By Adam Hirschfeld, VP of Sales
Every player in Oil & Gas, from supermajors to independents, is contending with the same challenging environment these days. Slowing demand growth, increased regulatory uncertainty and costs, supply chain disruptions from Panama to the Red Sea and Ukraine, increased pressure from investors to deliver increased returns through automation and innovation — the list goes on.
We’ve talked about how in this pressure cooker of an environment, the way that companies manage the supply chain (and everything it touches) is the pressure release valve no one seems to want to focus on. To be sure, it may seem like an impossible task. But not only is it possible, it’s in every company’s power to do it with increased focus in a few key areas.
There is juice to squeeze in 2024. The trick is to make the most of it by finding ways to outperform despite the headwinds that threaten to undermine progress. Let’s look at the tactical moves operators can make now to improve how they operate.
Embracing the ‘Portfolio Management’ Model
We are witnessing the dawn of a new era in Oil & Gas production in North America. If the past 100 years have been about exploration and production, the next 10 to 15, at a minimum, are about portfolio management.
Once the current wave of consolidation is complete, the companies that remain will be putting geographical expansion on the back burner, and increasing their focus on the following areas:
- Efficiency: How can I manage this portfolio of assets as efficiently as possible? How can I innovate to empower my people to work smarter and more efficiently?
- Cost Reduction: How can I reduce my cost basis and thereby maximize the profitability of the assets I have?
- ESG: How can I reduce my carbon footprint and improve the safety of my operations without putting undue pressure on (a) and (b)?
The companies that are most successful will find opportunities to make moves that accomplish all three. Take centralized production facilities: With more contiguous acreage at their disposal, operators can centralize these facilities so that each facility is able to service more wells.
Another example is electrification: microgrid infrastructure comes with upfront costs, but pays for itself in the long run while reducing emissions from gas generators — along with the trucks, trains, and boats that are required to ship fuel from origin to the locations where it is needed.
Investing in Technology
Beyond mastering portfolio management, the companies that outperform in 2024 and beyond will make technological innovation a central piece of their strategy. We’ll see advancements that include:
Innovation at the wellhead:
- Proliferation of techniques like horseshoe drilling — which enable operators to get more production out of each vertical section they drill — will improve efficiency and lower costs.
- The ability to drill longer and longer laterals will have a similar impact.
- The reduction in the number of vertical wells required to access recoverable reserves will also require fewer and fewer people to manage a given operation in the field.
Innovation at the HQ:
- Remote control centers will enable team members at the HQ to manage more drilling operations than ever was possible before.
- Increased remote collaboration will reduce the quantity and variety of field personnel required to be on site to deliver projects.
Drones, AI, and the digital monitoring of equipment for predictive maintenance are also becoming commonplace. The bottom line: The most successful energy operators will be the ones that embrace technology to drive operational efficiency and empower everyone on their team to do more.
Leaning in to the Supply Chain and Everything it Touches
If you’re still with me, my guess is you’re nodding along. But this is where it gets interesting. When you compare it to field operations, the supply chain is a system-heavy and incredibly high-touch corner of the business where very little investment has been made. Even for supermajors.
If you take the purchasing process — from finding and evaluating new vendors all the way to paying for completed work — most companies have anywhere from five to nine separate systems, if not more. There is no single source of truth for the energy supply chain. And because most of these systems don’t talk to each other, the industry has evolved into a patchwork of solutions. Up until now, the answer has been to staff up to support manual steps and handholding throughout the process, and to layer on lengthy, bureaucratic approval chains to try to stop leaks and safeguard against errors churned out by this haphazard and broken system.
This has led to a massive data gap in the Oil & Gas supply chain: Only 20% of leaders feel they have the data they need to make decisions, 40% of operators have the data to evaluate vendors outside of their AVL, and no one really knows what the going rate for goods and services are in a given region.
It should be no surprise that only a quarter of Supply Chain and Operations leaders are delivering 80% or more of their projects on budget.
In this patchwork world, all of that waste is baked into the system. This shows up in many forms — from project overruns and inflated costs from vendors to entire headcounts (if not entire teams) dedicated to chasing down invoice disputes, rubber-stamping procedural milestones, and locating niche vendors for just-in-time needs. Not to mention the ongoing safety concerns that stem from most operators’ lack of visibility into field operations, and the role this plays in incident rates the industry over, which have their own associated hard costs.
Maximizing Efficiency Begins by Looking Inward
Of the three keys to doing more with less in 2024, you are likely doing pieces of two of them already. That’s a solid start. Hopefully there are some new tools to add to your belt to squeeze even more out of your operations.
But when it comes to the supply chain, it’s time to take a hard look inward. What are you really doing to solve these systemic issues? I see very little happening in the supply chain space that isn’t purely reactive to changes in process, new approval layers, higher standards applied by the business, and the need to ensure greater efficiency from suppliers. None of this gets at the underlying issues that make purchasing in Oil & Gas so inefficient and resource-intensive, nor does it empower teams to focus on the highest-leverage work they can do for the business.
As you brace for the unique headwinds of 2024, now is the time to ask yourself:
Is it good enough that it takes 10 days to drill a well, but you don’t know how much it actually has cost you until 60 to 90 days later?
Is it good enough that the price you pay for goods and services isn’t something you can validate anywhere?
No matter how you slice it, the capital spent in the field is finite. Because of that, maximizing the efficiency with which you deploy that capital is a must if you want to stay relevant and deliver shareholder value. All of this leads to one clear and urgent conclusion: It’s time to invest in the supply chain. If 2024 is the year we begin doing more with less, it would be criminal not to.
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Adam Hirschfeld is an industry veteran who worked in field operations and project management before shifting to leadership roles focused on business development in the labor project management space. As VP of Sales, he stewards the voice of the client to drive innovation across the Workrise suite of products. Adam lives in Colorado, where he enjoys skiing and hiking with his family.
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