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McKinsey Medium Profitability Cost Reduction

Premier Oil

#Oil & Gas #Energy
ProHub Comment

This case tests the candidate's ability to structure cost analysis through fixed/variable cost decomposition, identify root cause drivers of cost inflation, and perform accurate financial calculations under time pressure. The case emphasizes the importance of contextualizing quantitative findings with business risks and strategic considerations.

Estimated Time 15 minutes
Difficulty Medium
Source PeterK
50 / 100
Given there is not much Premier Oil can do to increase sales, the manager wants us to focus on costs. To begin with, what are Premier Oil’s major expenses?

Clarifying Information

  1. The current operational expenses are £50M per year
  2. The current drilling costs are £40M per year
  3. The operational expenses don’t include drilling costs
  4. Current oil production is 200k barrels per day
  5. We can assume 360 days a year
  6. The foreign exchange is $2 for £1