Operational Excellence
Peter J. Parry | Managing Partner Global Oil & Gas Consulting Bain & Company, Inc. | 40 Strand | London | WC2N 5RW | United Kingdom +44 7733 302 300
[email protected] | web:www.bain.com This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Upstream Operations Excellence: trends and implications NEW UPSTREAM
• The large Upstream producer competitive landscape is shifting to profitability cost and operational metrics away from volume growth
Source: ExxonMobil 2014 Analyst Meeting This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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The past decade has seen the upstream majors fall back NEW UPSTREAM
MAJOR IOC PRODUCTION AND UPSTREAM INVESTMENT 2002-2013
Cumulative Capex FY2002-FY2013 = $1.43T
Major IOCs included: BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Shell, Statoil, Total This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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Mature fields challenge and EOR potential: Fields aged over 10 years dominate global liquids production MATURE FIELDS
Source: Rystad Energy U-Cube Note: Based on 2012 liquid production including crude, condensate and NGLs This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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Instability and change continues to impact the industry INSTABILITY
SELECTED INCIDENTS IMPACTING O&G INDUSTRY NON-EXHAUSTIVE
Scotland
Speculation on O&G industry based on independence
Alaska:
2012 - Shell exploration rig slips moorings
UK
2011 – Further changes to fiscal regime hit mature field economics
US
Libya/Egypt:
France
2012 –ban on hydraulic fracturing
2014 Large-scale theft by thieves
Gulf of Mexico :
Venezuela 2014
Series of protests, political demonstrations, and civil unrest
2014 - fines by government due to production halt/gas leaks
Commercial Environmental Supply
2014 Conflict and renewed cold war
2013 – In Amenas gas plant attacked
Nigeria:
Violence
Kazakhstan
Ukraine
Algeria:
Ongoing developments in shale gas and oil redefine industry supply
2010 - offshore drilling moratorium following Macondo incident
2010-11 ‘Arab spring’ uprisings impact oil and gas infrastructure and activity
ME and Syria: – onAzerbaijan
On-going African Exploration Boom
2012 – civil war leads going contract to exit of IOCs
renewals
Syria:
2012 – civil war leads to exit of IOCs
Argentina:
Australia:
2012 Nigeria nationalisation of 2013 Law on fines on Repsol stake in YPF operators responsible
2012 – inflation hits NWS LNG economics
for oil spills
Source: Bain analysis, Literature search This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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Shortage of talent remains an industry challenge TALENT SHORTAGE
% OF LARGE NOCS STATING AS KEY RISK
NORTH SEA: % STATING AS KEY CHALLENGES IN NEXT 12 MONTHS
• Many oil provinces will grow by at least 50% in the next 20 years • Shift to unconventionals and new frontiers requires new capabilities • 50% of staff with over 25 years experience will have left the industry in 7-8 years • Requirements to ensure use of national staff and content will become increasingly significant This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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Asset Full Potential: Delivery at an individual asset level is ever more vital, four areas can make a big impact ASSET FULL POTENTIAL
DELIVERING ASSET FULL POTENTIAL 1. Capabilities - People - Processes
2. Business Performance - Financial Impact - Emissions
3. Productivity and Potential - Consistency and uptime - Recovery factor
4. Stakeholder Management - Delivery vs. expectations - Engagement, support and learning
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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1. Capability: Building a baseline picture of people and process strength along with a development plan is vital ASSET FULL POTENTIAL
OPERATIONAL CAPABILITY TENABLE AREAS
Wells
Well engineering
Well planning & approvals
Drilling operations
Completions
Well work overs
Drilling technology
Production Operations
Production management & optimization
Maintenance planning & execution
Integrated activity planning
Processing storage and transportation
Land, marine and aviation logistics
Reservoir Management
Reservoir appraisal and development
Reservoir Modeling
Well & reservoir surveillance
Technology application & EOR
OBO
OBO strategy
OBO operating model
Technology
Technology strategy
Technology application
Technology performance feedback
HSE
HSE Management Systems
Behaviors & Culture
Performance Management
OBO management resourcing & capability
Occupational Health
People & Process Safety
Environment
Legend Weak
Tenable
Strong
World-class
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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2. Business Performance: Linking operations directly to shareholder value provides clarity of full potential ASSET FULL POTENTIAL
LINKING OPERATIONS TO SHAREHOLDER VALUE ELEMENTS
Risks
• • • •
Process/Personal safety Environment protection Asset integrity Capabilities / Human capital
Output
• • • •
Availability and reliability Throughput Product yield Emissions
• • • •
Operating expenses Raw materials/chemicals Energy costs Productivity
• • • •
Working capital On time/on budget projects CAPEX optimization Cash management
Shareholder value Total cost
Capital employed
POTENTIAL Level of operating risk
As low as reasonably practicable % output improvement
0%
8% 3%
% unit cost reduction
0%
15% 7%
% capital employed reduction
0%
5% 3%
*Excludes feedstock cost Source: Bain & Company This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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3. Productivity and Potential: Typical UKCS large and mature fields show performance well below potential ASSET FULL POTENTIAL
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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3. Productivity and Potential: Typical UKCS large and mature fields show performance well below potential ASSET FULL POTENTIAL
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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3. Productivity and Potential: Understanding predictability and volatility are the first steps to change performance Step 1 Understand the pattern of asset performance Step 2 Determine how predictable performance is and what is driving volatility Step 3 Reduce standard deviation Step 4 Move toward full potential
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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4. Stakeholder Management: Increasing emphasis on stakeholders role and NTR impacts ASSET FULL POTENTIAL
Rising costs
Declining production efficiency Operating performance
Increased technical complexity
Aging workforce
Stakeholders and NTR: Corporate, Shareholders, Asset Partners, staff, contractors, communities, NGO’s
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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The upstream Oil and Gas industry is experiencing a growing Operational Excellence gap OPERATIONAL PROBLEMS
BUSINESS CONSEQUENCES
A. Production shortfall vs. plan B. Slower than anticipated project starts C. HSE and sustainability challenges widespread D. Inflationary pressure and bottleneck in the supply chain and midstream E. Maintenance and plant availability backlog F. Multiple initiatives and limited sustained improvement
• Predictability of major project and production volume outcomes needs to improve markedly • Affordability of new investments is coming under increased pressure
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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Operational Excellence defined: Outstanding performance across all aspects of the business • Top quartile performance on key value drivers and return on capital Top Quartile across all assets Asset Performance • Envied reputation in the industry and the region Immaculate for best-in-class Reputation operations and sustainable business practices Operational
Best in class Processes & Systems
• Institutionalized capabilities across technical and supporting functions • Large Pool of talent
Distinctive Capabilities
World-class HSSE High Performance Culture
• World-class processes & systems • Seamless structure for integration of acquisitions
excellence
• Highly talented and skilled workforce and management
• Standardized, consistent OE system adopted across Group
• Best in class results on HSSE metrics and superior HSE culture
• OE mindset in all activities and culture across all assets and functions • Continuous improvement mindset & behaviors
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
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