Where would a 20-25% reduction of operational costs take you? How to manage your oil and gas business in the market downturn 4 Apr 2016

Low oil prices make it a top priority to reassess all conventional ways of conducting business

While an Enterprise Resource Planning (ERP) strategy leads to significant cost savings, it’s still considered complex and time-consuming rather than beneficial by some oil and gas companies. Fact is, this used to be true, but when focusing on best practices and a template-based implementation approach, efficiencies are achieved faster than before. Another way of looking at this is to consider the real value an optimised and automated process can add to your operations. The best way to get through the current downturn and to come out with an increased competitive edge is to focus on internal improvements – now.

As the average oil price has halved in the space of 12 months, no part of the oil and gas industry is left unaffected. The pressure is on for offshore mobile asset owners, challenged as they are by multi-company structures, global supply chain, resource optimisation, visibility across an ever-changing global fleet, project control, and management of investments on top of the financial problems. Other industries, like the automobile industry, have continuously worked with streamlining their processes. Meanwhile, the oil and gas sector has focused merely on capacity and maximum utilisation within the regulators’ standards.

Measurable results

“Oil and gas companies that want to remain competitive need to leave no stone unturned,” says Knut Møystad, IFS Global Director for oil and gas. “But how do you pursue cost optimisation without compromising on operational excellence? If not a magic wand, both Enterprise Operational Intelligence and ERP are reliable tools that enable you to do just that in order to start competing on cost.”

What about ERP implementations being complex, expensive, and without desirable ROI then? Here are some of the benefits being experienced by IFS’s clients:

  • Joint operational and maintenance planning – a joint operational (mobilisation, operation and de-mobilisation) and maintenance plan (preventive, predictive and legislative/class requirements) provides a new level of overview – a forecasted asset utilisation, cost and resource requirements plan.

  • Inventory stock optimisation – joint planning, corporate part standardisation and inventory visibility across the fleet reduce overstock, not only for a single asset but across the entire fleet. In addition, clients achieve a forecasted fleet resource requirements plan, a known demand plan, e.g. a 5-year rolling forecast.

  • Improved spend on frame agreements – clients achieve bargaining power, taking advantage of forecasted global requirements, and, when the supplier is a global player, frame agreements are negotiated, for both suppliers of goods and services, and 3PL companies.

  • Centralised key operational support functions – standardisation of equipment, maintenance plans, part catalogue, suppliers etc. across a global fleet not only reduce overheads by centralising operational support (e.g. asset integrity, supply chain etc.), but also maximises the turn-around of integrating new builds and acquisitions into the company’s operations.

  • Fleet-shared capital equipment – in an industry where equipment costs are high, operational utilisation pushed to a maximum, and regulatory standards of first priority, capital equipment shared across the fleet is a proven concept. Clients achieve capability to respond more quickly to market demands (e.g. the availability of risers across the fleet) and maximise uptime (e.g. an offshore thruster exchange due to re-certification requirements).

  • Improvement of inventory value and utilisation of actual purchasing costs

  • Process time savings thanks to finance process automation

  • Improved project forecasting and better cost control

Together, these are some of many improvements that can lead to a total reduction in operational costs by 20-25%. Needless to say, that puts you in a completely new position.

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About the Author

Rob Stummer is the Managing Director, Australia and New Zealand for global enterprise applications company IFS. He has held this position for the past eight years, continually achieving significant growth annually in both revenues and EBIT. Rob holds several degrees, including a Masters from Melbourne University. See: www.ifsworld.com/au