Driving

operational
performance
in oil and gas
T ab le of contents
E x e cu t i v e s u m m ary 1
T he p ri z e o f o p e rat i o n al e x ce l l e n ce 2
I n d u s t ry o b j e ct i v e s 3
T o p b u s in e s s is s u e s 4
Low oil prices are highlighting the effects of operational inefficiencies 5
W hy n o w ? 6
T he an at o m y o f o p e rat i o n al e x ce l l e n ce 7
K e y o p e rat i o n al e x ce l l e n ce co m p o n e n t s 8
Causes of inefficient operating performance 10
O p e rat i o n al e x ce l l e n ce re s u l t s i n b e t t e r o u t co m e s 11
Current state in industry: usage and benefits 12
I s i t t i m e f o r a s hi f t i n f o cu s ? 14
H o w E Y can he l p achi e v i n g o p e rat i o n al e x ce l l e n ce 16
E x e cu t i v e s u m m ary

T he o i l an d g as i n d u s t ry i s cu rre n t l y f aci n g a cri s i s t hat t hre at e n s e v e n t he m o s t s t ab l e o f o rg an i z at i o n s .

I n cre as e d s u p p l y an d d e cre as i n g d e m an d g ro w t h d e rai l e d an e x t e n d e d p e ri o d o f hi g h p ri ce s an d t he i n d u s t ry
i s n o w f aci n g w hat ap p e ars t o b e an e x t e n d e d p e ri o d o f l o w o i l p ri ce . T o f u rt he r co m p l i cat e m at t e rs , t he n e w
price reality comes on the heels of diminished returns despite high prices. Over the past five years, upstream
operators have seen a steady decline in efficiency (the barrel of oil equivalent per day, per capital dollar) and
asset reliability while experiencing increases in finding and lifting costs.

A s t he e ra o f e as y o i l p as s e s , o p e rat o rs are f ace d w i t h i n cre as i n g l y e x p e n s i v e g l o b al e x p l o rat i o n an d

development in harsher, remote and complex basins. These factors have been eroding profits, though price
stability (of more than US$100 per barrel) prior to December 2014 masked the full effect of these increases.

T he o i l an d g as i n d u s t ry has e x p e ri e n ce d n u m e ro u s b o o m an d b u s t cy cl e s , rare l y re act i n g i n a s t e ad f as t w ay

t o e i t he r hi g hs o r l o w s . I n p e ri o d s o f p ro s p e ri t y , o rg an i z at i o n s s p e n d b i g m o n e y f o r n e w as s e t s , hi re m an y
employees (often at an inflated rate) and push for growth, often at the expense of current asset performance.
During downturns, organizations make drastic cuts to survive, eradicating projects, slashing headcount and
d e f e rri n g i m p o rt an t i n v e s t m e n t s i n o rd e r t o m i n i m i z e co s t s , ag ai n o f t e n at t he l o n g - t e rm e x p e n s e o f as s e t
p e rf o rm an ce .

T hi s e x p an d - an d - co n t ract m o d e l cre at e s g re at i n s t ab i l i t y i n t he i n d u s t ry , w i t hi n i n d i v i d u al o rg an i z at i o n s
an d at o n - s i t e o p e rat i o n s . O n l y w he n o p e rat o rs d e ci d e t o b u i l d l o n g - t e rm s t ab i l i t y an d s u s t ai n ab i l i t y i n t o
their operational strategies will they be equipped to weather the downturns and capitalize on upswings in a
measured and profitable way. This stability is best achieved through operational excellence programs focused
o n co n t i n u e d , m e as u re d i m p ro v e m e n t t hat s y s t e m at i cal l y ad d re s s e s re cu rre n t b u s i n e s s i s s u e s .

Operational excellence is not a new concept, but current conditions create a unique opportunity for the
i n d u s t ry t o re al i z e i t s f u l l p ro m i s e . E x t e rn al e co n o m i c f act o rs are p u t t i n g p re s s u re o n t he i n d u s t ry t o b e m o re
efficient and cost effective without giving any ground on HSEQ. And, advances in digital technologies offer
new tools and techniques to capture and leverage information to streamline operations while increasing
p ro d u ct i o n . F i n al l y , an d w hat m ay b e t he m o s t i m p o rt an t f act o r i n cre at i n g s u s t ai n e d chan g e , i s t he ri s e o f
younger workers committed to serving a broader purpose through work beyond simple economics and their
i m p act o n o rg an i z at i o n al cu l t u re . I t i s t hat p u rp o s e t hat w i l l d ri v e t ru e t ran s f o rm at i o n an d b ri n g s t ab i l i t y an d
carry sustained benefits of operational excellence through both boom and bust.

O p e r a t i o n a l e x c e l l e n c e i s an e l e m e n t o f o rg an i z at i o n al
l e ad e rs hi p t hat s t re s s e s ho w a v ari e t y o f p ri n ci p l e s ,
s y s t e m s an d t o o l s can b e ap p l i e d t o w ard t he
sustainable improvement of key performance metrics.

Driving operational performance in oil and gas | 1

 T he p ri z e o f o p e rat i o n al e x ce l l e n ce

T hro u g h o p e rat i o n al e x ce l l e n ce , t he i n d u s t ry can t ap i n t o A verage opex / b b l costs U S $ , 2 0 0 7 1 4

significant savings. For example, the cost of extracting oil
11
an d g as co n t i n u e s t o i n cre as e , an d a re v i e w o f o p e rat i n g
co s t s p e r b arre l o f o i l o v e r t he p as t s e v e n y e ars s ho w s a
s t e ad y e s cal at i o n f o r m aj o rs , n at i o n al o i l co m p an i e s 10
(NOCs) and independents alike. While exact performance
d at a v ari e s b y s u b s e ct o r, an d w i t hi n s u b s e ct o rs , co m p an i e s 9

A verage opex / b b l costs U S $

are al l f aci n g an i n cre as e i n e x t ract i o n co s t s .

