Fol­low the Money

How the in­dus­try can find $30 bil­lion in sav­ings over the next five years

Alberta Oil - - LAST WORD -


is facing a cri­sis that is bat­ter­ing even the strong­est or­ga­ni­za­tions, as com­pa­nies are try­ing to drive down the cost per bar­rel and re­main com­pet­i­tive in a global mar­ket. Sav­ings can be found in oper­a­tions, back­of­fice func­tions and cap­i­tal projects, but know­ing ex­actly where to make changes is cru­cial to long-term sus­tain­abil­ity.

A re­cent sur­vey of global oil and gas com­pa­nies, called “Driv­ing op­er­a­tional per­for­mance in oil and gas,” shows that op­er­at­ing costs per bar­rel have ex­pe­ri­enced steady es­ca­la­tion over the past seven years. When the sec­tor is in a ma­jor struc­tural shift from re­source scarcity to abun­dance, sig­nif­i­cant changes are needed to re­verse or slow that es­ca­la­tion. Ac­cord­ing to the re­port, fo­cus­ing on op­er­a­tional ex­cel­lence could save the in­dus­try a con­ser­va­tive $30 bil­lion over the next five years.

Op­er­a­tional ex­cel­lence pro­grams are rarely ex­e­cuted or­ga­ni­za­tion-wide or with con­sis­tent re­sults and out­comes. Now, with the blunt re­al­ity of low oil prices firmly en­trenched, an in­ten­tional op­er­a­tional ex­cel­lence pro­gram should cer­tainly be on ev­ery com­pany’s agenda. It forces a com­pany to re­al­ize how chang­ing prin­ci­ples, pro­cesses, sys­tems and cul­ture can re­sult in ef­fi­cien­cies and im­proved per­for­mance met­rics. So where do you start, es­pe­cially in a time of such un­cer­tainty?

No one will ar­gue the fact that, given the price of oil, it’s very dif­fi­cult to find new money to in­vest. But a port­fo­lio ap­proach will help you find the bal­ance be­tween the quick wins to prove the op­er­a­tional ex­cel­lence strat­egy is work­ing, and the more com­plex and cul­tural shifts that will help save cash in the long term de­spite the po­ten­tially large in­vest­ments in­volved.

Some of the best places to look for sav­ings are in in­te­grated busi­ness and ac­tiv­ity plan­ning, ef­fi­cient cost man­age­ment, and equip­ment main­te­nance. Be­com­ing a leader in op­er­a­tional ex­cel­lence takes years, but tak­ing steps to­ward it can hap­pen very quickly. All lead­ers need to be aligned on the com­pany vi­sion, then en­able and em­power their em­ploy­ees to en­sure they un­der­stand how their role im­pacts the per­for­mance of the or­ga­ni­za­tion.

When it comes to im­prov­ing op­er­a­tional ex­cel­lence, tech­no­log­i­cal ad­vance­ments need to be con­stantly mon­i­tored and im­ple­mented. Big data and an­a­lyt­ics, dig­i­tal oil­field, in­dus­trial In­ter­net of Things, drones, ro­bot­ics and se­cure cloud com­put­ing can move the oil­field out of the past into an in­no­va­tive and au­to­mated op­er­a­tion in the fu­ture. Now the in­dus­try needs to use what’s ac­ces­si­ble, learn from other in­dus­tries and chal­lenge the sta­tus quo to force struc­tural change. This struc­tural shift to lever­ag­ing tech­nol­ogy will help lead to the de­sired re­duc­tions in costs.

In the re­lent­less pur­suit of cost sav­ings, it will be crit­i­cal to de­crease the sig­nif­i­cant health, safety and en­vi­ron­men­tal risks that face the in­dus­try. In fact, op­er­a­tional ex­cel­lence is a crit­i­cal busi­ness driver and many or­ga­ni­za­tions will have to in­crease, not de­crease, their spend­ing on these func­tions.

Part of see­ing the value of an op­er­a­tional ex­cel­lence pro­gram is be­ing able to value and mea­sure the cost of changes. While some re­sults are hard to mea­sure, there are in­di­rect sav­ings at ev­ery level. Ac­cord­ing to the sur­vey, com­mon places to mon­i­tor sav­ings on a bal­ance sheet in­clude:

Im­proved health, safety and en­vi­ron­ment (HSE) met­rics: Forty-three per­cent of com­pa­nies re­ported de­clines in work­place in­juries and in­ci­dents.

Cost sav­ings: Forty-three per­cent re­duced to­tal op­er­at­ing costs.

Im­proved as­set up­time/avail­abil­ity: Twenty-nine per­cent said their equip­ment was avail­able for use more of­ten.

In­creased oil/gas pro­duc­tion: As­set up­time directly im­pacts pro­duc­tion and this can be an in­di­ca­tor of over­all bet­ter per­for­mance.

The bot­tom line is, when op­er­a­tional ex­cel­lence is ex­e­cuted well, it be­comes a core com­pe­tency within an or­ga­ni­za­tion. It is an end goal that builds long-term sus­tain­abil­ity to weather down­turns and cap­i­tal­ize on up­swings in a mea­sured, prof­itable way. It’s time to drive true trans­for­ma­tion and bring stronger op­er­a­tional and fi­nan­cial per­for­mance to the sec­tor.

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