MIKE NEILL
PETROTECHNICS
IT IS hard to pinpoint precisely when a trend starts, particularly in a sector so diverse and geographically spread as oil and gas. However, when ideas that are occasionally discussed in casual conversations become a prominent theme in formal engagements, it's clear the trend has not only started but is gathering momentum.
In 2016, the momentum was behind two particular ideas: margin management and Operational Excellence (OE). Naturally, the two are related, and both are driven in large part by the continuing down-cycle in the price of oil.
As is the case when revenues are depressed, the focus of the industry shifts away from reserves replacement, sustaining production, and increasing capacity to reducing capital and operating expenditure. Canceled investment in new projects, reducing headcount, mothballed assets, and curtailed activity are symptoms of the initial response to a downturn.
After the early wave of retrenchment, upstream companies began to look at more strategic and structural reforms to create the foundations for a more cost-sensitive organization.
This is where the industry is today. Having squeezed out inflated prices in the supply chain, they are managing margins and looking for incremental changes that have a cumulative impact on efficiency. Anecdotal evidence suggests that margins achieved when oil was $120 a barrel could be similar to those that can be achieved when it sells for half that price, simply because of a significantly reduced cost base.
A renewed focus on enhancing - or maintaining - productivity while reducing costs is a welcome one. But whereas other less-hazardous industries can calculate their profitability using these two factors alone, upstream operators have to consider the very real challenge of controlling risk on a global basis.
This adds a new dimension of complexity to any efficiency drive. As all the companies I speak to are acutely aware, achieving efficient operations is as much a matter of incident avoidance as financial consideration.
This is where OE comes in. A recent survey conducted by Petrotechnics demonstrates that more than 90% of respondents from across the oil and gas sector believe achieving OE is important to the success of their businesses. Another 80% said OE has become more important to their organizations over the past two years.
The survey also shows that OE has shaken off its earlier reputation of being simply a management fad. Like margin management, OE has become a much-discussed topic in the ongoing conversation about the future of oil and gas.
OE enables everyone in an organization, from the frontline to the boardroom, to make better, evidence-based decisions, that contribute towards achieving productive assets, highly-effective work activities, and importantly, safe operations.
Making decisions to jointly support productivity, cost and safety requires a connected enterprise. The oil and gas sector has made huge steps forward in terms of gathering and sharing data vertically. But, however excellent these data silos are, they are still silos. For many, horizontal sharing between departments and business units is still a challenge. This is a necessary step, however, OE cannot be achieved while data and the decisions it supports are locked away.
What we see happening in the next 12 months is more companies starting to explore ways of breaking down barriers between isolated data sets. Greater levels of internal connectivity means data can be shared in more meaningful ways. We also expect more companies focused on OE will see positive effects on their operations.
Although the adoption of OE as a strategic imperative will continue to be driven by oil price, other factors are at play. The first is big data. The oil and gas exploration sector is no stranger to leveraging big data. But the story on the production side is different. Although the same opportunity for improvement exists, there is a significant volume and variety of information streams being gathered and recorded. Within this data, there is the potential to improve decision-making to reduce risk, improve productivity, and cut costs.
However, we know from speaking with clients one of the biggest challenges they face when it comes to data is transforming it into relevant insight. There is no shortage of KPIs to measure and dashboards to observe. Making sense of it all to see what is really happening on a given asset at a given time is much harder.
The adoption of the Internet of Things and related sensor, communications, and analytics technology will increase data sets even further. Many firms are looking at OE as a means to manage this data and derive exceptional value from it.
This leads to the third driver behind the adoption of OE. Simply, enterprise tools are now available to make it all possible. Earlier dependence on point solutions slowed down OE. In contrast, next generation tools will cover the whole portfolio of assets and support their management in a way that makes sense to global operations.
The adage - people, process, and technology - is as true as ever. There is only so much heavy lifting that technology alone can do. But enterprise platforms for OE now make the process possible and effectively support the people implementing them.
You can expect to see more excellent operations next year!
Mike Neill is President of Petrotechnics USA.