T he rat e o f e s cal at i o n v ari e s b y co m p an y an d y e ar, s o 8

average numbers are used to reflect a general trend. The
compound annual opex/bbl cost escalation rate (CACER),
7
similar to a compound annual growth rate (CAGR), can be
d e t e rm i n e d f o r e ach o rg an i z at i o n an d g ro u p o f o rg an i z at i o n s ,
majors, NOCs and independents. 6

5
C A C E R 2007 2008 2009 2010 2011 2012 2013 2014
Maj o rs N O C s In d e p e n d e n t s
M a jo r s 2. 85%

N O C s 5. 01%

In d e p e n d e n t s 5. 54%

Top-performing companies have achieved a CACER of P roj ect cost escalation in oil and gas and savings potential ( U S $ b )
only 2.25%. Running a model for the majors within the
i n d u s t ry as s u m i n g 9 3. 5m b b l / d ay , a s t art i n g co s t b as i s $35 $280
of US$6.80/bbl and cost escalation at 2.85% and 2.25%
$27 5
reveals that US$30b is available to be saved over five years $30
between best-in-class and average performance. Given that $27 0
$25
t he m aj o ri t y o f co m p an i e s hav e a co s t b as i s hi g he r
C u mu lative savings $ b

$265
P roj ect annu al opex cost $ b

than US$6.80/bbl, and that NOCs and independents have $20

much higher cost escalation, the US$30b figure can $260
actually be considered quite conservative, displaying the $15
hu g e o p p o rt u n i t y t hat e x i s t s acro s s t he i n d u s t ry . $255
$10
$250
$5 $245

$ $240
2016 2017 2018 2019 2020
C u m u l at i v e s av i n g s 2. 25% 2. 85%

2
I n d u s t ry o b j e ct i v e s

Oil and gas companies objectives form the basis for operations and activities, and they are highly
i n f l u e n ce d b y o p e rat i o n al p e rf o rm an ce .

1
G r o w a n d m e e t e c o n o m ic e x p e c t a t io n s
Whether a NOC is focused on a broader national agenda or an IOC focused on shareholder return,
increasing value for stakeholders is paramount for all organizations. Value increases with fiscal
p ru d e n ce , i n t e l l i g e n t i n v e s t i n g an d o p e rat i n g co n s i s t e n t l y at o r ab o v e e x p e ct at i o n s . Man ag i n g co s t s
w i t ho u t s acri f i ci n g e f f i ci e n cy i s cru ci al f o r achi e v i n g t hi s o b j e ct i v e .

2
D e liv e r c o n t in u o u s im p r o v e m e n t in h e a lt h , s a fe t y , e n v ir o n m e n t a l a n d q u a lit y ( H S E Q )
p e r fo r m a n c e
Oil and gas exploration, transportation and production contain inherit risks: smaller consequences,
like slips and trips, and those with high severity and high impact, such as fatalities or serious
environmental incidents. These risks, and specific recent incidents, have resulted in increased
demands and expectations from stakeholders (internal and external) for faster, safer, more reliable,
m o re re s i l i e n t an d e n v i ro n m e n t al l y s o u n d p ro d u ct i o n . E f f e ct i v e l y m an ag i n g as s e t s an d o p e rat i o n s i s
p aram o u n t t o s u s t ai n i n g a s o ci al l i ce n s e t o o p e rat e .

3
D r iv e g r o w t h in d a ily p r o d u c t io n a n d p r o v e n r e s e r v e s
Nearly all oil and gas organizations are focused on growing revenue, but their strategies and
priorities may differ significantly. Some organizations achieve growth through increasing daily
p ro d u ct i o n rat e s , f ro m e i t he r o p t i m i z i n g e x i s t i n g as s e t s an d w e l l s o r e x p an d i n g e x p l o rat i o n i n t o n e w
fields, while NOCs prioritization lies in curbing expenses for the sake of using funds for more urgent
needs than operating costs. Regardless of the organizations priority, the ability to grow is linked
d i re ct l y t o av ai l ab l e cas h an d p ro v e n o p e rat i o n al p e rf o rm an ce i n d e l i v e ri n g re s u l t s .

Driving operational performance in oil and gas | 3

 T o p b u s in e s s is s u e s

I n ad d i t i o n t o t he f u n d am e n t al s hi f t i n e x p l o rat i o n , t he g l o b al i z at i o n o f t he i n d u s t ry i s l e ad i n g t o re s o u rce co n s t rai n t s , w i t h

ce rt ai n re g i o n s f aci n g a m aj o r t u rn o v e r o f p e rs o n n e l an d e x p e ri e n ce . Mai n t ai n i n g a s o ci al l i ce n s e t o o p e rat e , w hi l e achi e v i n g
co n s i s t e n t re t u rn s o n i n v e s t m e n t s , has n e v e r b e e n m o re co m p l i cat e d o rd i f f i cu l t . W hi l e rap i d l y chan g i n g t e chn o l o g y d o e s ho l d
o u t t he p ro m i s e o f t ran s f o rm i n g t he i n d u s t ry , i n cre as i n g e f f i ci e n cy an d im p ro v i n g re s u l t s , s u cce s s f u l l y i n t e g rat i n g t he s e n e w
t e chn o l o g i e s i n t o d ay - t o - d ay o p e rat i o n s an d re al i z i n g t hat p ro m i s e re m ai n s e lu s iv e .

