Operational excellence exists where cost and production intersect in a safe, sustainable and reliable fashion.
Operational excellence is becoming more and more important to many oil and gas companies — especially as they expand production in Permian shale. While it has no industry-standard definition, operational excellence can be seen as achieving a balance of maximized production, optimal, sustainable cost, and strong health safety and environment (HSE) performance. While the Permian is often positioned as a haven for quick-turn operations, companies taking a longer view can benefit from implementing strategies and tactics that keep cost competitive while sustaining production in a safe environment.
A Three-Pronged Approach: Cost, Production, HSE
Experts have identified that production efficiency can offset cost at approximately a 5:1 ratio, but how can Permian operators balance and sustain those metrics with exceptional HSE outcomes? When oil prices are low and cost-cutting is emphasized, HSE often suffers. Deferring essential maintenance to keep costs down can result in equipment failure, production loss and possibly HSE issues. If an undesirable event occurs, HSE imperatives then become the focus, with production and cost suffering. With a more balanced, long-term approach, companies can sustain positive metrics in all three areas throughout the business cycle, even when cost pressure mounts.
Essential Balance for Sustained Performance
One strategy for achieving sustainable performance is limiting decisions to those that don’t cause one area to suffer while another area is pursued. Solomon’s view over the decades is that top performers execute projects with a more thoughtful and balanced approach while still maintaining excellent HSE imperatives.
Planned and unplanned stand downs of onsite work are tools that operators can use to remind staff to keep safety in mind in everything they do. While planned stand downs are often regular safety meetings, unplanned stand downs can be utilized to draw attention to an accident that could have been prevented or highlight specific hazards such as falls. The work stoppages not only benefit new employees, but also experienced workers who may not see a hazard as hazardous.
While unplanned stand downs can add to project costs, these costs may be small in comparison to the costs arising from an HSE incident, such as worker injury or death. By maintaining operational excellence in HSE, companies mitigate risks with their organizations and in the communities where they operate. They are also able to maintain the trust of their stakeholders. A lack of focus on safety and operational excellence will compromise the sustainability of a company’s operations.
Achieving sustainable performance not only requires a focus on worker safety, but proper equipment integrity and maintenance. Hence, another strategy to achieve operational excellence is to always adhere to a planned maintenance schedule, rather than delaying maintenance in the short-term to save costs. This strategy eliminates most unexpected downtime and keeps costs lower in the long run, since equipment is more expensive to repair than to maintain. And by limiting HSE exposure, operators keep their crews and the environment safer, balancing the importance of HSE with sustaining maximized production.
Cost Efficiency at Any Size
Whether you’re an independent player or a supermajor, a focus on cost efficiency remains a prudent strategy. Simply put, operators should never spend more than they need to, regardless of size. Likewise, no company will benefit from putting people or the environment at risk. By understanding how peers are performing, operators of any size can normalize costs to determine how to sustain profits even in a volatile market.
A Conventional Lens for Unconventional Production
The Permian Basin has been called a fool’s game due to a tendency by some operators towards high reactivity and short-term thinking. Strong players in the Permian view their business in a different light, seeing Permian assets no differently than any others. They take a long-term view and adopt a balanced approach with production, cost, and HSE — all key facets to maximize, to the extent possible, financial performance in a tough market.
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