A comparative study of production efficiency improvements between UKCS O&G and other Global Extractive Industries

Comparing Productivity Improvement initiatives in the UKs Oil Industry and the Global Mining Industry.

We’ve heard a lot lately about how the oil and gas sector could learn from other industries. There has also been some positive action and a few from the industry have visited “lean factories” so see how things are done and viewed best practice from areas such as automotive, aviation and electronics. We’ve spoken with some people who’ve been involved and it’s very encouraging.

To add to this pool of knowledge we decided we’d take a broad look at an industry with similar operations to the UK oil & gas industry and look at what they’d done to improve operational efficiency and productivity. We would then be able to make a comparison to the case studies we had for the UK oil & gas industry.

When we talk about a similar industry, we mean that it has similar characteristics. In this case, it needed to be located in harsh conditions, be possibly extractive, and suffer fluctuating market pricing leading to rapid changes in margins. For us, mining was an obvious choice. The other big draw towards mining was that they had a history of continuous productivity improvement projects, either consultant led or driven in house. Either way, these companies were continually looking for ways to improve output and reduce costs. Working safely and with as little environmental impact as possible where cultural imperatives, but the key drive was productivity.

Mines also share another commonality with oil and gas. They both live and die on the availability of their processing equipment.

For both mines and oil production assets, uptime is crucial and therefore creating an environment of continual productive maintenance could lead to substantial productivity improvements.

 

26 Mining Case Studies

Within the 26 mining case studies, effective maintenance teams and the planning processes were key objectives. To enable this, firstly, data collection mechanisms had to be installed with KPIs shared across the operational teams including supply chain and maintenance.

Self-managed teams were created so they could get things done quickly. After all, there’s no point in having a whole raft of metrics and KPIs if they don’t lead to action. For larger more complicated problems, a corrective action plan was put in place and reviewed for completion after a short, agreed time frame.

The second big area was unavailability of parts as well as the time and effort to expedite them that not only reduced the amount of time managers had to manage and plan, but also restricted the amount of work that could be done.

It’s unsurprising that mining found the main high-level improvements in production were centred around the maintenance teams, their planning processes and effective spares management. We see the same issues for assets in the North Sea.

In oil and gas sector in the UK, the issues around maintenance are clearly becoming greater with ageing assets meaning a greater risk of failure.

We all know this, it’s been said more than once that oil production companies are essentially in the maintenance business. What’s interesting about the mining experience is that the focus was mainly on the performance and delivery of the maintenance function. Looking at areas such as streamlining of their work routines and empowerment and self-management of the teams.

Interestingly, throughout the conversations we’ve had within the oil and gas sector, this hasn’t been the main focus. There has been tacit recognition of the need to improve in this area but the most common area of focus we’ve found has been technology. In fact, PwC conducted a poll a few years back and their respondents put technology on the top of the list for when looking at improving performance in the UKCS.

There’s no doubt that technology can bring improvement, and we should embrace it when we can but it’s only one part of the solution.

We regard human and organisational performance as more important and yet, one senior figure from maintenance and integrity we spoke to said, that although he absolutely understood the importance, he’d never seen or known of any study or measurement of workflows and performance of offshore maintenance, or any other function for that matter. Another noted their organisation had no basic metrics such as MTBF (Mean Time Between Failures) or MTR (Mean Time to Restore) by which to judge performance.

Clearly this is not universal and there has been work carried out in this area by a few oil operators. But the point is, is that going by the mining example we may be missing out on some low cost, high impact low hanging fruit.

Of the initial 26 project case studies we looked at, in total they developed some $300 million in direct savings and even more including cash release through inventory and working capital reductions.

Within the Oil and Gas Industry, we’ve seen some really great technological solutions and these have their place. In a recent PWC report based on feedback from the industry, operators rated technology and investment as their two biggest factors for success. After that, industry collaboration and Government Regulation were equal second. Yet none of these factors for success appear in any of the mining case studies.

For the savings they made over the 26 case studies, no CAPEX was introduced. There was no additional investment in technology or any other equipment. The project improvement teams made the best use of what they had.

They also worked hard on the alignment of suppliers to the future goals of the business. This was a long-term strategy of ensuring that the supply chain was strong and robust for the future and that spare were in the right place at the right time.

The route to doing it better in general was based on lean management methodology rather than anything else. Within each case study, the improvement teams defined what was wrong, analysed the benefits and changed the process for doing work and managing it.

There are some great advances in production efficiency being made with pretty much all of UKCS operators showing significant reductions in lift costs in the last couple of years. However, a considerable proportion of this can be attributed to rate cuts, suspended programmes and staffing reductions.

 

We understand that much in this article is not new; many of them play a part in the long-established operational excellence programs embedded across some of the oil majors, and not without some success. Yet the principles we’ve described that have had success in mining and many other industries are not broadly adopted with the UK oil and gas sector.

We have to ask ourselves whether we are making real change in how we conduct business that will see a long lasting reversal of the steadily increasing costs we saw before the downturn.

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