D r o p p in g o il p r ic e
O v e r T he re ce n t an d s u s t ai n e d d ro p i n o i l p ri ce has hi g hl i g ht e d t he

5 0
A g in g a s s e t s

%
T he e x i s t i n g s u b s t an t i al i m p act o f t he s e t re n d s .
i n f ras t ru ct u re an d Mo s t E & P co m p an i e s hav e b e e n f o rce d t o re d u ce t he i r cap i t al
as s e t s w i t hi n t he spend outlook in favor of reducing costs and increasing operating
o f g l o b al p ro d u ct i o n o i l an d g as i n d u s t ry are e f f i ci e n ci e s .
co m e s f ro m as s e t s co n t i n u i n g t o ag e ,
b e y o n d t he irm id p o in t re s u l t i n g i n i n cre as e d
o f t he as s e t l i f e cy cl e . risk of equipment $120

f ai l u re s .
$100

$80

B O E p e r d ay D e c lin in g e ff ic ie n c ie s
produced per US$m P ro j e ct p l an n i n g $60
i n cap i t al has an d e x e cu t i o n are
d e cre as e d b y b e co m i n g m o re

1 1
$40

%
chal l e n g i n g d u e t o t he
t e chn i cal n at u re o f
$20
t he p ro j e ct s as w e l l as March 2013 March 2014 March 2015
Y O Y o v e r 2008- 12. f i n an ci al i m p l i cat i o n s .

Declining E & P operating efficiency

11% y o y
d e cl i n e
45
41
37
1
cap i t al e m p l o y e d acro s s I O C s
B O E p e r d ay p ro d u ce d p e r $m

30
27

2008 2009 2010 2011 2012

1
E Y an al y s i s b as e d o n d at a f ro m an n u al re p o rt s f ro m E x x o n , B P ,
R o y al D u t ch S he l l , C he v ro n , T o t al an d E N I .

4
Low oil prices highlight the effects of inefficiencies

The sustained reduction in oil and gas prices, coupled with a forecast of modest recovery, requires the industry to apply increased
f o cu s an d ri g o r t o o p e rat i o n s p e rf o rm an ce . W hi l e n e w e x p l o rat i o n an d g ro w t h w i l l al w ay s b e a co rn e rs t o n e o f u p s t re am o p e rat i o n s ,
achi e v i n g a b al an ce b e t w e e n n e w as s e t d e v e l o p m e n t an d e x i s t i n g as s e t o p t i m i z at i o n i s b e co m i n g i n cre as i n g l y i m p o rt an t . F ai l u re t o
improve operational performance and economics could have lasting effects on a companys long-term growth and viability.

I n t he cu rre n t l o w - p ri ce e n v i ro n m e n t , p e rf o rm an ce g ap s hav e b e co m e e v e n m o re p ro m i n e n t d u e t o a he i g ht e n e d aw are n e s s

among investors, stakeholders and employees. The present low oil price is disruptive by nature and calls for more than just rapid
re d u ct i o n o f co s t t hro u g h d o w n s i z i n g o r b u d g e t cu t s acro s s t he o rg an i z at i o n . T he d i re ct i m p act s o f t he cu rre n t l o w - p ri ce s ce n ari o
are p re s e n t e d i n t he t ab l e b e l o w , i n d i cat i n g t he re as o n s f o r e x p e d i t i n g o p e rat i o n al e x ce l l e n ce .

Im p a c t o f lo w o il p r ic e a n d h o w E Y o p e r a t io n a l e x c e lle n c e c a n h e lp

S it u a t io n C as h co n s t rai n t e x i s t i n g O & M b u d g e t s w e re cre at e d d u ri n g p re v i o u s o i l p ri ce f o re cas t s , an d i n re s p o n s e , co m p an i e s are

s l as hi n g t he m .
Declining asset uptime blanket budget cuts are creating risks of equipment failure and production output.
Insufficient performance measurement and governance when company performance begins to lag industry leaders,
o rg an i z at i o n s t e n d t o o p e rat e i n s i l o s w i t h l i t t l e g o v e rn an ce .
Expectation to achieve more with less organizations are required to maintain margin by reducing costs and meet
stakeholder expectations,
Cost efficiency the rise in the cost of fuel has increased the focus on fuel loss. The loss of fuel occurs throughout the
s u p p l y chai n .
Operational excellence viewed from employees perspective when organizations focus on cost efficiency, employees may
n o t s hare t he s am e p ri o ri t y .

Im p a c t O rg an i z at i o n s are f o rce d i n t o ran d o m cu t s an d s l o w e d g ro w t h t hat i m p act s l o n g - t e rm co rp o rat e o b j e ct i v e s .

I nstability in achieving production targets becomes an issue, risking production revenue.
Without continuous improvement, organizations cant capitalize on ideas and leverage leading practices.
Organizations are required to identify savings from existing contracts
F u e l l o s s i s p ro m i n e n t acro s s t he i n d u s t ry , has d e v as t at i n g e f f e ct s o n b u s i n e s s e s an d n e e d s a t ho ro u g h i n v e s t i g at i o n t o
t hw art f u rt he r l o s s e s .
When organizations focus on cost efficiency, employees may view this as a decrease in capital investment and may become
l e s s e n g ag e d .
Mi s ap p ro p ri at i o n o f co m p an y i n t e l l e ct u al p ro p e rt y m ay o ccu r f o r p e rs o n al g ai n , an d acci d e n t al l o s s can o ccu r t hro u g h
negligence. Data breach incidents can be high profile and expensive and may result in reduced value of the organizations IP.

H o w w e Free up operating cash through intelligent supplier and contractor management and by building cost efficiencies.
c a n h e lp I m p ro v e re l i ab i l i t y an d p e rf o rm an ce t hro u g h as s e t re l i ab i l i t y an d i n t e g ri t y m an ag e m e n t .
Gain consistency across operating groups and a governance framework all by having a defined operating model and
ap p l y i n g t he i n t e g rat e d b u s i n e s s p l an n i n g ap p ro ach.
I m p ro v e p ro j e ct p e rf o rm an ce b y i m p l e m e n t i n g b e s t p ract i ce s an d cre at i n g s t an d ard i z at i o n acro s s p ro j e ct s
Generate savings through identification of duplicate payments, overpayments and erroneous payments
Capturing data and leveraging continuous improvement to compress repetitive processes and maximize efficiency
I d e n t i f y are as f o r i m p ro v e m e n t an d p ro v i d e p ract i cal i n p u t t o f u t u re co n t ract n e g o t i at i o n s b y g ai n i n g a d e t ai l e d
u n d e rs t an d i n g o f co n t ract g o v e rn an ce p ro ce s s e s
Determine whether the key driver of fuel loss is due to inadequately skilled staff, damaged equipment or collusion.
Quantify potential loss and provide recommendations for improvements through forensic analysis of technical, operation
and financial data pertaining to the production and allocation of fuel.
I d e n t i f y i n d i cat o rs o f p o t e n t i al l y s u s p i ci o u s act i v i t y , i n cl u d i n g u n au t ho ri z e d s y s t e m an d d at a acce s s o r d at a harv e s t i n g .
Embed and assist with the implementation of information governance program that aligns with the organizations risk
m an ag e m e n t s t rat e g y .

