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Operational excellence in oil and gas

EY - Key operational excellence components

The oil and gas industry has experienced numerous boom and bust cycles. In periods of prosperity, organizations spend big money for new assets, hire many employees and push for growth. During downturns, the impulse is to make drastic cuts to survive, eradicating projects, slashing positions and deferring important investments to minimize costs, often at the long-term expense of asset performance.

This expand-and-contract model creates great instability. Only when operators decide to build long-term stability and sustainability into their operational strategies will they be equipped to weather the downturns and capitalize on upswings in a measured and profitable way.

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

Specifically, we provide services in these areas listed below.

Six most common operational excellence focus areas

EY - Six most common operational excellence focus areas

 

How EY can help — achieving operational excellence:

1

Integrated business and activity planning

At the forefront of operational performance is the need to translate long-term business strategies into short-term and medium-term operating plans.

Key challenges

  • Sponsorship and maturity: Success in any endeavor starts with executive sponsorship and a culture that supports and understands the objectives.
  • Strategy and framework: To prevent value leakage from siloed thinking that often occurs from increasing operational complexity, oil and gas companies must establish clearly defined and well-understood connection and integration points among the strategic planning levels.
  • Translating strategy to operations: The enterprise strategy needs to be effectively translated into quantitative and actionable business unit and functional goals and targets to facilitate planning, budgeting and stewardship processes.

2

Target operating model

A target operating model describes not only how processes, people and systems interact to support the business but also how they could be arranged and prioritized to achieve optimum efficiency.

Key challenges

  • Siloed design architecture: Functions and geographies need to be fully integrated to promote consistency in culture, processes, controls and technologies.
  • Unclear decision governance: Decision-making and delegation of authority underpin the operating model and should include policies, practices, committees and rules.
  • Insufficient performance management: Many organizations are lacking a balanced set of quantitative and qualitative performance metrics necessary to support the strategy and vision. If metrics are present, they often tend to be inconsistently measured, managed and evaluated.

3

Supplier and contractor management

Leading operators understand they must leverage their suppliers and contractors to achieve the desired level of operational performance.

Key challenges

  • Prequalification and contracting: While supply chains and supplier networks have become increasingly complex, prequalification requirements and contracts have failed to capture these complexities.
  • Supplier and contractor risk: With increasing impact on business and operating performance, risks associated with these portfolios must be adequately understood, quantified and mitigated.
  • Field management and analysis: When organizations work with suppliers and contractors whose performance is not reliable and whose service availability is unpredictable, value can erode by as high as 10%-15% due to ongoing inadequate management and failure to monitor performance.

4

Asset reliability and integrity management

The pinnacle of great operators is their ability to reliably meet production targets and expectations. This requires them to transition capital projects into producing assets, improve day-to-day asset uptime and minimize the impact of planned outages.

Key challenges

  • Maintenance, reliability and integrity processes: When an organization fails to define asset strategies, identify critical risks, institute appropriate barriers of protection, and optimize asset and personnel performance, their asset performance suffers.
  • Shutdown and turnaround management: Too often, organizations fail to effectively plan, schedule and execute these major facility inspections/repairs in a way that ensures on-time completion, cost control and safe completion of activities.
  • Operational readiness planning: When integration and planning are inadequate, operators face increased difficulty in reaching the new assets to anticipate production numbers on time and on budget, without experiencing recurrent issues that upset production.

5

Cost efficiencies

The most successful organizations institute systematic approaches to identify and then eliminate sources of value loss, targeting the highest-return areas first.

Key challenges

  • Cost drivers: Often we see organizations focused on first- and second-level drivers without adequately understanding the third- and fourth-level drivers, leading to the true causes of inefficiency and cost escalation to be misdiagnosed, ultimately limiting the impact of proposed solutions.
  • Production management optimization: Through production planning, a robust management system, loss reporting and root cause analysis, production optimization can occur. Failure to properly manage any of these areas routinely leads to suboptimal production, directly impacting business results.