Oil&Gas Financial Journal
This article originally appeared in the Oil & Gas Financial Journal
Picture a Friday night after work in any oil town, from Aberdeen to Calgary or Perth. Drillers and maintenance engineers recount the week’s small victories—not a few of which include boasts of heroic efforts requiring long hours of overtime to fix unexpected problems, or premium prices paid to rush parts and people to where they were urgently needed—all part of the “can do” spirit that the oil and gas industry is famous for.
It makes for good stories, but it’s no way to run a business. More than ever, oil and gas companies are under tremendous pressure to improve performance. Integrated planning – the detailed scheduling that coordinates a region or site’s activities with the organization’s broader strategic goals – is an important strategy for improving efficiency. It requires deep experience with facilities, strong coordination across the company’s functions, and discipline to stick to a schedule. But the payoff is huge: safer work sites that make better use of people and resources.
Industry outsiders might be surprised by how frequently exploration and production (E&P) operators overlook this kind of detailed activity planning, usually because more pressing break-fix problems take precedence. Sometimes plans are made but not implemented because they don’t line up with the company’s bigger priorities. In other cases, the task is overlooked because it can be difficult work, or it is delegated inexperienced junior staffers who may have wildly optimistic assumptions about timing, costs and resource requirements.
Leading companies take a more disciplined approach, recognizing that improving operational and maintenance planning is a critical step toward operational excellence. They understand that poor planning is expensive since it leads to labor overruns, overtime, missed deadlines and expensive rush orders. Planned work is safer, more cost-effective and more efficient than unplanned work. More significantly, rushed operations and activities can create unsafe situations. Removing the inefficiencies and nonproductive time from operations contributes to safe, reliable and cost-effective operations.
Successful planners keep business priorities in mind, making sure their investments in people, processes and equipment support larger goals. That means integrating the business planning done at the center with the activity planning that happens at the business unit level and the scheduling that happens on site. That can be a long distance to bridge in some organizations, but the effort pays off.
Sometimes a little experimentation is necessary to strike the right balance. In the upstream units of one large integrated company, each regional unit had historically operated independently, deciding on its own which activities to execute, and when and how to do them. When the company reorganized along functional lines, it developed new centralized models but struggled to find a balance between regional autonomy and central standardization. Eventually, executives worked out a compromise where functions set global priorities while still allowing the regions to make their own activity plans, so long as they supported the global goals. The regions also budgeted time and resources to handle the inevitable emergent work without having to go through a central review and approval process.
Bringing everyone onto a common planning system is another important step towards integrated planning, especially when the system links next-day plans with longer-term planning. When a major integrated oil company standardized with one comprehensive system worldwide, it faced resistance from units that had depended on other systems for years. But management sent a strong signal that it would no longer tolerate the confusion of multiple systems, and the unification has delivered benefits, such as tighter coordination and improved productivity.
Good integrated planning also builds in ways for companies to react to external events. A North American shale gas operator redesigning its field development processes to make the most of its shale assets, figured out how to account for current energy prices in its activity planning. Tight feedback loops help the company understand and react to the price of oil and gas—and adjust its drilling schedules accordingly, without causing significant disruption to field operations.
Better planning can improve operations at production sites almost immediately through more (including the staff on site or the use of boats and helicopters), better understanding of lead times, and other indicators that measure performance. Overall, integrated planning creates more efficient and effective operations while reducing safety risks, maximizing uptime, and making better use of resources.
John McCreery leads Bain & Company’s Oil & Gas practice in Asia-Pacific. He is based in Singapore. Ethan Phillips is a partner in Bain’s Houston office.