Driving operational performance in oil and gas | 5

 W hy n o w ?

O p e rat i n g co s t s hav e co n s i s t e n t l y e s cal at e d o v e r t he p as t 10 y e ars an d are p ro j e ct e d t o co n t i n u e d o i n g s o f o r t he n e x t 10 y e ars ,

independent of oil price fluctuations. The recent price drop is not the driving force behind the need for operational excellence, but it
d o e s cre at e a d e m an d f o r s w i f t act i o n . H o w e v e r, t he i n d u s t ry i s i n n e e d o f a m e as u re d ap p ro ach i n co n t ras t t o t he ap p ro ache s o f t he
p as t , w hi ch hav e re s u l t e d i n t he b o o m an d b u s t cy cl e s .

T hi s e x p an d - an d - co n t ract m o d e l cau s e s co n s i d e rab l e i n s t ab i l i t y i n t he i n d u s t ry an d i s m i t i g at e d o n l y o n ce o p e rat o rs i n co rp o rat e

perpetual stability and sustainability into their operations strategies. Doing so allows them to capitalize on upswings in a measured and
profitable way. This type of operational endurance is best achieved through operational excellence programs focused on continued,
m e as u re d i m p ro v e m e n t t hat co n s i s t e n t l y ad d re s s e s re cu rre n t b u s i n e s s i s s u e s .

With ever-growing pressure being leveraged upon the oil and gas industry as a result of significant asset and environmental incidents,
declining performance, escalating costs and the more recent drop in prices, companies must take actions that are not only swift, but
appropriate and sustainable to improve HSEQ, operations and business performance. The current economic climate has provided the
necessary focus on operational excellence and new technologies have been provided to make it happen.

6
T he an at o m y o f o p e rat i o n al e x ce l l e n ce

The notion of operational excellence (OE) is not new. Leading industries like manufacturing and
p harm ace u t i cal s hav e e m b race d i t , an d i t i s e v e n m o re p re v al e n t i n d o w n s t re am p e t ro che m i cal s an d
refining. Many oil and gas organizations have also implemented, to some degree, operational excellence
programs targeted at improving HSEQ performance and driving cost and efficiency improvements, or as
part of a larger transformational program for strategic adjustments. Subsequently, many companies have
seen improvements in HSEQ performance, cost position, reliability and overall production. However, the
benefits have been inconsistent across the industry, somewhat overshadowed by a lack of structure, direction,
p ro ce s s o r e x e cu t i o n .

W he re o p e rat i o n al e x ce l l e n ce has b e e n hi g hl y s u cce s s f u l , i n s i d e an d o u t s i d e t he o i l an d g as i n d u s t ry , co m p an i e s

reaping the benefits share many key characteristics and attributes. Below is an outline of the cultural attributes
o f O E an d t he co m p o n e n t s t hat hav e b e e n p u t i n p l ace t o d ri v e co n t i n u e d an d s u s t ai n ab l e re s u l t s .

K e y cu l t u ral at t ri b u t e s

S t r o n g l e a d e r s h i p : F ro m t he b o ard o f d i re ct o rs t hro u g h t he o p e rat i o n s i n t e g ri t y

management system (OIMS) all the way to tool pushers, each leader is aligned on the
co m p an y v i s i o n an d g u i d e s t he i r o rg an i z at i o n o n i t , d ri v i n g p e rf o rm an ce e x p e ct at i o n s
an d d e v e l o p i n g t he cap ab i l i t y o f t he i r e m p l o y e e s an d co n t ract o rs .

E n g a g e d p e r s o n n e l : A l l e m p l o y e e s u n d e rs t an d t he i r ro l e an d ho w t he i r j o b an d p e rs o n al
choices impact the performance of the organization. They dont just support the OE
p ro g ram b u t o w n i t an d s t ri v e re l e n t l e s s l y f o r co n t i n u e d i m p ro v e m e n t .

C l e a r f o c u s : O p e rat i o n al e x ce l l e n ce an d p e rf o rm an ce i m p ro v e m e n t are a cl e ar f o cu s
for the organization, and each employee is empowered and supported to make difficult
cho i ce s t hat s u p p o rt t he O E p ro g ram ab o v e al l e l s e . O rg an i z at i o n al chan g e s t o t he
o p e rat i n g m o d e l are i m p e rat i v e f o r s u cce s s .

L e v e r a g e d t e c h n o l o g y : T he o rg an i z at i o n u s e s o n l y t he n e ce s s ary t e chn o l o g y t hat

is implemented to allow real-time effective knowledge transfer, communication and
p e rf o rm an ce re v i e w , as w e l l as t he ab i l i t y t o t ran s f o rm co n t i n u o u s s t re am s o f d at a
i n t o i n f o rm at i o n an d u l t i m at e l y d e ci s i o n s t hat p o s i t i v e l y i m p act re s u l t s .

