It’s one thing to say (as you have heard from me many times) that oil and gas companies need to position to claim their place in the energy future. But how can a company do this when business demands in the present are so fierce?
Understanding how this kind of rethink gets accomplished and implemented in the real world is why my firm Adamantine has taken a keen interest in DCP Midstream’s paradigm-breaking work. When DCP invited us to their Integrated Collaboration Center (ICC) on the 23rd floor of the Denver high-rise that’s also home to their corporate ecosystem, we jumped at the invite. If you’re a fast follower (or aspire to be), you’ll want to learn what we discovered there.
One of the best ways you can inoculate your company to climate-driven pressure is to remake it into a future-focused, tech-savvy energy company.
Both of these things are true:
- Oil and gas companies are expected to meet the current obligations of their shareholders, business partners, and clients.
- Increasingly, a growing set of shareholders are adding new expectations around climate, community, and decarbonization that, on the surface, appear in conflict with business obligations.
DCP Midstream, headquartered in Denver, is one of the largest natural gas processors, natural gas liquids (NGL) producers, and marketers of both in the United States. During the price collapse of 2015 and 2016, the company faced the same painful realities as other industries across North America: under-utilized employees, delaying of construction plans, and existing operations collecting dust.
CEO Wouter van Kempen had to meet the existing pressures head on while keeping an eye toward future expectations of both his business and the industry.
The problem:
Companies facing new external pressures first have to address and overcome the everyday mountain of challenges facing any business in their day-to-day operations. Executive teams and boards don’t have the bandwidth to contemplate, much less effectively implement, a fundamentally new vision that both meets the obligations of the present and responds to the calls for community engagement, environmental stewardship, technical innovation, and decarbonization at an unprecedented scale.
That’s one of the reasons I love DCP Midstream’s rethink of their business, referred to as DCP 2.0. While a) it wasn’t driven by the current external pressures around climate and carbon, b) it fundamentally anticipated the rebranding those external pressures require.
Wouter van Kempen was driven by a desire to future-proof DCP’s business in a way that would make the company successful in any operating environment. DCP 2.0 committed to an overhaul of the company’s approach to its people, processes, and technology with the goal of making the company truly resilient.
Where does one start? DCP moved Bill Johnson from operations and made him chief transformation officer (CTO) in 2016. From there, they formed a small team to lead a discovery process, which resulted a year later in the launch of DCP 2.0. They wanted a comprehensive transformation – one that enabled real-time decision making and digitally enabled the workforce, and all of this while increasing cash flow and diminishing risk – a tall order.
The fun part for me: to meet these goals, the 23rd floor of DCP’s Denver HQ was converted to a startup environment with all the cool workspaces, chalk boards, and massive screens an innovator could wish for. I observed many hoodies. An “EnergyLab” team and the ICC were setup to enable 24-7 monitoring, optimization, and support for operations.
DCP reported that the program delivered returns within one year because of the improvements and efficiencies they made in their operations.
By last year – 2 years in – DCP moved from the initiative phase to company-wide execution. DCP accelerated its innovation by joining the world of startups, working with a number of accelerators, startup companies, independent venture capital (VC), and corporate VC like Plug and Play and Rice University. The work continues as DCP 2.0 focuses on creating the “Work Force of Tomorrow,” where they will be using smart wearables (you read that right), artificial intelligence, and machine learning, among other innovations to further optimize their business operations.
It matters because:
Companies focused on surviving in a business-as-usual paradigm have a 5-year runway. A tipping point of external pressures will deliver the competitive advantage to companies who are rethinking and then reorganizing the way they do business.
Although DCP 2.0 was focused on creating stability and generating financial returns, the company’s retrenchment into a future-focused, tech-savvy energy company of the future goes a long way to inoculating them to the current external climate-driven pressures. When it comes time for a company to articulate a vision of the energy future, a company like DCP is already working actively with innovation, new technology and proven partnerships – it demonstrates they know how to adapt, evolve, and most importantly, lead.
The critical mistakes companies are making:
Companies are letting their internal culture drive their view of and planning for the future. In the context of Both of These Things Are True, the historic culture of oil and gas companies looks out of touch and retrograde.
DCP 2.0 had to overcome all the internal cultural identity and inertia every oil and gas company faces. This started with Bill Johnson’s presentation to the Board of Directors in 2016 and has been addressed at every step of reorganization and integration to today’s cross-pollination between DCP 2.0 and operational staff.
Seize the day. I take away these lessons learned from DCP 2.0; I believe they will be relevant to the successful companies of the energy future:
- Don’t waste a good crisis. Wouter van Kempen and Bill Johnson turned the industry collapse of 2015 and 2016 into a vision for the future, and then executed on that vision. Are you using the external pressures your company faces to your operational advantage? Have a discussion with your executive team, board, and investors about how your company can pivot toward the future. The external climate-driven pressures can provide one of the motivating forces.
- Make the change meaningful. DCP’s investors may or may not be interested in their repositioning as an energy company of the future. That’s because they are ahead of their time. What DCP’s investors do care about is the impact they are able to show to their operational efficiency, cost reduction, and ultimately the bottom line. As discussed in the opening installment of Both of These Things Are True, companies must meet both the expectations of today while planning to be the company of the energy future.
DCP Midstream has provided proof that today’s oil and gas companies can deeply rethink their operational strategy to be profitable in the medium-term and resilient in the long-term. Thanks to the DCP team that provided insight for this installment.
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