This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Operational Excellence
Peter J. Parry | Managing Partner Global Oil & Gas Consulting
Bain & Company, Inc. | 40 Strand | London | WC2N 5RW | United Kingdom
+44 7733 302 300 [email protected] | web:www.bain.com
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 2LON Finding Petroleum Presen ... 140612
Upstream Operations Excellence: trends and implications
• The large Upstream producer competitive landscape is shifting to profitability cost and operational metrics away from volume growth
NEW UPSTREAM
Source: ExxonMobil 2014 Analyst Meeting
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 3LON Finding Petroleum Presen ... 140612
The past decade has seen the upstream majors fall back
Major IOCs included: BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Shell, Statoil, Total
MAJOR IOC PRODUCTION AND UPSTREAM INVESTMENT 2002-2013
Cumulative Capex FY2002-FY2013
= $1.43T
NEW UPSTREAM
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 4LON Finding Petroleum Presen ... 140612
Mature fields challenge and EOR potential: Fields aged over 10 years dominate global liquids production
Source: Rystad Energy U-CubeNote: Based on 2012 liquid production including crude, condensate and NGLs
MATURE FIELDS
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 5LON Finding Petroleum Presen ... 140612
Nigeria2013 Law on fines on operators responsible
for oil spills
Ukraine2014
Conflict and renewed cold war
Instability and change continues to impact the industry
Gulf of Mexico :2010 - offshore
drilling moratorium following Macondo
incident
Argentina:2012 -
nationalisation of Repsol stake in YPF
Algeria:2013 – In Amenas gas plant attacked
Syria:2012 – civil war
leads to exit of IOCs
Libya/Egypt:2010-11
‘Arab spring’ uprisings impact oil and gas infrastructure and
activity
France 2012 –ban on
hydraulic fracturing
SELECTED INCIDENTS IMPACTING O&G INDUSTRYINSTABILITY
Alaska:2012 - Shell
exploration rig slips moorings
Syria:2012 – civil war leads
to exit of IOCs
ME and Azerbaijan – on-
going contract renewals
UK 2011 – Further changes to
fiscal regime hit mature field economics
Australia:2012 – inflation hits NWS LNG
economics
USOngoing
developments in shale gas and oil redefine industry
supply
On-going African
Exploration Boom
Violence
Commercial
Environmental
Supply
NON-EXHAUSTIVE
Source: Bain analysis, Literature search
Kazakhstan2014 - fines by
government due to production halt/gas
leaks
Nigeria:2014
Large-scale theft by thieves
Venezuela2014
Series of protests, political demonstrations,
and civil unrest
ScotlandSpeculation on O&G industry based on
independence
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 6LON Finding Petroleum Presen ... 140612
Shortage of talent remains an industry challenge
• Many oil provinces will grow by at least 50% in the next 20 years
• Shift to unconventionals and new frontiers requires new capabilities
• 50% of staff with over 25 years experience will have left the industry in 7-8 years
• Requirements to ensure use of national staff and content will become increasingly significant
% OF LARGE NOCS STATING AS KEY RISKNORTH SEA: % STATING AS KEY CHALLENGES
IN NEXT 12 MONTHS
TALENT SHORTAGE
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 7LON Finding Petroleum Presen ... 140612
Asset Full Potential: Delivery at an individual asset level is ever more vital, four areas can make a big impact
1. Capabilities
- People
- Processes
2. Business Performance
- Financial Impact
- Emissions
3. Productivity and Potential
- Consistency and uptime
- Recovery factor
4. Stakeholder Management
- Delivery vs. expectations
- Engagement, support and learning
DELIVERING ASSET FULL POTENTIAL
ASSET FULL POTENTIAL
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 8LON Finding Petroleum Presen ... 140612
1. Capability: Building a baseline picture of people and process strength along with a development plan is vital
OPERATIONAL CAPABILITY TENABLE AREAS
Production Operations
Reservoir Management
OBO
Technology
HSE
Maintenance planning & execution
Processing storage and
transportation
Production management &
optimization
Land, marine and aviation
logistics
Integrated activity planning
Reservoir appraisal and development
Reservoir Modeling
Well & reservoir
surveillance
Technology application &
EOR
OBO strategy OBO operating model
OBO management resourcing &
capability
Technology strategy
Technology application
HSE Management
Systems
Behaviors & Culture
Performance Management
Occupational Health
People & Process Safety
