7 Key Operational Excellence Challenges Facing the Oil and Gas Industry
The oil and gas business operates within complex global and national frameworks. Expansion into new geographical regions and environments — such as ultra deepwater drilling — is creating new opportunities for revenue growth. But it is also increasing the complexity and risk of the business operations themselves. Additionally, ever changing regulatory frameworks imposed by different national governments — such as those designed to cap carbon emissions and those imposed after the 2010 Macondo disaster — is adding to the growing complexity and scrutiny that oil and gas companies are operating within.
These factors, coupled with an increasingly competitive market are driving a renewed focus on operational excellence within oil and gas operators.
Here are 7 operational excellence challenges facing the oil and gas industry.
Challenge #1: Increasing visibility into complex operations to control costs and optimize the performance of employees, facilities and assets
Oil and gas companies operate in some of the most physically and politically challenging environments on earth. Add to that factors such as volatile market prices, fluctuating demand, complex compliance and regulatory regimes, projects that involve multiple third party suppliers, and a workforce that has widely varying education and skill levels — to name but a few — and it’s clear that oil and gas companies have some of the most complex operations on earth.
In order to manage risks, control costs and optimize the performance of employees, facilitate and assets, oil and gas companies need to gain increased visibility into their operations.
“One strategy for achieving this has been the adoption of a ‘digital oilfield’ or ‘integrated operations’ to enhance reservoir recoverability, optimize production, and reduce economic, environment, health, and safety risks,” explains IDC analyst Roberta Bigliani. “Initially this strategy was only associated with upstream, but companies are increasingly focused on accessing and managing key asset-related data to improve decision making across the entire enterprise from field to refinery.”
Challenge #2: Improve collaboration with oilfield services to improve logistics
Even vertically integrated oil giants like Chevron and ExxonMobil must rely on third party suppliers to provide specialist equipment and expertise for different parts of the oil and gas supply chain. The complexity of these arrangements became part of public consciousness following BP’s Deepwater Horizon rig disaster as investigators debated liability in the disaster given the role of several companies — including BP, Anadarko, and Halliburton — in the operation of the rig.
For oil and gas companies, oilfield services perform business critical functions. Thus a mistake or inefficiency caused by one company can have a devastating knock on effect. Additionally, poor collaboration and communication can slow down projects and increase inefficiency.
“E&P companies expect a lot from their service providers and OFS companies want to deliver,” observes an Accenture whitepaper. “However, poor material planning — exacerbated by market volatility and supply limitations — often dampens speed and productivity.”
The authors of the whitepaper proposed that Exploration & Production (E&P) companies and oil field services can work more effectively together by taking advantage of solutions such as cloud-based collaboration platforms through which they can share detailed planning and forecasting information and standardizing inventory measurement processes for workers in the field.
Challenge #3: Develop a high-performing culture through training, new systems and ongoing management
Employee onboarding, retention and training have become a critical issue in oil and gas as competition for talent heats up. Emerging markets such as India and China are starting to open up — not only increasing global demand for oil and gas but also competing for talent. BP’s Energy Outlook 2035, for instance, expects the global energy demand will rise by 41 per cent from 2012 to 2035 with the vast majority (95%) of that coming from emerging economies.
“We have seen an increase in the number of projects worldwide, not just in the emerging markets, but overall capital projects and the type of projects, the complexity of projects is really putting the system under pressure,” observes Sheryl-Ann Carscadden, Director of Services at Calgary-based consulting firm Ethier in an interview.
The talent shortage isn’t helped by the looming retirement of the industry’s most experienced workers; the Society of Petroleum Engineers estimates that up to 50% of skilled workers could retire from the oil and gas industry within the next five to seven years.
That’s leading to skilled employees moving from company to company in search of the best offers and creating new challenges for companies to both retain their existing employees but also develop the robust training and onboarding processes to get new ones up to speed quickly.