Driving operational performance in oil and gas | 7

 K e y o p e rat i o n al e x ce l l e n ce co m p o n e n t s

Sa
la t h f

et
H e

y
O perating S u pplier and
model contractors

I ntegrated
O p e r a t io n a l A sset
reliability and
planning e x c e lle n c e integrity
E n
v ir

C ost
nm a
y

efficiency
lit

u
o

e n Q
t

8
K e y o p e rat i o n al e x ce l l e n ce co m p o n e n t s
H e a lt h , s a fe t y , e n v ir o n m e n t a n d q u a lit y : A s s e t r e l i a b i l i t y a n d i n t e g r i t y : A t o t al
T he f o u n d at i o n o f o p e rat i o n al e x ce l l e n ce , i n re l i ab i l i t y o rg an i z at i o n i s e s t ab l i s he d
which the operational risks are understood that identifies potential asset failures for
and ranked and everyone engages in a elimination, tracks and investigates failures
re l e n t l e s s p u rs u i t t o e l i m i n at e i n j u ri e s an d f o r i m p ro v e m e n t , an d f o cu s e s o n t he l i f e cy cl e
i n ci d e n t s f o r e m p l o y e e s , co n t ract o rs an d o f as s e t s f ro m d e s i g n t o d e co m m i s s i o n i n g .
t he e n v i ro n m e n t , i n cl u d i n g a z e ro - d e f e ct
approach to product quality. Cost efficiency: C o s t i m p ro v e m e n t s are
s t rat e g i cal l y ad d re s s e d , re g ard l e s s o f o i l
I n t e g r a t e d p l a n n i n g : L o n g - t e rm b u s i n e s s prices or profit margin, looking far beyond
s t rat e g i e s are e f f e ct i v e l y t ran s l at e d i n t o s u rf ace co s t s , s u ch as p e rs o n n e l , an d i n t o t he
s ho rt - t e rm an d m e d i u m - t e rm o p e rat i n g p l an s hidden costs of inefficiency and rework. Tools
and supported by appropriate frameworks an d t e chn o l o g i e s are i n p l ace t hat f o cu s o n
an d s p o n s o rs hi p . i n cre as e d o i l p ro d u ct i o n o u t p u t .

O p e r a t i n g m o d e l : T hi s o u t l i n e s ho w p ro ce s s e s , S u p p lie r a n d c o n t r a c t o r s : C o n t ract o rs
p e o p l e an d s y s t e m s i n t e ract t o s u p p o rt t he an d s u p p l i e rs are i n t e g rat e d i n t o t he o v e ral l
b u s i n e s s an d ho w t he y are arran g e d an d o p e rat i o n s p ro g ram an d co n t ri b u t e p o s i t i v e l y
prioritized to achieve optimum efficiency. t o b u s i n e s s p e rf o rm an ce . A g re e m e n t s are
s t ru ct u re d s o t hat o b j e ct i v e s an d o v e rs i g ht
m e chan i s m s are cl e ar an d ap p ro p ri at e .

Vital components for success

O p e r a t io n s / b u s in e s s m a n a g e m e n t s y s t e m ( O M S ) : O r g a n i z a t i o n a l d e v e l o p m e n t : An established pool of skill
Guidelines and necessary processes to establish how s e t s i s i n p l ace , w i t h s u cce s s i o n an d d e v e l o p m e n t p l an s i n
an o rg an i z at i o n o p e rat e s are arran g e d i n a ce n t ral i z e d p l ace f o r e ach p o s i t i o n , an d a co n t ract i n g s t rat e g y i s i n p l ace
framework and adherence is strictly enforced, ensuring to establish the organization as a preferred place to work
al l co re act i v i t i e s are d o n e co n s i s t e n t l y an d i n t he m o s t and creates a competitive advantage in the marketplace.
e f f e ct i v e w ay t o s u s t ai n t he t ran s f o rm at i o n an d achi e v e
P e r fo r m a n c e m a n a g e m e n t : T he o p e rat i n g o rg an i z at i o n
m e as u rab l e re s u l t s .
e s t ab lis he s an d o w n s m e t ri cs an d d as hb o ard s , an d v i s u al
T e c h n o l o g i c a l A d v a n c e m e n t s : W i t h n e w t e chn o l o g i cal p e rf o rm an ce m an ag e m e n t i s u t i l i z e d t o d ri v e d ay - t o - d ay
ad v an ce m e n t s , w e hav e t he p o t e n t i al t o i m p ro v e p e rf o rm an ce o p t i m i z at i o n .
b u s i n e s s f u n ct i o n s acro s s t he i n d u s t ry . B i g d at a an d
C o n t i n u o u s i m p r o v e m e n t : A co n s t an t e f f o rt i s m ad e t o
analytics, digital oilfield, industrial Internet of things and
improve process efficiencies, reduce waste and improve
s e cu re cl o u d co m p u t i n g t he re are a v ari e t y o f d ri v e rs
the way work is completed.
emerging today. But, oil and gas companies must make
the leap from the digital oilfield of the past and adopt
p ract i ce s t o p o s i t i o n t he m s e l v e s f o r t he f u t u re . T hi s
i n cl u d e s ad d re s s i n g t he e n t i re v al u e chai n , f o cu s i n g o n
i n n o v at i o n an d au t o m at i o n . T e chn o l o g y has cau g ht u p
with the industrys needs but the industry still lags
b e hi n d i n l e v e rag i n g t he s e ad v an ce m e n t s .

F o r co m p l e t e an d s u s t ai n ab l e p e rf o rm an ce e x ce l l e n ce , o rg an i z at i o n s m u s t e s t ab l i s h t he ap p ro p ri at e O E cu l t u re ,
implement the key OE components, and strive for robust execution and continuous program enhancement.

Driving operational performance in oil and gas | 9

 Causes of inefficient operating performance

W hi l e m an y o rg an i z at i o n s are s u cce e d i n g i n s o m e cri t i cal o p e rat i o n al are as o f f o cu s , f e w , i f an y , are e f f e ct i v e l y m an ag i n g

them all. Industry analysis suggests operational performance gaps begin at the strategic level and carry through to a specific
process breakdown within assets. In addition, operations functions often lack continuous improvement efforts targeting these
inefficiencies and failure modes.

