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February 18, 2016
Low oil prices inspire a new search for the perfect operating model
By: Chuck Pierce

It’s already been a year since oil prices began their precipitous decline, and some industry observers forecast low prices to continue for another year or longer.

Oil and gas exploration and production companies have already conducted multiple rounds of layoffs, cut spending and reduced capital costs. Some companies have gone under, and others have continued to struggle, trying to make a profit at $30-40/barrel, let alone pay dividends and reinvest in production growth. The industry has shut down over 1,000 drilling rigs in the last year bringing the current rig count to 650 rigs, the lowest since 19991.

As the focus has shifted from growth to efficient production, Accenture sees the onshore shale operators starting to adopt new operating models beyond just cutting head count across the board. The old model was manual and highly dependent on individuals and experience. The new model is about remote management, new generation automation and cloud-based SCADA as well as more division of labor and strategic use of experts across multiple assets.

Low-cost technology in the new operating model is fuelled by the Internet of Things. Mobile devices and other technology solutions familiar to consumers are being adapted for multiple industries. These solutions cost much less than the purpose-built devices in use in oil and gas since the 1990s (such as the PLC, the programmable logic controller). More importantly, these new devices have much greater functionality, mobility and flexibility.

The Internet of Things is enabling connected production operations for oil and gas organizations. Companies can collect and utilize digital information in new ways that helps to keep wells on line, reduce head count and promote worker safety.

Other industries have faced margin pressure for many years and have adopted different business model leveraging the internet, digital and outsourcing. As oil and gas companies look for new ways to improve effectiveness and reduce cost, some additional developments may include:

  • Narrowing the business scope (e.g., onshore US) to focus on the most profitable core assets and gain efficiencies from repetitive, standard processes

  • Automating more tasks, including basic engineering functions

  • Adopting best practices from other industries (e.g., aerospace on maintenance practices)

  • Utilizing division of labor and outsourcing of more functions which may include those that were traditionally considered core, such as well surveillance

  • Variabilizing costs (such as linking service contracts to wells and production instead of day rates)

  • More aggressively implementing the principles of lean management

  • Using advanced data analytics as part of the day-to-day operations management to optimize everything from chemical injection and artificial lift to water hauling

  • Using predictive analytics, such as machine learning, to avoid breakdowns

Although low prices continue to be hugely painful for the industry, and no relief is yet in sight, the current environment is inspiring a search for new business models and innovation that can improve efficiency and deliver greater value.

1"BHI: US drilling rig count falls to 650, down 14 units,” Oil & Gas Journal, 15 January, 2016. Factiva, Inc. All Rights Reserved. 

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