Why Integration Will Be Key for Oil & Gas Operators in 2015 and Beyond02/16/2015
'Business as usual' won't cut it in today's low-price environment
At the recent IPAA Private Capital Conference in Houston, the unease in the room given current oilfield economics was palpable. On one side, you had upstream oil and gas investors whose portfolio values have taken major hits in recent months, and on the other, you had operators who are trying to weather a nasty market downturn – and with their hands out to the investors. It’s a symbiotic relationship in which they both need each other to survive. However, the private equity (PE) firms providing the capital are now holding on to their wallets a bit longer and tighter than perhaps when oil was $100+ per barrel.
The sentiments they shared were not entirely new or unexpected, but to hear them reinforced by each other – emphatically, repeatedly – drove the points home hard. This is no time for slop. Every ounce of efficiency must be extracted from an operation to drive down – and keep down – operating expenses.
Put by some of the PE luminaries presenting:
- “Ensure there is focus on execution at the field level.”
- “De-risk the rocks. The value is in the execution.”
- “Focus on reducing costs, not adding more barrels to the bottom line.”
- “Optimize production without lowering safety and compliance standards.”
- “Control fixed operating costs.”
- “Focus on cash margin / returns, not production volumes.”
- “Keys to success are discipline and the ability to execute effectively.”
- “Lean and mean in ’15, or leave the scene in ’16.”
Urp. Although there was some laughter regarding the poetic levity of this phrase, the stark reality it conveyed made more than a few squirm.
Reduce costs. Optimize production. Execute effectively. If I could speak for the audience, we all get that. I don’t think you’d find one operator present who’d say they weren’t focusing on these things. What’s implied is better. To weather the current oil price storm, you need to do these things better. And not just incrementally better, a step-change improvement is required. These are the whats – what operators must do. But how do you do this – and how do you do it better?
Better starts with achieving operational transparency, particularly regarding production management and field operations – typically where the opportunities for operational improvement are greatest. Performing these functions dramatically better starts with ensuring your field and back office are connected and workflows are integrated to streamline your operation. Once this connection has been established, field hands are empowered with insight and direction in a two-way communication to make immediate assessments and remediate issues.
Furthermore, employing exception-based surveillance practices means that field personnel spend less time looking for problems and more time fixing them – or ensuring that they don’t occur in the first place. Establishing this integration is made all the easier when dealing with one vendor whose applications are interoperable vs. tying together disparate systems, or using applications that aren’t purpose-built for the rigorous demands of the upstream oil and gas industry.
These are but a few areas where operators can achieve compound performance and efficiency improvements through integrating systems. But the need to replace inefficient processes with efficient ones is urgent. One thing’s for sure that came out loud and clear at the PCC – to achieve the level of performance necessary to survive today’s oilfield economy, “business as usual” isn’t going to fly.
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