Below, we outline the most common key factors behind operational inefficiencies.

Strategic factors

1 2
N o n - in t e g r a t e d b u s in e s s L a c k in g a n e ffe c t iv e
a n d a c t iv it y p la n n in g o p e r a t in g m o d e l

Lack of leadership sponsorship Siloed design architecture

an d m at u ri t y
Unclear decision governance
I n e f f e ct i v e s t rat e g y an d
Insufficient performance
framework
m an ag e m e n t
Difficulties translating strategy
lack of standardization, policy
i n t o o p e rat i o n s
an d e n f o rce m e n t

T act i cal f act o rs

1 2 3
M is m a n a g e d s u p p lie r a n d
P o o r a s s e t r e lia b ilit y a n d in t e g r it y Inefficient cost management
c o n t r a c t o r r e la t io n s h ip s

Prequalification and contract Discounting predictive Unaware of cost drivers across

e x e cu t i o n n o t ro b u s t m ai n t e n an ce f o r s che d u l e d v al u e chai n an d i n t e rd e p e n d e n cy
m ai n t e n an ce
L i m i t e d v i s i b i l i t y t o co n t ract o r Lack of production management
and supplier risks P o o r s hu t d o w n an d t u rn aro u n d o p t i m i z at i o n
m an ag e m e n t
Poor field management and Inadequate business component
p e rf o rm an ce an al y s i s I n e f f e ct i v e o p e rat i o n al re ad i n e s s m o d e lin g
p l an n i n g
Assumption of project uniqueness
O v e r- ab u n d an t m ai n t e n an ce
act i v i t i e s

Insufficient data analytics

1 0
O p e rat i o n al e x ce l l e n ce re s u l t s i n b e t t e r o u t co m e s

S t r a t e g ic d e c is io n - m a k in g
B e t t e r q u e s t io n B e t t e r a n s w e r B e t t e r o u t c o m e

A NOC sought to improve the way O

ur team identified revenue and Our strategic decision-making model
its top management was making key co s t d ri v e rs re l e v an t t o e ach p art o f empowered the NOC to make better
s t rat e g i c d e ci s i o n s . A n o rg an i z at i o n t he b u s i n e s s . i n f o rm e d s t rat e g i c d e ci s i o n s . T he t o p
with multiple subsidiaries, the NOC decision-makers now work with more
W
e created a flexible, transparent
f ace d a chal l e n g e t o as s e s s t he t ran s p are n t i n f o rm at i o n , e n ab l i n g
and robust decision-making model
i m p act o f m aj o r s t rat e g i c d e ci s i o n s , t he m t o m o re cl e arl y an al y z e t he
t hat e n ab l e s b e t t e r b u s i n e s s
M& A act i v i t y an d o t he r l arg e i m p act o f t he i r s t rat e g i c d e ci s i o n s o n
p e rf o rm an ce , cal cu l at e s K P I s , an d
investment projects it was making on both the consolidated groups and
identifies and quantifies the key
key financial metrics of its entities its individual subsidiaries financial
risks for better risk management
an d at t he co n s o l i d at e d l e v e l . T he p e rf o rm an ce . O u r m o d e l has b o o s t e d
an d m i t i g at i o n .
NOC had to answer the question: the NOCs analytical capability
C an re - e v al u at i n g o u r d e ci s i o n - W
e designed a documented an d co n s i s t e n cy i n p e rf o rm an ce
making strategy help us develop p ro ce s s , he l d t rai n i n g s f o r al l m an ag e m e n t acro s s s u b s i d i ari e s .
t he m o s t o p t i m al co m b i n at i o n o f stakeholders and ensured our
i n v e s t m e n t d e ci s i o n s ? m o d e l w o u l d b e s u b j e ct t o
continuous development to make
i t s u s t ai n ab l e i n a chan g e - d ri v e n
e n v i ro n m e n t .

T a c t ic a l d e c is io n - m a k in g
B e t t e r q u e s t io n B e t t e r a n s w e r B e t t e r o u t c o m e

A n o rg an i z at i o n w as s t ru g g l i n g t o W e an al y z e d an d e v al u at e d Our clients annual costs for internal

keep its assets intact while continuing the maintenance teams work m ai n t e n an ce s e rv i ce s d e cre as e d
t o b e a l e ad i n g s e rv i ce p ro v i d e r an d p ro ce d u re s an d t he cri t i cal b y ro u g hl y 15% o f t o t al i n t e rn al
juggling significant internal spend. p e rf o rm an ce e l e m e n t s t he y m ai n t e n an ce co s t s . I n ad d i t i o n t o
T he o rg an i z at i o n had t o an s w e r s t ru g g l e d w i t h d ai l y . the financial impact opportunities,
the question: Will performance our client benefited from higher
W
e redesigned the maintenance
improvement help identify significant p e rf o rm an ce o f i t s m ai n t e n an ce
teams processes, streamlining their
co s t s av i n g s ? t e am s , w hi ch are n o w b e t t e r
work routines to more effectively
o rg an i z e d an d m o re m o t i v at e d .
link to one another and scale up
t he i m p act o f s i n g l e m ai n t e n an ce
e f f o rt s .
W
e introduced a leading-practice
s t af f p e rf o rm an ce as s e s s m e n t
to make successes measurable,
e n s u re co n t i n u o u s i m p ro v e m e n t
an d s p re ad t o p p e rf o rm an ce i n t he
l o n g ru n .

Driving operational performance in oil and gas | 1 1

 Current state of industry: usage and benefits

EY researched 30 oil and gas companies, including oil majors, NOCs and independent players, to identify if the sample companies
had an operational excellence program. For companies that did have an operational excellence program, we looked at the reasons for
i n t ro d u ci n g t he p ro g ram , t he m ai n are as o f f o cu s an d t he s t ru ct u re o f t he p ro g ram .

