Fixed VS variable cost for Oil and Gas Case

Hi there, 

I think this is a good start. 

But also, don't stress yourself so much about industry knowledge unless you are applying for a specialist role (in which case these things should be common knowledge for you anyway).

Consulting interviews test for skills, not knowledge, so it might make more sense to focus on developing your other interviewing skills such as structuring, problem-solving, creativity, etc. 

Best,
Cristian

Hi there,

It's not really a framework but rather just a list of their costs.

Variable costs don't make much sense with Oil & gas. Rather, it's normally better to think in either categories or in life cycle.

For O&G there's exploration, extraction, refinement, and delivery. You can also think of it as upstream, midstream, and downstream.

The major costs are huge huge huge upfront investment costs (this is NEITHER fixed nor variable, so your “framework”) is already missing a huge chunk). There are significant costs with tunneling and building the facilitires to initially extract and refine the oil. The day to day is much much less expensive (and mostly consists of maintenance, labor, energy). 

If you're talking LNG (liquefied natural gas) there are higher daily costs in the form of LNG processing and DES or FOB ship delivery.

I have a industry deep-dive template that outlines exactly how to research any industry. I have my candidates leverage this when researching. Then, I have 20+ industry deep-dives I've filled out for reference.

Fixed and Variable construct will rarely provide you a good cost framework.

Better to tailor the costs to the case requirement and the value-chain of the business.

If the case is about an upstream company - then you could split the costs into exploration, drilling, mining, transportation, G&A etc.

If the case if about a downstream company - then you could split the costs into materials, operations, sales, R&D etc.

If you do not have a business background - the best place to start with is to understand the “value-chain” of the sector, or the value-chain of the company, or the journey of the product, or simply the customer journey.

Forget about fixed and variable. Unless you have a question that at some point requires you to look at fixed and variable. Rather think about the major costs.

Regarding your specific costs… first of all, it is not clear what the exact business is. O&G can be exploration, refining, transportation, retail, …

You can think about costs around the lines of a process (licensing, platform building, drilling, transportation, …) or around the lines of cost categories (R&D, Equipment, Labor, Energy and Chemicals, …)

All in all, I think you have captured the most important things. You should consider, though, which ones are the most vs. the least relevant