Got Dry Powder…?

Got Dry Powder…?
April 26, 2019 Digital Intensity

By: Gideon Malherbe, VCI Founding Partner

Earlier this month, Chevron offered to purchase Anadarko for $33 billion (a 39% premium). Last week, Occidental stepped up to the plate and offered Anadarko $38 billion (a 20% premium to the Chevron agreement). While each offer varies in its bundle of cash and stock, both offers have to do with companies wanting to improve their value through acquisitions and their related synergies. We can expect more transactions in the near future.

But the chase to increase production and reduce cost through synergies may not be sufficient. Cost savings through digitization is a much safer play. Said differently: Would you bet on savings through synergies or savings though digitization? The fundamentals of being the lowest cost producer in the energy world still reigns supreme.

Between the quest for superior reserves and achieving lowest-cost production lies the opportunity for digital transformation. But there is a caveat – You can’t successfully digitize given your existing organization structure and business processes. You must restructure first and do so with the view of a digital future. The pragmatic sweet-spot of this first round restructure lies somewhere between the traditional analog company and a fully digitized company. You can’t go fully digital as that requires the time to transform the assets to be fully digital as well as the corporate functions having to digitize all their business processes.

This intermediate restructuring intervention is where you get the dry powder to acquire or defend against a hostile suitor, plus it gives you the cash to survive your quarterlies in the current highly volatile market, plus you get the necessary headroom to go harder with your digital transformation. It’s this trifecta that will make 2019 a success.