By: Bjoern Ewers, partner and managing director at The Boston Consulting Group Middle East and Jean-Christophe Bernardini, principal at The Boston Consulting Group Middle East
Over the last four years, we have witnessed success in cost cutting in exploration and production (E&P); however, there is still a need for cost and operational improvements to boost sustainability. Some operations are completely revisiting their operational excellence (OE) approach to leverage digital solutions. We are convinced that a holistic approach, supported by business cases that efficiently integrate digital solutions in an operations excellence (OE) program, can dramatically improve asset value sustainably.
An effective operational excellence model is based on value delivery cascading strategic objectives to the overall operational processes. In health, safety and environment (HSE) domains, for example, we observed major improvements in performance by reducing the time taken to implement adapted solutions to correct downgraded situations or streamlining permit to work process, thus improving safety while increase efficiency. In fact, we witnessed sustainable gains of 10 per cent to 15 per cent in the productivity of workers when mitigation measures in relation to the risks of each activity were implemented.
The review or implementation of a company-wide operations excellence program, supported by relevant digital solutions, offers an integrated transformation approach that unlocks potential across the operational value chain. Key outcomes and benefits are linked to the nature and maturity levels of individual companies; however, efficient operations excellence management systems will improve HSE performance by reducing frequency of injuries by 30 per cent – 60 per cent. It will improve the definition of the maximum delivery potential or the identification and analysis of day-to-day production losses to increase production efficiency by 3 per cent – 5 per cent, and it will reduce OPEX by 20 per cent - 50 per cent by rationalising the maintenance plan or reviewing inventory management. An efficient operations excellence management system will also optimise CAPEX by 30 per cent - 50 per cent by reviewing asset portfolios, transforming engineering processes or increasing standardisation.
However, to derive these benefits it is essential to avoid common pitfalls including misalignment in terms of incentives and priorities identified across different stakeholders and/or functions, as well as expectations on targets and achievements of cross-functional initiatives and/or processes. In addition to this, rolling out digital solutions and roadmaps not aligned and prioritised with asset portfolio needs and with limited evidence of strong business cases also casts a downside.
Traditionally, E&P companies developed in parallel; OE (Operations Excellence) programs and digital solutions with limited integration. Nevertheless, key challenges including people, organisation and culture require an integrated approach in order to reach a positive solution. Moreover, we are observing new perspectives on design and rollout in relation to OE programs, which leverage a holistic approach to unlock potential value – such as $220 billion value from cost efficiency1 by 2020 or 5 per cent of the 514 billion BOE (barrel of oil equivalent) increase in recoverable reserves – that could be delivered by digital solutions.
The key steps in implementing an efficient and successful operations excellence management system rely on the application of a holistic approach. The target OEMs have to answer to operations challenges through tailored solutions including processes re-engineering, organisational change, specific digital solutions and company culture oriented toward performance.
- Evaluate asset portfolios and maturity: Assets portfolios and level of maturity of core activities will drive the priorities and the objectives definition of the Operations Excellence model which could be dramatically different depending for example on the operated versus non operated assets ratio. During this phase it is essential to identify systemic drivers which create inefficiencies and potential solutions to streamline, simplify and automate core operations processes such as production potential definition, operations planning, maintenance or inspection operations. permit to work processes.
- Define a vision, the objectives of the OEM: There should be a well-defined vision of the OEM, which is supported by company leadership and all levels of the organisation. This vision should include operational and financial targets for HS performance, production efficiency, OPEX and CAPEX optimisation, and identifies capabilities development requirements. Moreover, the OEM should contain an annual plan with clear and specific objectives to avoid to be an elusive goal and to be clear upfront on the expectations.
- Set scope and integrated roadmap: Set up a clear scope for the OEM to define clear roles and responsibilities, and define a specific roadmap for each discipline. The roadmap implementation should be supported by a tailored change program supporting the new operating model implementation, aligned with a shared ambition for the overall organisation and based on company’s strategic objectives and priorities.
- Identify/codify the best practices: Identify best practices to build on the company’s strengths and facilitate ownership by adopting a bottom up approach. In addition to this, codify the best practices that are considered core safety or business elements to leverage synergies and harmonisation.
- Implements a structured project management approach to focus on operations priorities and secure the expected impacts of the OEM. Its value has to be visible from the top management all the way down to the technician level with a clear understanding of the contribution of each individual within the level of company.
- Test through pilots and leverage quick wins: Pilot key processes quickly and avoid spending too much time in the design phase, but engage users early. Leverage quick wins to promote impact and value delivered by target OEMs.
- Adapt the OEM and deploy a multiyear plan: Leverage pilots to adapt and create a proven OEM platform for continuous improvement. Simultaneously, deploy along term roadmap based on company’s priorities and culture.
Last but not least, best OEMs require continuous review and improvement in order to move from efficiency to sustainable excellence. Operations Excellence programs support companies to move from individual effort or programs reach efficiency to sustained change driven by OE program to retain continuing excellence. To retain continuing excellence and secure sustainable performance impacts it is essential to include a systematic process to ensure high performance and identify adjustments where necessary by setting clear objectives and measurable targets.Best practices include systematic health check to assess gaps and performance against company’s model and targets, designing a multiyear plan to close gaps (prioritised based on overall risk) and engaging the wider organisation to execute against the plan.