Team sport mentality needed to align operational efficiency with profitability

Chris Smith,CygNet Inc., San Luis Obispo, Calif.

In the face of pricing volatility and financial upheaval, oil and gas companies need to be smarter, leaner, and more strategic than ever. Staying competitive, both now and in the future, demands that they find innovative ways to drive growth and increase shareholder value.

There are many ways to do this: maximizing conventional drilling initiatives, exploring unconventional opportunities like shale, mergers and acquisitions, and even tactical divestitures are all valid approaches that organizations can take to increase profits. The blockbuster M&A deal of the year—Exxon Mobil's agreement to buy XTO Energy, a leading unconventional gas producer—is a great example of several of these strategies at play.

A significant challenge for oil and gas organizations is linking profit-generating initiatives with a more streamlined and collaborative approach to managing enterprise operations. All too often, key opportunities are missed (a simple production adjustment that would turn a non-viable well into a profit generator, for example) due to critical operational data being unavailable or because it is not shared between the experts and decision makers who need to weigh in. Overcoming this challenge will help companies ensure that they are getting optimal value from their many assets and investments.

In an industry where operations are geographically distributed and rely on multidiscipline expertise and shared information, it is imperative that all sources of enterprise knowledge are visible in real-time, to all the stakeholders who need it—from contributors like field managers, production experts, and reservoir engineers on up to executives in charge of sales, marketing, and finance. Drawing from other industries, there are some lessons that oil and gas companies can apply to achieve greater operational efficiency, and ultimately greater profitability:

Learn from proven operational models

First and foremost, oil and gas companies would do well to study what market share leaders in the automotive, consumer packaged goods, high tech and retail industries are doing to thrive in the face of financial and market challenges. For example, industry giant Wal-Mart owes its leadership position in retail to its operational and supply chain management practices, which have delivered lower costs. Dell, a pioneer in the PC industry, created efficiencies that allowed it to hold less than four days of inventory at any given time compared to more than 30 days for many competitors, giving the company a huge cost advantage. To achieve these gains, both companies have invested in IT to derive deeper insight from their corporate data and to collaborate more effectively with a range of stakeholders inside and outside their organizations.

The technology approaches used in these industries to achieve operational advantage can certainly be applied to oil and gas. IDC's Energy Insights reports that spending for hardware, software and services for the oil and gas industry is expected to grow at a rate of 6.94% through 2011. Oil and gas companies should consider targeting their spending towards solutions that deliver real-time information visibility across the enterprise, that automate standard and repeatable business processes, and that enable more effective collaboration between departments, and upstream and downstream business partners. But to realize the benefits of new technologies and processes, companies will also need to change their corporate culture.

Apply 'team sport' principles to profit and growth strategies

Companies that want to successfully weather today's tough financial climate can no longer cultivate a culture that encourages individual departments to "go it alone." All too often, key specialists such as operators, schedulers, sales and marketing executives, and financial professionals operate within their own silos—they work independently and routinely hand off information to each other instead of truly collaborating.

For example, let's look at a typical scenario: a production engineer may know what a particular well is producing each day, and even what it has been producing over the last few weeks. But this information has limited value if the engineer doesn't know what the production benchmark was to begin with, or if the well is consistently producing enough to be profitable. Is the engineer alerting finance when production comes in under the profitability benchmark? And what about the finance team?

The first impulse may be to shut down the underperforming well, but perhaps there are simple adjustments that could be made (such as operating enhanced recovery pumps during off peak hours) that could bring production back in line with objectives. More powerful and strategic decision making is enabled by fostering greater collaboration and closing the information loop.

Thus, to not just survive, but to thrive, oil and gas enterprises need to adopt a "team sport" mentality. Instead of simply rewarding individual departments for their achievements, aggressive organizations measure success based on the contributions that all players make towards moving the ball forward on the balance sheet. After all, a company can have an excellent sales and marketing team, or top-notch geologists, but if their efforts are not translating into revenue growth, there needs to be better alignment between their activities and top level objectives.

In a collaborative enterprise culture, streamlined operations plays a vital role in helping all the players do a better job of working together to drive growth, profitability and build competitive advantage. And once the team of internal departments is collaborating efficiently, the company is in a better position to work with upstream and downstream partners more effectively, essentially broadening the collaborative network to include the extended supply chain.

Creating a collaborative culture depends on having tools in place that enable easier access and sharing of information, however, as well as a system to streamline planning, sourcing, production, and delivery processes. And for that, an enterprise operations platform is required.

Empower the players

To collaborate efficiently and optimize the knowledge base, many departments within an oil and gas company need immediate access to usable information drawn from source systems throughout the enterprise. Finance needs real-time insight into what's happening in the field. Gas or product marketing needs to be able to capitalize quickly on every opportunity that arises. And top-line executives, all the way up to the CEO and CFO, must be empowered to make the best possible decisions in the face of pricing volatility.

Let's look at a real-world example:

One of the world's largest independent oil and natural gas exploration and production companies took a team approach when it deployed an IT system that enabled real-time information sharing across the enterprise. The system converts data from 15,000 wells and 14,000 meters—everything from well temperatures and pressure to volumes and run times—into meaningful information using commonly accepted naming conventions. With this information, executives make better decisions because they can easily and immediately answer questions such as:

• Is this well still performing at a rate that will meet the original forecasted allocation?
• Is a well pumping 20,000 barrels a month above or below its designed or maximum ability to produce?
• How much of my total capacity, either transported or produced, is committed or hedged?

In addition, users throughout the company—a production accounting manager, a reservoir engineer, or an expert in plungerless systems, for example—are able to access the information they need to do their jobs more efficiently, no matter where they are located. In fact, in this example, the enterprise operations system has reduced companywide field support hours by an estimated 30% to 50%.

This deeper level of knowledge and improved efficiency is the result of visibility into real-time data for users in every corner of the company. Decisions in one department are based on the most current information flowing from all other departments, and the company is now in a position to standardize its business processes and understand how it can work with its supply chain partners on further optimization.

Conclusion

In today's volatile oil and gas market, companies must find innovative ways to maximize the value they get from their numerous investments and assets. In this respect, there's much to be learned from adjacent industries that have leveraged IT solutions to streamline operations and collaborate more effectively. Increased information visibility, repeatable business processes, and better teamwork have a direct impact on the bottom line. With the help of smart enterprise solutions, oil and gas companies can profit and succeed, even in challenging times.

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