The current downturn in oil prices has thrown our industry into a difficult series of deep cost-cutting exercises to maintain cash flow without sacrificing the future. While this is not our first rodeo, this time we must supplement our efforts with an anthropological approach to be able to go “lower for longer”.
Not surprisingly, attempts have been made to leverage the billions of dollars spent on Information and Communications Technologies to help improve efficiency and productivity. Unfortunately, Integrated Operations (Digital Oil Field) programs are not delivering the promised benefits on a wide-scale basis.
So how do we leverage our technology assets to immediately respond to the current state?
An Anthropological Approach
The path forward is not scientific or operational. The answer is anthropological. We define Industrial Anthropology as the study of human behaviors - that of employees, service providers and customers of an organization, and the elements and environment that impact people. The global oil industry is predominantly an engineering community. Our skill-set lends itself to understanding the technical root causes of our challenges; equipment failures, blow-outs, accidents, etc. But as engineers, we are not as well equipped to develop the less technical solutions and approaches required to influence the mindsets. So why does it matter?
It matters because we continue to overlook the critical human element. Less than 1% of the terabytes of data that we continuously collect from our operations is used, not because the data is bad or the tools are not user friendly, or that we don’t have data scientists who can interpret the numbers. It largely sits collecting cyber dust because the people (field and office) choose not to fully exploit it. And the biggest offenders are the dedicated and experienced personnel that are the walking repositories of our deep domain knowledge. Are they then the problem? Not a chance. They are actually the solution.
So how do we achieve the next level of “lower for longer” to get the most out of what is left?
Focus on KPIs
The answer is to take a non-traditional approach to developing advanced capabilities, improving processes and leveraging technology…and we do it by focusing on improving the KPIs (Key Performance Indicators) that are critical to today’s organizations:
- Higher Production & Reduced OPEX
- Improved reliability & maintenance
- Reduced HSE exposure
- Improved Operability & Integrity
- System optimization
- Increased uptime, operating efficiency & throughput
- Improved integrity monitoring & reduced unplanned activity
Understand How Oil Companies React in Times of Crisis
First, we must recognize that we are in crisis management mode and understand where and how companies have reacted. There are six levers oil companies pull in times of crisis:
- Reduce or Suspend Capex
- Drilling new wells
- Completing wells that have been drilled
- Infrastructure Upgrades / Expansions
- Land acquisitions
- Squeeze vendors
- 30-50% reduction in cost of services
- Consolidation of companies
- Spin off segments
- Sell assets
- Sell underperforming assets
- Sell assets to generate cash flow
- Adjust portfolio of assets
- Slash expenses
- Deferred maintenance
- Reduction in field personnel
- Training, travel and external events
- Reduce headcount
- Initially in external contractors
- Internal support services
- Followed by reductions in core business groups
- Reduce or eliminate dividends (as a last resort)
- Some have reduced
- Some have cut completely
Note: Some organizations have cut to the core; anything further could jeopardize sustainability. But we must also proceed cautiously given that we have created an environment of workplace instability and uncertainty, causing a deeper trust chasm between the individuals and the companies.
Redefine Integrated Operations
After recognizing the current realities, we must proceed to redefine Integrated Operations (IO). Previously, we described IO as: "The optimal integration of business processes and advanced technologies, supported by organizational alignment, to deliver a new standard for decision making in a collaborative cultural environment."
The emphasis in the above definition was on the “technical” to then be propped up by the “softer” elements that would drive better decisions to achieve value. After years of research gathered from hands-on IO projects within numerous companies from around the globe, we have created a new definition that supports the path to success. Now, we define IO as:
The primary characteristics are:
- Collaborative, cross functional processes and behaviors
- Aligned metrics and rewards systems across functions
- Distributed decision rights
The focus here is on breaking down the functional barriers, and in turn leveraging those human assets, not the technical assets, to drive value. In other words, successful Integrated Operations requires an anthropological focus to drive better efficiencies & decisions across assets.
Flip the Approach
Finally, we flip the approach. Our standard way of chasing value has been to reach for smart technologies, build operations centers, implement data acquisition tools and deploy dashboards. We’ve done these things as part of centrally “mandated” programs and with the “help” of service providers who have never worn a pair of steel-toed boots as part of their daily work uniform. The traditional process generally follows a particular path that yields questionable results.
The New Integrated Operations Approach begins with a predominantly field employee-driven program (those who spend the money and make the money for the company), backed by executive support and support staff. Capabilities needed within each asset must be defined to survive the downturn while protecting the future. The process evolves to include technology solutions only later in the cycle. Benefits accrue immediately and sustainably, and provide the momentum for increased value over time.
When provided with the proper leadership support and the opportunity, cross-functional teams of field personnel will develop an integrated asset management solution that is optimal for their business. They find innovative ways to improve day-to-day drilling and production operations, from field development planning to reserves recovery to surface facility management. When appropriate, they will collaborate with oil field service providers to assist in evaluating and executing solutions to enhance production and drive cost efficiencies. A critical success factor is for their efforts to be met with the organizational support that ensures the management structure is in place to reward results, not just efforts.
Following the non-traditional approach outlined above, and applying our proven methodologies and frameworks, we have demonstrated repeatedly the hard economic value of focusing on the People aspect of an Integrated Operations “People, Process, Technology” transformation.
As an example, one of the most difficult assignments involved an under producing heavy oil field with favorable OOIP and an unfavorable recovery factor. The production engineers were under pressure to increase production to meet plan, but were faced with several challenges associated with difficult well dynamics. This was complicated by the fact that they (the production engineers) were in fierce competition for constrained resources and they were considered less strategic to the overall production outlook of the asset. In fact, there was considerable animosity across functions.
When called in to consult, we quickly recognized their primary barrier was not technical but organizational. We assisted in launching an Integrated Operations program which was kicked off with a three-day workshop where various functions were brought together to truly collaborate (open and honestly). Several of the exercises were designed to address the organizational challenges and to break down the barriers to communication. The participants came to a consensus to adopt an integrated asset management philosophy and laid the groundwork for a new way of working. They even went as far as establishing aggressive goals and the KPIs to match.
Following the workshop and using what they had learned, the new integrated team set-up a make-shift collaboration room within which they devised new processes, communication protocols, and most importantly, established a new decision architecture. Under a new field development plan, production output was tripled 10 months ahead of schedule (with management of an acceptable 10% decline rate). The annual economic value (at today’s oil prices) was approximately $200 million.
It is important to note that this was all achieved without any investment into new information technology solutions. Once the barriers between functional silos were taken down, the teams began to leverage tools the organization had already purchased to ease information sharing and enhance integrated decisions.
Perhaps the strongest testament to their success, was the adoption of their philosophy by other field management teams and neighboring assets.
In today’s low oil price environment, controlling costs and making the most out of our existing resources is critical to surviving, especially since there is significant uncertainty for how long this is going to last. To achieve the next level of “lower for longer” our only choice is to take a different approach to developing advanced capabilities, improving processes and leveraging technology. If we are bold enough to shed our sturdy engineering armor and apply more anthropological solutions, we can finally make more effective inroads to improved Operability and Integrity for Higher Production & Reduced OPEX.
At Veritas Total Solutions, we offer a range of integrated operations cross the energy supply chain. If you are interested in learning more about our specific capabilities, contact us to learn more or subscribe to our blog to stay connected!