Amid global economic weakness, tougher fuel economy regulations, more viable forms of alternative energy and, above all, a dramatically lower oil price, the oil and gas industry continues to reflect on how it can become productive and profitable once again. A report looking at the fundamentals needed to drive excellence in oil and gas operations, PwC’s 2015 Cross-Sector Efficiency Study, states that oil and gas firms need to cut costs by up to 40% a barrel to prolong the production life of the North Sea. A key driver of cutting these costs is improving efficiency across the whole supply chain whether that is through collaborative initiatives or using the latest technology to speed up a process.
Making oil and gas production more efficient from start to finish is a huge undertaking for companies that are seeing investment cuts from all angles. The good news is that the need for efficiency has coincided with initiatives to drive this charge, as well as a whole range of technologies designed to make this easier which are becoming cheaper as they become more commonplace.
The PwC study is one of a number of similar reports released recently as the oil price downturn has given a sense of urgency to developing efficiencies. For too long, the industry rested on its laurels but both companies and industry bodies are realising that the time to act is now.
In response to this, Oil & Gas UK formally launched the Efficiency Task Force (ETF) in September 2015 to drive a pan-industry improvement in efficiency with the aim of creating a sustainable industry in a lower oil price world. At the launch, Oil & Gas UK co-chairman John Pearson said: “Tackling efficiency has been at the forefront of industry minds for some time – but has become more acute and urgent as the value of our end product has more than halved in the last year.”
Although the ETF is still in its infancy, it is taking a three pronged approach under the themes of Business Process; Standardisation; and Cooperation, Culture and Behaviours, and focusing on two or three projects in each. These include exploring how compression systems operators can pool resources and share best practice, using simplified approaches when it comes to well plugging and abandonment; and highlighting significant individual efforts through the new Rapid Efficiency Exchange. Time will tell if the scheme is a success but its pure creation shows a true desire for change with actionable points for the industry to work on.
Digital is crucial to all of these efforts and through using cloud, mobility, analytics and big data, companies can create platforms to help manage project plans, engineering data and documents, and then share with contractors and employees quicker than ever before. For example, the use of sensors in plants and in production infrastructure to understand data from plants and pipelines is now allowing companies to run operations much more safely and efficiently and such technologies that are fundamental to many of these cost reduction processes are becoming more and more commonplace.
Another opportunity to improve efficiency opens up when mechanical and electrical drives become smaller and lighter in response to the scarcity of space on oil platforms and pipeline stations.
But it’s not just upgraded equipment that can improve time and cost management; the industry mindset needs to adjust too. Oil and gas producers need to carefully evaluate their portfolios, field by field, to ensure that each operation is a good fit for the company’s core strengths, customer demographics, and preferences and skill sets. Only a few companies will successfully shore up demand and improve margins by consolidating their strongest assets, yet in our view it is an essential element of survival in the energy industry today.
The biggest mistake that oil and gas companies can make in this difficult business landscape is to focus solely on reducing costs (either operating or general and administrative) and spending. This strategy is effective only in a very narrow range of market conditions and rarely effective enough to make businesses successful over the long term. It is crucial that companies look at efficiencies at all levels of the supply chain, not just production equipment. One of the best things the industry can do when looking to embark on new projects is to start with the end in mind. This type of holistic thinking that io is leading on is going to prove invaluable to the industry and will ensure that projects have built in contingency plans, guaranteeing that time and money are not wasted in vain. This new way of thinking, amplified by the latest technological advancements, will mean that the industry can become economically sound once more.