Our findings are as follows:

of I O C s currently have
8 6 % an OE program or have run
one in the past

7 7 % currently have an OE
program or have previously
ru n an O E program
of the N O C s in ou r sample
5 0 % have never implemented an
O E program

5 3 %
of these companies
applied O E across
the organization

The oil majors have long-established OE programs that are embedded across the organization.
OE programs have long remained an asset to the organizations by providing a quantitive
decrease in drilling and completion costs, volu me of petroleu m spills and, increasing
refinery energy efficiency, uptime and earnings. However, even the most successful OE
programs have room for improvement. Now is the time to harness the momentum by
leveraging new tools and technologies and capitalize on the multitude of opportunities for
success OE has to offer.

1 2
We identified three main reasons why companies first introduced an operational excellence program:

To improve HSE performance, To improve financial and As part of a wider corporate

1 typically following an HSE 2 operating performance, with 3 transformation program or a
incident. Companies that had a focu s on redu cing costs and shift in strategic direction.
not experienced an HSE incident closing the performance gap
introdu ced an operational relative to peers.
excellence program in response
to high-profile HSE incidents in
the industry.

Six most common operational excellence focus areas

8 0 % 8 0 % 7 3 % 6 0 % 2 0 % 1 3 %

E x p an s i v e E x p an s i v e Man ag e m e n t O p e rat i n g co s t F o cu s o n E m p lo y e e
as s e t re l i ab i l i t y p ro d u ct i o n of HSE risk re d u ct i o n cu l t u re re t e n t i o n
efficiency

F ou r main ou tcomes of companies u sing O E programs

$
I mproved asset u ptime/ I ncreased oil/ gas
Improved HSE metrics C ost savings
availability produ ction

4 3 % 4 3 % 2 9 % 2 9 %
C o m p an i e s re p o rt e d d e cl i n e s C o s t s av i n g s i n cl u d e d achi e v i n g O i l an d g as co m p an i e s w i t h O E T he i n cre as e d as s e t u p t i m e m ay
i n b o t h t he t o t al re co rd ab l e re d u ct i o n s i n t o t al o p e rat i n g p ro g ram s re p o rt e d i m p ro v e d be linked to the increased oil and
i n j u ry / i n ci d e n t rat e an d d ay s - co s t s as w e l l as i n are as s u ch as as s e t u p t i m e o r av ai l ab i l i t y . g as p ro d u ct i o n achi e v e d i n 29 %
away-from-work incidents for w e l l d ri l l i n g co s t s . T he m aj o ri t y T w o co m p an i e s had t arg e t e d o f O E p ro g ram s .
e m p l o y e e s an d co n t ract o rs . T w o re p o rt e d t hat t he y d e l i v e re d o n top-quartile performance in
co m p an i e s achi e v e d t he i r b e s t - co s t re d u ct i o n t arg e t s ahe ad o f as s e t av ai l ab i l i t y .
e v e r re s u l t s o n s p i l l an d p e rs o n al s che d u l e .
s af e t y m e as u re s .

Driving operational performance in oil and gas | 1 3

 I s i t t i m e f o r a s hi f t i n f o cu s ?

T he o i l an d g as i n d u s t ry , p art i cu l arl y t he u p s t re am s e ct o r, has b e e n s l o w t o ad ap t t o chan g i n g e x p e ct at i o n s an d

therefore has failed to reap the benefits available through a systematic focus on operations.

I n t he p as t 10 y e ars , e x p l o rat i o n has s hi f t e d i n t o m o re co m p l e x an d re m o t e b as i n s , n e w l y d e v e l o p e d t e chn o l o g i e s

hav e b e e n i n t ro d u ce d an d re g u l at i o n s hav e b e e n rap i d l y e v o l v i n g i n an e x p an d i n g g l o b al e n v i ro n m e n t . Mai n t ai n i n g
a s o ci al l i ce n s e t o o p e rat e , w hi l e achi e v i n g co n s i s t e n t re t u rn s o n i n v e s t m e n t s , has n e v e r b e e n m o re co m p l i cat e d
or difficult. The next 10 years show even more tightening in these areas and an impending loss of experience and
talent through retirement. These fundamental shifts in the industry indicate that the time is indeed now to make
f u n d am e n t al , s u s t ai n ab l e i m p ro v e m e n t s t o o p e rat i o n s t hro u g h i n t e g rat e d o p e rat i o n al e x ce l l e n ce p ro g ram s .

The programs identified in our industry examination show that there is willingness and desire to improve operating
performance, specifically reliability, efficiency, cost and HSE. However, the same examination highlighted that few
existing operational excellence programs adequately address all four of those factors and, despite these efforts,
o p e rat i n g p e rf o rm an ce i n t he i n d u s t ry has b e e n s t e ad i l y d e cl i n i n g , e v e n b e f o re t he s harp d ro p i n o i l p ri ce . I n
addition, stakeholders are demanding more consistent returns and improved HSE performance across assets.

C ommu nities, Shareholders are A new generation of

non-governmental investing in exploration employees expects
organizations and companies that can organizational stability
mu nicipalities are consistently deliver and gravitates toward
applying pressure for results and minimize organizations that can
exploration companies profit fluctuations in offer stable employment
to ensu re risk mitigation the heavily cyclical oil with opportunities for
and minimization and gas industry. advancement.
practices are in place.

1 4
1 5
 H o w E Y can he l p achi e v i n g o p e rat i o n al e x ce l l e n ce

EYs Oil & Gas professionals can work with clients to develop, design and implement operational excellence programs. Our Operational
Excellence team is composed of advisors with experience in engineering, plant operations, maintenance reliability, HSE, supply chain,
s t rat e g y an d o rg an i z at i o n al chan g e w i t hi n o i l an d g as .

Through our closely linked Transactions Advisory, Tax, Fraud Investigation and Dispute Services, and Advisory service teams,
co u p l e d w i t h o u r g l o b al t e am o f m o re t han 10, 000 industry professionals, EY is equipped to provide independent support and advice
t o o u r cl i e n t s t o e n ab l e t he i r g ro w t h i n a chan g i n g l an d s cap e .

