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Lean times in oil and gasFrugal strategies for emerging as a stronger playerKai Eberspaecher, Senior Associate, Advisian6th June 2016

Exploration has become expensive

Oil price more than halved since 2014

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Exploration has become expensive

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Source: IHS

2015 lowest annual level of new discoveries since 1952

1999

2001

2003

2005

2007

2009

2011

2013

2015

0

1000

2000

3000

4000

Average Rig Count

Companies are challenged and take action

International rig count is back to 1999 level

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Source: Baker Hughes

Companies are challenged and take action

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Recent Press Headlines:

Shell's BG Risk Starts to Pay as Output Added, Costs SlashedSource: Bloomberg

Exxon, Chevron results weakenSource: Australian

Beach Energy makes $31 million through Merger with DrillsearchSource: Rigzone

What can be done (without spending a lot)?

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Process improvement

Increased Drilling

Efficiency

Standardisation

Production optimisation

Engineering Design Processes

Portfolio Management Processes

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Embedding change has to be sustainable

Behaviors

Values

BusinessProcesses

People

ManagementSystem

PerformanceCulture

ResultsBehaviours

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Example 1: Cycle Time ImprovementAn operator in North America was losing revenue on a drilling program of 400–600 wells per year. Recently drilled and completed wells were sitting idle, awaiting tie-ins.

From:• Good process• Unclear

accountabilities• Silos across the

execution chain

To:• Aligned process

tracking progress• Clear roles and

responsibilities• Training and

coaching• Integrated

execution approach

Aligning various departments and standardising hand-offs, allowed the operator to realise in excess of $ 1 million revenues by eliminating idle time. Drill &

suspend

Complete

Tie-in Produce

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Example 2: Production ImprovementA large independent E&P operator’s assets included a significant number of production wells. To achieve the company’s growth target existing production had to be optimised.

From:• Absence of daily production

targets• Production data integrity

issues• Lack of actionable

operational performance reporting

• Deficiencies in well operator training

• Well operators attrition through retirement, promotions and resignations.

To:• Implemented production

optimisation system• Visual published production

targets with trends• Key metrics embedded in

operational performance reporting and follow up actions embedded (e.g. root cause analysis)

• Established well operator training manual

Arrest of natural production decline rate established at the start of the project and a 1 – 3 % increase in production observed. Payback was $15 for every $1 spent.

Train Measure

Display

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Example 3: Lean EngineeringAn operator needed a different approach to meet economic hurdles for hundreds of well sites and associated reserves.

From:• Bespoke well site

design with repetitive engineering activities

• Unclear roles and responsibilities

• Silos from concept to execution

To:• Standardisation

with smart customisation of components

• Design once, use many times

• Lean design and execution process

Reduction of 20% capex per well site and full lifecycle cost reduction of 15%. Improved design cycle time by 30%. Operator saved $4 million on a typical 15 well program.

Standardise

Apply Save

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Example 4: Portfolio ManagementBrownfield project execution of downstream operator needed to be improved. In the project portfolio risk identification outpaced risk mitigationactivities.

From:• Execution not aligned with

available funding• Nonactionable

communications• Separate engineering and

execution schedules• Cumbersome processes• Unclear roles and

responsibilities

To:• Integrated

engineering and execution schedules

• Prioritised projects with aligned funding

• Clear roles and responsibilities

25% reduction in project cycle times without impacting safety, quality or cost.

Schedule Simplify

Clarify

Summary

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Now is the time to make changes for the futureExisting structures and processes can be challenged to future proof the business

Changes must not compromise safety and asset integrity performanceAny changes should improve safety and asset integrity of the underlying operations

Four examples presented impacting CAPEX, OPEX and

ProductionSustainable change is achieved by

creating new behaviours

Improvements made in this environment are necessary to assure

survivalIt is unlikely that the next upswing in

commodity prices will allow inefficiency to prevail

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Thank you