Environment
WellsWell
engineeringDrilling
operationsWell planning &
approvals Completions Well work overs
Drilling technology
Technology performance
feedback
Weak Tenable Strong World-class
Legend
ASSET FULL POTENTIAL
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 9LON Finding Petroleum Presen ... 140612
OutputOutput
TotalcostTotalcost
Capital employed
Capital employed
RisksRisks
Shareholder value
Shareholder value
• Availability and reliability
• Throughput
• Product yield
• Emissions
• Operating expenses
• Raw materials/chemicals
• Energy costs
• Productivity
• Working capital
• On time/on budget projects
• CAPEX optimization
• Cash management
• Process/Personal safety
• Environment protection
• Asset integrity
• Capabilities / Human capital
As low as reasonably practicable
*Excludes feedstock costSource: Bain & Company
0% 8%
% output improvement
3%
0% 15%
% unit cost reduction
7%
0% 5%
% capital employed reduction
3%
Level of operating risk
2. Business Performance: Linking operations directly to shareholder value provides clarity of full potential
POTENTIALELEMENTS
LINKING OPERATIONS TO SHAREHOLDER VALUE
ASSET FULL POTENTIAL
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 10LON Finding Petroleum Presen ... 140612
3. Productivity and Potential: Typical UKCS large and mature fields show performance well below potentialASSET FULL POTENTIAL
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 11LON Finding Petroleum Presen ... 140612
3. Productivity and Potential: Typical UKCS large and mature fields show performance well below potentialASSET FULL POTENTIAL
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 12LON Finding Petroleum Presen ... 140612
3. Productivity and Potential: Understanding predictability and volatility are the first steps to change performance
Step 1
Understand the pattern of asset
performance
Step 2
Determine how predictable
performance is and what is
driving volatility
Step 3
Reduce standard deviation
Step 4
Move toward full potential
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 13LON Finding Petroleum Presen ... 140612
4. Stakeholder Management: Increasing emphasis on stakeholders role and NTR impacts
Increased technical
complexity
Declining production efficiency
Rising costs
Agingworkforce
Operatingperformance
ASSET FULL POTENTIAL
Stakeholders and NTR: Corporate, Shareholders, Asset Partners, staff, contractors, communities, NGO’s
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 14LON Finding Petroleum Presen ... 140612
The upstream Oil and Gas industry is experiencing a growing Operational Excellence gap
A. Production shortfall vs. plan
B. Slower than anticipated project starts
C. HSE and sustainability challenges widespread
D. Inflationary pressure and bottleneck in the supply chain and midstream
E. Maintenance and plant availability backlog
F. Multiple initiatives and limited sustained improvement
• Predictability of major project and production volume outcomes needs to improve markedly
• Affordability of new investments is coming under increased pressure
OPERATIONAL PROBLEMS BUSINESS CONSEQUENCES
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 15LON Finding Petroleum Presen ... 140612
Operational Excellence defined: Outstanding performance across all aspects of the business
Operational excellence
Top Quartile Asset
Performance
Best in class Processes &
Systems
World-class HSSE
High Performance
Culture
Distinctive Capabilities
Immaculate Reputation
• Standardized, consistent OE system adopted across Group
• World-class processes& systems
• Seamless structure for integration of acquisitions
• Best in class results on HSSE metrics and superior HSE culture
• OE mindset in all activities and cultureacross all assets and functions
• Continuous improvement mindset & behaviors
• Highly talented and skilled workforce and management
• Institutionalized capabilities across technical and supporting functions
• Large Pool of talent
• Envied reputation in the industry and the region for best-in-class operations and sustainable business practices
• Top quartile performance on key value drivers and return on capital across all assets
For more information, please contact Bain and Company
Bain & Company is the management consulting firm that the world’s business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Founded in 1973, Bain has 48 offices in 31 countries, and its deep expertise and client roster cross every
industry and economic sector. For more information, visit www.bain.com. Follow us on Twitter@BainAlerts.