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Insights into the ideas and innovations that are transforming project planning and delivery

$50 Until 2020s – How Can Oil Firms Protect Margins Amid Lasting Price Pressures?

The oil industry continues to be hit from all sides. Challenges abound, but perhaps none is larger than economic conditions keeping the price of oil bouncing around between $40 and $55 BOE. And that range is unlikely to change near term. Oil giant BP said in early August that it expects such prices for the next five years.

In such a pricing environment, it is difficult for most companies to justify significant new investments in greenfield or brownfield projects. Further, operations funding also is under significant cost pressures, so even maintenance and turnaround projects are closely scrutinised.

Amid these adverse conditions, there are innovative approaches oil companies are adopting to remain healthy, safe, and profitable. Let’s examine some of these best practice areas and how they benefit the industry.

Areas of Improvement

Efficiency

Over the last few years, operational efficiency has been crucial to remaining successful despite the trying conditions in the oil industry. This focus continues to be a driving force, as organisations look across the enterprise for opportunities to improve efficiency to reduce overhead or increase revenue. Oracle Construction and Engineering is similarly focused on how we can support organisations on this journey and provide solutions that enhance efficiencies in areas of governance and standardisation, cost and change management, and supply chain control, among other areas.

Balanced Portfolio

As with any crisis period, it’s important to not put all your eggs in one basket (or resources in one mega-project). As such, there has been a drive to use whatever investment funding is available across a broader array of projects that deliver value to the business more quickly. This cuts across all aspects of a business, from CapEx to OpEx to IT and so on. Technology plays a key role here, enabling organisations to make smarter, data-driven decisions about how to allocate increasingly limited resources to maximize return on investment.

Digital

At many organisations, digital technologies have been embraced at production/drilling sites, but there has been less adoption of tools to help with the critical areas of delivering and maintaining assets. That is changing, as they wake up to how various technologies (cloud, mobility, location-based services, collaboration and real-time analytics) can enhance project delivery – and, by extension, margins.

We have worked to provide solutions that support these organisational focus areas and are seeing customers that have come on the transformational journey with us recognising significant benefits. Here are some industry areas of focus where we’re working to make an impact.

Focus: Capital Planning

Improving how projects are selected can deliver upwards of 15% savings, according to McKinsey research. Our portfolio management solutions help companies capture project/investment ideas from across an organisation (not just the executive suite), and then model options to help select the projects that will deliver the most value for the least investment. Here from Buckeye Partners on their approach in this short video.

The Oracle Primavera Strategic Planning Solution enables organisations to maintain a balanced portfolio that takes into account the status of in-flight projects as well as market changes and larger economic conditions. For example, if a once-good idea starts to go bad because economic indicators turn against it, and at the same time the project starts to falter, the portfolio management solution can flag this confluence of issues and help executives to assess and potentially cancel the project and replace it with a better option.

One of our customers uses the Primavera portfolio management solution to model multiple economic scenarios (i.e., ranges of $BOE, products, etc.) against portfolios of selected projects. This has helped the organisation effectively predict which projects will deliver the most value and have the most successful outcomes across a wide range of conditions.

Focus: Small Caps/Sustaining Projects (The New Normal)

The oil industry is rapidly moving from building a few mega-projects to focusing on many more small projects. Driving that shift is organisations’ desire to use what limited investment funds they have to increase production without exposure to the risks of mega-projects, which are commonly delivered late and over budget. These small projects may range in value from few million dollars to $50 million or more, with delivery timelines of couple of weeks to a couple of years. They may be planned and executed almost exclusively as “self-performed,” entirely contracted, or some combination of those approaches.

The challenge with these small projects is to ensure visibility, planning, controls and executive oversight, while still allowing them to be managed simply and effectively – in contrast to the often complex controls needed to manage a mega-projects.

While our solutions for the oil industry are well suited to mega-projects, given the complex business processes supported, they also can be easily adapted and extended for small projects, providing needed enterprise visibility.

The Oracle Capital Projects and Programs Solution is a SaaS (or on-premise, if needed) application that provides a range of interfaces – both web and mobile – to meet the needs of all project stakeholders (i.e., executives, project managers and engineers, and the supply chain.) For small projects, organisations can take advantage of capabilities such as templates, mobile field status updates, field-initiated change requests to track potential budget impacts, and LEM (labour, equipment, and materials) tracking. They also can track actuals and trends in near real time (versus waiting weeks or months for invoices to flow in), and perform analysis to drive management and executive action in near real time as well.

Primavera’s small project solutions helped one customer save 10-15% on its portfolio of almost a billion dollars a year. 

Focus: Turnarounds

With the reduction in investment funding for new projects, existing assets are being used to the maximum. But eventually all assets require extensive turnarounds to optimize process and production. And while significant elements of a turnaround on any one asset are the same as the last one, 68% of organisations still fail to deliver these turnarounds on time, in large part due to lack of planning and failure to capture lessons learned in previous events.

What’s more, while these maintenance projects are intended to improve efficiencies, in many cases poor project management yields the opposite effect. Delivery delays from scope creep, inefficient resource management and other factors can lead to production and revenue losses, diminished shareholder value and regulatory non-compliance.

Our turnaround solution supports the business transformation under way at many oil and gas organisations as they look to improve management of turnaround events to minimize both their duration and their impact on revenues. To ensure that a turnaround is delivered on time and on budget, organisations need to fully understand, manage and control the scope of the event, including:

  • Scope selection
  • Resource requirements
  • Planning, including the procurement plan and equipment purchase lead times
  • Contractor and engineering requirements
  • Field status and productivity (mobility)
  • Daily costs

They must also be able to manage changes throughout the event, both for additional/late scope and emergent works. Our solution was designed to support the full turnaround lifecycle, from scope capture to lessons learned, and manage all of the processes that help ensure turnarounds are delivered on time and budget, helping some organisations to save upwards of 5% on both time and cost across a range of turnaround events.

Conclusion

Oracle Construction and Engineering is working to help the oil and gas industries globally to deliver more value with less resource – and to do so faster than ever before. We understand the full project lifecycle from inception to decom and have built solutions accordingly that can be deployed in the cloud or on-premise, depending on customer needs.

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