“It’s not enough to just consider continually pushing up pay and benefits in reaction to recruitment and retention issues though. It cannot be said enough, that companies must look to retain their skilled staff through robust learning and development and succession planning opportunities,” says Elaine Welch, an HR consultant quoted in an article on Oil & Gas Middle East.
Challenge #4: Make the connection between improved asset management and execution excellence
If you don’t have good equipment, it is hard to be operationally excellent. That’s the fundamental premise behind how Asset Integrity Management links to operational excellence: well designed, maintained and managed assets ensure smooth and efficient operations.
“Successful upstream Asset Integrity Management programs incorporate design, maintenance, inspection, process, operations, and management concepts. These disciplines impact the integrity of infrastructure and equipment,” explains Intertek on its website. “Best practice facilities have comprehensive, fully integrated systems and a culture directed at gaining greater lifetime effectiveness, value, safety, availability, profitability and return from production and manufacturing assets.”
Challenge #5: Use metrics as a “vital sign” of the effectiveness and the efficiency of your operational improvement efforts
It’s an old management maxim that “you get what you measure.” Coming up with the right metrics is crucial to gaining the right insight and visibility into business operations and driving the right behaviors and supporting the decision-making of staff.
The next stage is coming up with not only real-time insight into operations but also developing metrics and analytics that can anticipate and help staff respond to issues before they become problems.
“The next generation of asset management tools, known as Advanced Condition Monitoring (ACM), provides a new set of predictive capabilities by monitoring real-time information on equipment and operations and applying analytics to detect a problem before it actually occurs,” writes David M. Womack, Global Director of Strategy and Business Development for IBM’s Chemicals & Petroleum (C&P) and Industrial Products (IP) industries in an article for Oil and Gas Monitor. “ACM reduces the time to detect failures in equipment through real-time alert management based on sensing abnormalities, and reduces the time to resolve issues through automated and collaborative data sharing across the extended enterprise.”
Challenge #6: Get senior executives to engage with process opportunities — and move OPEX from cost to value driven performance
Getting senior management buy in and commitment for process excellence is consistently cited as one of the biggest challenges for operational excellence professionals. Part of the challenge is that, in the past, operational excellence was too often narrowly associated with cost cutting, job reductions and and/or quality. This view of operational excellence has changed in recent years to one where operational excellence is seen as a critical enabler of business strategy. Instead of driving out cost, operational excellence is about driving value.
While this is a subtle shift, it is a crucial one to get across with senior executives who are tasked with satisfying shareholders who want reliable returns in an environment where sources of fuel are rapidly shifting towards new alternatives such as shale gas.
Challenge #7: Create networks of excellence and enable knowledge transfer to maximize operational excellence
There are many different parts of oil and gas operations — e.g. Upstream, downstream, production, refining, etc — and traditionally oil and gas companies have operated each of these areas differently. But there can be benefits to leveraging best practice in the different areas of the business and trying to standardize processes where practical to achieve efficiencies.
Experts John W. (Bill) Mooney & Christopher Smith from DuPont’s consulting practice recommend that oil and gas companies leverage expertise from different parts of the business to design effective strategy:
“Experts from each of the core areas — operations experts, safety executives, maintenance and reliability directors, and management — must come together and participate in designing a model that is broad enough to be applicable to all of the assets,” they wrote in an article for Oil and Gas Monitor.
Some oil and gas companies have also gone down the path of setting up Centers of Excellence — a central group that is devoted to supporting and spreading best practice and supporting continuous improvement. That was the case at ConocoPhilips, for instance.
“We’ve got a strong functional excellence focus in our entire company. That means we’ve got a desire to bring a few experts into the central organization and use those folks to go out and assist the other functions in really understanding how to be functionally excellent,” explains Greg Bussing, Director of Continuous Improvement at ConocoPhillips. “So it was a natural fit to say that we also want to be functionally excellent at continuous improvement. […] That team can go out and do training so everybody gets consistent training and applies these processes in the same way.”