
Aera moved swiftly in understanding the health risks to our employees, their families and our community. We activated an Incident Command Team and a Crisis Management Team to address the changes that were needed. Starting March 13, 700 of our 1,100 employees were working remotely. This was almost a week before Gov. Gavin Newsom’s statewide stay-at-home order took effect March 19. Within a week, that number had risen to 80%. We’ve tackled technology and telecommunication challenges, and we’re all learning about working from home, video-conferencing and the ways COVID-19 has changed our lives.
The governor’s statewide order includes petroleum workers as part of California’s essential workforce. So, even as we quarantine and isolate, Aera has continued to produce the oil and gas Californians depend on for their everyday needs. Those who remain working at our field locations are carefully following COVID-19 safety measures, such as physical distancing and frequent hand-washing. We carefully monitor our employees’ exposure and self-isolation as needed to keep them and their families safe.
Responding to the oil-price drop
Primarily due to COVID-19’s economic slowdown, global oil prices have plummeted to 18-year lows. That’s reduced energy demand and, as a consequence, increased oil supplies. To make matters worse, Saudi Arabia and Russia increased oil production and waged a price war for market share. Crude oil prices fell from $63 a barrel in January to below $20 in March. While that’s not been good news, OPEC’s members, including Saudi Arabia and Russia, agreed this month to cut oil production to help bolster prices. More discussions are in the works. What sort of recovery oil prices might see is still unknown.
In our industry, we know prices will rise and fall. Aera prepares for that by employing strong operational and fiscal discipline. Now, confronted by the fallout of this global pandemic, we’ve had to make more tough decisions.
In early April, Aera scaled back some oilfield projects that don’t make economic sense with current prices. This has reduced our need for some of the companies we normally contract with for oilfield operations. As a result, several hundred of their workers are being laid off in Fresno, Kern, Monterey and Ventura Counties. While no Aera employees have been let go, I am fully conscious of the pain this is causing among our valued contractors.
Amid all this, we’ve had some good news. Early this month, California’s Geologic Energy Management Division approved 24 of Aera’s west Kern well-stimulation projects. These permits had been on hold since June 2019 as state regulators scrutinized our permit applications. We look forward to receiving more permit approvals so that when oil prices rebound, we’ll be well-positioned to ramp up to our full scale of production and put more members of the community back to work knowing that we are delivering to the highest safety and environmental standards in the world.
What lies ahead? My crystal ball is foggy, but I know, from previous events, these current crises will pass. I’m confident a vaccine will be developed for COVID-19. Further, I believe that once we’re past the pandemic, we’ll see pent-up demand emerge throughout our economy. That will, in turn, drive oil prices to a more normal range.
We’re living in times that have created a perfect storm, the likes of which we’ve never seen before and we’ll hopefully never see again. But Aera is built for this, with absolutely the brightest minds continuing to do what’s needed to safely and responsibly produce the oil that’s essential to California. We’re working to position the company for long-term success. And we’re doing that without compromising our commitment to exceptional care for people and the environment.
I am proud of Aera’s team members for their diligent responses to the extraordinary challenges we’re facing. I assure you that we remain committed to providing affordable, reliable energy to California. We have navigated market downturns before and are well positioned to do it again.