Guest Editorial: Delivering Long-Term Value in E&P
- James Albert (KPMG)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- March 2018
- Document Type
- Journal Paper
- 14 - 15
- 2018. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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Exploration and production (E&P) has become a margin business, with relentless pressure on unit cost performance and global competition for capital. While the industry response to the downturn has been impressive, past initiatives such as reductions in head-count and supplier rates are unlikely to cut it in the long term. To survive in this new economic reality, companies will have to do more to potentially reduce unit operating costs (UOC) by another 30%.
While oil and gas consumption is forecast to grow by 25% between 2015 and 2035, the growth rate has halved, with a further drag from decreasing energy intensity. Significant US unconventional capacity continues to be brought on stream at unit costs far lower than those achieved pre-2014, while new renewable energy capacity is being added at pace, with spectacular improvements in cost efficiency. These are long-term pressures that are likely to carry on squeezing E&P firms, despite recent oil price increases.
As operators consider how to achieve further reductions in UOC, here are five sources of long-term value that every leadership team should be tackling in earnest.
Zero-based asset costs. The pursuit of engineering excellence has driven cost and complexity into processes, activities, and equipment. Meanwhile, as portfolios have shifted through acquisitions and divestments, differences in breakeven UOC have become more visible and, in many cases, these costs are no longer sustainable, especially with the lower oil price of recent years.
There is an opportunity to reduce waste by differentiating processes and standards, tailoring them to the economic needs of individual assets or asset classes. Leading players recognize that they need to go much further than differentiated maintenance strategies, looking in detail at individual activities and standards across the business.
By adopting an approach that starts with a “zero base” and adds back only those activities that truly drive value for an individual asset, operators can significantly reduce costs. One major reviewed in detail the process for assigning resources and costs to individual projects across field development and drilling projects and reduced costs by 25% across assets.
Value-based prioritization. Since the downturn, organizations are having to do “more with less,” with some having reduced headcount by up to 30 to 50%. Gold-plated engineering solutions and low-impact maintenance interventions are no longer feasible in the new economic reality. Yet in many organizations, day-to-day prioritization decisions still rely on traditional engineering-led methods or simplistic “rules of thumb.”
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