1. Integrated business and

Key challenges
activity planning
A t t he f o re f ro n t o f o p e rat i o n al S
ponsorship and maturity: Success in any endeavor starts with executive sponsorship
p e rf o rm an ce i s t he n e e d t o t ran s l at e an d a cu l t u re t hat s u p p o rt s an d u n d e rs t an d s t he o b j e ct i v e s .
l o n g - t e rm b u s in e s s s t rat e g i e s i n t o
S
trategy and framework: To prevent value leakage from siloed thinking that often
s ho rt - t e rm an d m e d i u m - t e rm
o ccu rs f ro m i n cre as i n g o p e rat i o n al co m p l e x i t y , o i l an d g as co m p an i e s m u s t e s t ab l i s h
o p e rat i n g p l an s .
clearly defined and well-understood connection and integration points among the
s t rat e g i c p l an n i n g l e v e l s .

T
ranslating strategy to operations: The enterprise strategy needs to be effectively
translated into quantitative and actionable business unit and functional goals and
t arg e t s t o f aci l i t at e p l an n i n g , b u d g e t i n g an d s t e w ard s hi p p ro ce s s e s .

2. Target operating model Key challenges

A t arg e t o p e rat i n g m o d e l d e s cri b e s n o t Siloed

design architecture: Functions and geographies need to be fully integrated to
o n l y ho w p ro ce s s e s , p e o p l e an d s y s t e m s p ro m o t e co n s i s t e n cy i n cu l t u re , p ro ce s s e s , co n t ro l s an d t e chn o l o g i e s .
i n t e ract t o s u p p o rt t he b u s i n e s s b u t
Unclear
decision governance: Decision-making and delegation of authority underpin
al s o ho w t he y co u l d b e arran g e d an d
t he o p e rat i n g m o d e l an d s ho u l d i n cl u d e p o l i ci e s , p ract i ce s , co m m i t t e e s an d ru l e s .
prioritized to achieve optimum efficiency.
Insufficient
performance management: Many organizations are lacking a balanced set
of quantitative and qualitative performance metrics necessary to support the strategy
an d v i s i o n . I f m e t ri cs are p re s e n t , t he y o f t e n t e n d t o b e i n co n s i s t e n t l y m e as u re d ,
m an ag e d an d e v al u at e d .

1 6
 3. Supplier and contractor
Key challenges
management
L e ad i n g o p e rat o rs u n d e rs t an d t he y Prequalification
and contracting: While supply chains and supplier networks have
m u s t le v e rag e t he i r s u p p l i e rs an d become increasingly complex, prequalification requirements and contracts have
co n t ract o rs t o achi e v e t he d e s i re d f ai l e d t o cap t u re t he s e co m p l e x i t i e s .
le v e l o f o p e rat i o n al p e rf o rm an ce .
Supplier
and contractor risk: With increasing impact on business and operating
performance, risks associated with these portfolios must be adequately
understood, quantified and mitigated.

Field
management and analysis: When organizations work with suppliers and
co n t ract o rs w ho s e p e rf o rm an ce i s n o t re l i ab l e an d w ho s e s e rv i ce av ai l ab i l i t y i s
unpredictable, value can erode by as high as 10%-15% due to ongoing inadequate
m an ag e m e n t an d f ai l u re t o m o n i t o r p e rf o rm an ce .

4. Asset reliability and

Key challenges
integrity management
T he p i n n acl e o f g re at o p e rat o rs i s t he i r Maintenance,
reliability and integrity processes: When an organization fails to define
ab i l i t y t o re l i ab l y m e e t p ro d u ct i o n asset strategies, identify critical risks, institute appropriate barriers of protection,
targets and expectations. This requires an d o p t i m i z e as s e t an d p e rs o n n e l p e rf o rm an ce , t he i r as s e t p e rf o rm an ce s u f f e rs .
t he m t o t ran s i t i o n cap i t al p ro j e ct s
Shutdown
and turnaround management: Too often, organizations fail to effectively
i n t o p ro d u ci n g as s e t s , i m p ro v e d ay -
p l an , s che d u l e an d e x e cu t e t he s e m aj o r f aci l i t y i n s p e ct i o n s / re p ai rs i n a w ay t hat
t o - d ay as s e t u p t i m e an d m i n i m i z e t he
e n s u re s o n - t i m e co m p l e t i o n , co s t co n t ro l an d s af e co m p l e t i o n o f act i v i t i e s .
i m p act o f p l an n e d o u t ag e s .
Operational
readiness planning: When integration and planning are inadequate,
operators face increased difficulty in reaching the new assets to anticipate
p ro d u ct i o n n u m b e rs o n t i m e an d o n b u d g e t , w i t ho u t e x p e ri e n ci n g re cu rre n t i s s u e s
t hat u p s e t p ro d u ct i o n .

5. Cost efficiencies Key challenges

T he m o s t s u cce s s f u l o rg an i z at i o n s Cost
drivers: Often we see organizations focused on first- and second-level drivers
in s t it u t e s y s t e m at i c ap p ro ache s t o without adequately understanding the third- and fourth-level drivers, leading to
i d e n t i f y an d t he n e l i m i n at e s o u rce s o f the true causes of inefficiency and cost escalation to be misdiagnosed, ultimately
v al u e l o s s , t arg e t i n g t he hi g he s t - re t u rn l i m i t i n g t he i m p act o f p ro p o s e d s o l u t i o n s .
areas first.
Production
management optimization: Through production planning, a robust
m an ag e m e n t s y s t e m , l o s s re p o rt i n g an d ro o t cau s e an al y s i s , p ro d u ct i o n
o p t i m i z at i o n can o ccu r. F ai l u re t o p ro p e rl y m an ag e an y o f t he s e are as ro u t i n e l y
l e ad s t o s u b o p t i m al p ro d u ct i o n , d i re ct l y i m p act i n g b u s i n e s s re s u l t s .

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