Oil and gas companies have increasingly faced the twin challenges of low prices and increased competition from renewables. The COVID-19 pandemic has made the situation much more difficult. For example, the US benchmark for the price per barrel of crude dropped from $63 in January to below zero in April. Since then, the price climbed back up to about $41, which is a third lower than before COVID-19 became a reality in the US. In the second quarter of 2020, 18 producers filed for bankruptcy; that’s the second-highest quarterly increase in the last five years.
Controlling costs and optimizing production processes are not nice-to-have for oil and gas companies; they are necessary for survival. That’s why more leaders in the sector are turning to the practices that have long been used by manufacturing companies to reduce waste, improve quality, and speed projects to completion. It all starts with the simple idea that every process can be improved and that continuous improvement is the responsibility of every employee.
The Benefits of Continuous Improvement for Oil and Gas Companies
The need for the moment is to overcome challenges faced in the past regarding productivity and performance improvement. The current environment has made it essential to manage projects in them as efficiently as possible to safeguard margins. Companies should seek to develop a strategy for performance improvement which will help reduce costs and equate to higher margins in the following ways:
Here we are not just referring to sustainability in the environmental sense, which can be improved using continuous improvement practices and a business sense. Lowering cost, reducing waste, and enhancing customer relations creates a future that is easier to project. Standardizing processes makes an organization more resilient and better able to absorb new stressors.
Employee Satisfaction and Engagement
Continuous improvement has the impact of increasing employee satisfaction due to clear expectations, productive projects, and fully utilized skills. Efficient workspaces, the ability to do one’s best work, and tools to support improvement all result in better morale. Employees who are trained in continuous improvement techniques frequently offer innovative solutions to difficult problems.
One goal of continuous improvement is to reduce variation in the product and deliver a higher-quality product to customers. This is especially essential in commodities markets such as oil and gas, where innovation is related to business processes, rather than product enhancements.
Improved margins are the top goal for many in the oil and gas industry. Continuous improvement can address opportunities related to equipment startups, maintenance, and checkouts on the floor. It can also be applied to larger projects such as extraction and capital projects.
The Keys to Success
Many oil and gas organizations find it challenging to implement the continuous improvement approach because it requires a cultural transformation, and some people find new ways of working overwhelming. Our clients who have successfully navigated the shift have found several factors to be essential.
While the goal is to get every employee thinking about improving the processes they operate every day, it starts with the top. Employees must internalize that continuous improvement is not a management fad or the plan for today, but rather the key to survival. Leaders must demonstrate trust, humility, and a willingness to invest in what it takes for positive change.
Leaders in oil and gas know that the best way to reduce variation in processes is to automate them to the extent possible. You can’t automate continuous improvement because it is a fundamentally people-centric idea, but you can support it with technology.
According to the consulting firm McKinsey & Company, “To get the most from project data, oil and gas companies will need to standardize how it is captured and stored and dedicate analysts to overseeing the effort. It’s a good idea to create a central database that consolidates real-time performance data from projects across the company. Accessible to all employees, the “cloud control tower” enables project teams to anticipate and mitigate issues related to cost, schedule, and quality.”
A further advantage of continuous improvement software is that it aids in achieving the final ingredient for success, impact measurement. The best way to get employees and management excited about the potential of continuous improvement is to demonstrate results in terms of quality improvement, cost reduction, project speed, environmental impact, regulatory compliance, and customer satisfaction. When people see the needle moving in the right direction on areas that impact the bottom line, decision making is simplified, and people get personally invested in further improvement.
The time is now for oil and gas companies to innovate themselves and revamp the way they carry out everything from daily operations to E&P and capital construction projects. Opportunities to improve exist all along the way, and companies that seize them will win the market of the future.