Driving operational performance in oil and gas

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The oil and gas industry is currently facing a crisis that threatens even the most stable of organizations. The sustained reduction in oil and gas prices, coupled with a forecast of modest recovery, requires the industry to apply increased focus and rigor to operations performance. While new exploration and growth will always be a cornerstone of upstream operations, achieving a balance between new asset development and existing asset optimization is becoming increasingly important. Failure to improve operational performance and economics could have lasting effects on a company’s long-term growth and viability.

In the current low-price environment, performance gaps have become even more prominent due to a heightened awareness among investors, stakeholders and employees. The present low oil price is disruptive by nature and calls for more than just rapid reduction of cost through downsizing or budget cuts across the organization. The direct impacts of the current low-price scenario indicate the reasons for expediting operational excellence.

EY - Declining E&P operating efficiency

Operational stability is best achieved through operational excellence programs focused on continued, measured improvement that systematically addresses recurrent business issues.

Current state of industry: usage and benefits

We researched 30 oil and gas companies, including oil majors, NOCs and independent players, to identify if the sample companies had an operational excellence program. For companies that did have an operational excellence program, we looked at the reasons for introducing the program, the main areas of focus and the structure of the program.

Three main reasons companies introduced an operational excellence program:

  1. To improve HSE performance, typically following an HSE incident. Companies that had not experienced an HSE incident introduced an operational excellence program in response to high-profile HSE incidents in the industry.
  2. To improve financial and operating performance, with a focus on reducing costs and closing the performance gap relative to peers.
  3. As part of a wider corporate transformation program or a shift in strategic direction.

Six most common operational excellence focus areas

EY - Six most common operational excellence focus areas

Four main outcomes of companies using OE programs

EY - Four main outcomes of companies using OE programs

Is it time for a shift in focus?

The programs identified in our industry examination show that there is willingness and desire to improve operating performance, specifically reliability, efficiency, cost and HSE. However, the same examination highlighted that few existing operational excellence programs adequately address all four of those factors and, despite these efforts, operating performance in the industry has been steadily declining, even before the sharp drop in oil price. In addition, stakeholders are demanding more consistent returns and improved HSE performance across assets.