Three Upstream Industry Benchmarking Consortium (UIBC) member companies have joined two other UIBC companies in standing apart from their industry peers by adhering to Best Practices to improve their asset delivery systems and build cost-competitive capital projects. The success that these UIBC member companies have had at strengthening the performance of their oil and gas projects was a highlight at the mid-November UIBC meeting in Leesburg, Virginia.
As noted above, the three companies, recognized as movers at UIBC 2019, are not the first to be lauded by their industry peers for deploying Best Practices to deliver low cost projects. Two other UIBC member companies have established their own long track records for delivering cost competitive capital projects. However, some believed their success was unique across industry. The three companies joining the top tier of UIBC project performance have demonstrated that Best Practices for keeping project costs down are not elusive. Instead, companies have to be willing to adopt and implement them well.
These five top performing companies are realizing project cost efficiencies of 30 percent or more compared to industry average, IPA Energy Practice Director Neeraj Nandurdikar said. “For these five companies, being members of the UIBC community is paying off big time,” he said, adding they have taken the UIBC low-cost framework and deployed the set of practices from the framework effectively, and are now reaping the benefits.
With lower oil and gas prices and significant changes unfolding across the energy landscape at the dawn of a new decade, energy firms are being pressed to deliver lower cost assets with predictable cost and schedule outcomes. Unfortunately, too many companies are just beginning to show signs of implementing more disciplined systems. Some companies are continuing to struggle with improving the readiness of projects at the end of the FEL 2 Select gate, and others are still not showing much progress in putting together properly structured and functionally integrated project teams.
Many in the industry, including companies and consultants, have questioned whether the Best Practices that IPA has identified with its quantitative capital project research work, Nandurdikar said. “This proves that they do—when large global integrated oil companies with difficult and diverse portfolios can demonstrate 30 percent sustained improvement over a period of time—then the ones who cannot aren’t applying the right practices consistently.”
During the UIBC meeting keynote presentation, IPA President and Founder Edward Merrow said energy companies that are not improving the cost competitiveness of their capital projects need to generate a sense of urgency to change. The good news is that time remains to drive system performance change. The bad news: “The existential crisis is not far in the future and will happen faster than anyone imagines as markets lose interest in funding high-cost producers.”
There should be no expectation that oil prices seen during the 2011-2014 oil price boom will ever return, Merrow told UIBC member companies. Some companies have made commendable capital expenditure improvements by maintaining a “single-minded focus” on reducing project costs in response to lower oil prices. These companies adhere to a mandate from top management that project organizations are expected to drive project costs down across their entire project portfolios. Referring to the small group of UIBC owner companies that have broken away from the pack in delivering cost competitive projects, Merrow said those owners have shown no tolerance for high-cost projects. If their project team is unable to produce competitive cost targets for a project, “the project does not move forward.”
Sessions on Decarbonization and Digitalization
UIBC 2019 highlighted two two-part breakout sessions focusing on two critical industry topics, one examining project decarbonization considerations during development and the second on the use of digitalization to transform and improve business.
Decarbonization of Projects: Practices and Readiness—With decarbonization being a key strategic consideration for companies in selecting new projects, IPA engaged with member companies to first understand the state of the industry’s decarbonization efforts. IPA then studied the potential for developing data-driven tools and metrics to help in emission-related benchmarking of projects. At this year’s UIBC, research led by IPA Energy Practice Director Neeraj Nandurdikar and E&P Associate Project Research Analyst Adi Akheramka brought together insights into the specific practices companies are following to reduce greenhouse gases and carbon emissions. They continued their research to explore how these practices influence capital projects selection and decision making.
Not all project teams are incorporating greenhouse gases and carbon reduction issues in projects. For those that are, project practices appear to be “underdeveloped to support corporate ambitions,” Nandurdikar and Akheramka found in conducting their research. “There is a clear opportunity to identify a sequenced set of tasks and deliverables that would support a project team” to incorporate carbon reduction considerations in project decision making, according to their research. The researchers shared a
wide range of research findings and led a discussion with UIBC member company representatives about a project decarbonization readiness framework and carbon intensity benchmarking.
Digitalization: The Transparency and Control We Never Thought Possible—Digitalization has been one of the hottest topics in the E&P industry in recent years. Much of the excitement has come from advances in data analytics, which are being leveraged to optimize everything from facility and well designs to maintenance activities. This session, led by IPA Senior Research Analyst Luke
Wallace, explored the critical challenges companies have experienced and are currently working through for digitalization to increase the volume, accuracy, and speed of information project teams need for decision making.
Having surveyed and interviewed representatives of more than 27 companies, Wallace spoke about diagnosing opportunities where digitalization can improve projects, such as in the areas of cost estimation and validation. Also presented was a framework, based on lessons learned from organizations that have recently implemented digital solutions, of the essential steps companies should consider to get project functions and business executives to buy into the need for digitalization.
The UIBC is a chartered voluntary association of owner oil and gas companies facilitated by IPA. Member companies—super majors and national owner companies (including those with partial state ownership), as well as majors and independents—agree to project benchmarking to measure capital project performance outcomes. All members must be committed to continual capital effectiveness improvement.