For the last five consecutive quarters Marathon Oil has
reported losses. So why hasn’t the company lost investor
confidence? Investors have renewed faith in the company because it has consistently
weathered difficult periods more effectively than analysts predicted by
focusing on their cash flow.
Marathon Oil may be a huge company, but their success
still translates into many important lessons for small business owners.
Focus on Your Cash
Flow
Improved oil prices have certainly helped boost Marathon’s
revenue, but the fact is that this company has always focused on strong cash
flow. Marathon’s cash flow was excellent before the increase in oil prices,
which means the fluctuation in oil prices simply helped add to Marathon’s good
practices.
Lesson for small businesses: Commodity prices and other factors will
always go up and down. Focus on your cash flow and make contingency plans so
that you will be able to weather any storm.
Investing in
Assets
To stay afloat during difficult times Marathon cut costs
and increased cash flow. Here’s how they did it:
Marathon Oil worked with Meridium, a company that focuses on
predicting and preventing asset failure, to better control the reliability of
equipment at their refineries. This investment led to immediate and annual
savings and also helped optimize the performance of Marathon’s refineries.
Meridium gathered data on the failure history of
equipment and their analysis of this data allowed Marathon to make decisions on
how to proactively replace equipment. Having an objective system to make these
decisions allowed Marathon to more effectively manage their equipment without
taxing their cash flow, which lowered operating costs.
By investing in the right
assets, Marathon saved over 14
million dollars. The company expects to realize comparable savings by
continuing to use available cash flow to strategically invest in their assets.
Lesson for small businesses: Maintain a strong cash flow so that you are
able to invest in key areas of your business. Smart investments into your company
will pay off in the long-term.
Investing in Human Capital
Marathon has also invested in human
assets – its work force. In a video
on the company’s website they list “investing in our people” as one of their
key strategies moving forward.
A commitment to dedicating resources to maintaining
employee competence, as well as growing their abilities, means that Marathon
can operate dynamically and with confidence to adapt and improve their
performance.
Lesson for small businesses: Don’t
let cash flow worries prevent you from making an investment in the most
valuable asset that your business has: you and your employees.
Investing in Core
Assets
Marathon Oil divested over
a billion dollars’ worth of assets so the company could reduce its exposure
to risk. To achieve this Marathon shifted resources away from non-core assets. Much
of the capital acquired through divesting was then put towards the development
of the company’s core
assets. Additionally the company also purchased new assets in the form of
large reserves and immediately began ramping up production in these new
resource rich areas.
While doing this, in
2016 Marathon also managed to reduce its exploration and production costs
in North America by 28%, compared to the previous year.
Lesson for small businesses: Go back to basics, focus on your core
business model and don’t spread your operating costs too thin.
Getting the Most
Out of Existing Assets
By beginning to produce gas at their Alba oil field Marathon
extended the life of that asset by
8 years. This crucial decision helped to compensate for decreased
production in the United States during 2016. Now, as the company looks forward
to 2017 they regard the Alba oil field as a “significant
free cash flow generator” while they continue to invest in their North
American assets.
Marathon made it through difficult periods by embracing
new strategies and continually investing in their business with an aim to
increase revenue and decrease operating costs. They successfully refocused
their overall strategy and reworked their regular operations.
Lesson for small businesses: Always be on the lookout for new
opportunities, strategies, and ways to utilize your existing assets – and make
sure that you have the financial flexibility to act quickly.
Lessons
The lesson here is one that all businesses, of every size
can adopt. With a strong cash flow you can maximize business efficiency and
profits by:
·
Allowing you to make and execute contingency
plans
·
Making the most of your existing assets
·
Investing in new and core assets
·
Investing in your people
When it comes to the benefits of strong cash flow,
Marathon Oil is a great case in point. Is your SME looking to maximize your
cash flow? Call the cash flow experts at J D Factors to get started.
