Follow the Money
How the industry can find $30 billion in savings over the next five years
THE CANADIAN OIL AND GAS SECTOR
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.