Upstream COO: Focus On Increasing Production And Reducing Operating Costs

Craig Kindleman and David Shimbo

As an upstream oil and gas chief operating officer, you have a huge responsibility for exploration and production (E&P)– e.g., what’s your cost per well? And if you get it wrong, you stand to lose a lot of money – and risk your company’s future.

As a result, you’re much more attuned to key performance indicators (KPIs). In fact, you watch them like a mother bird watches its fledglings. And the more you know about those KPIs, the more you obsess about them. In this blog, we’ll tell you how to get more KPIs than you ever dreamed of.

For starters, did you know that digitizing oilfield operations improves KPIs and helps you build an intelligent enterprise? That means you can:

  • Increase well profitability by 3-10% through production optimization and a focus on maximizing production and minimizing facilities and well costs?
  • Reduce capital project costs by 1-3% through full lifecycle capital project management – with a seamless transition from project management to operations/maintenance?
  • Reduce operating costs by 2-5% through a focus on cost management and prioritization of oilfield service activities?
  • Reduce maintenance, repair, and operations (MRO) inventory by 5-10% through full real-time visibility to inventory and supply chain? Plus, you can improve your warehouse and supply chain integration with budgeting, planning, and operations.

The essential traits of effective digital operations leaders

Successful digital operations leaders understand that they must acquire the needed digital capabilities – and realize the ones that their team hasn’t developed yet. They challenge everything, including the status quo.

But more than that, they are data-driven, moving to a cycle of continuous delivery and improvement, and adopting methods such as agile development and Big Data analytics to increase the pace of innovation.

To continually improve, digital leaders must continue to experiment.

“You always knew digital was going to change things, but you didn’t realize how close to home it would hit. In every industry, digital competitors are taking advantage of new platforms, tools, and relationships to undercut competitors, get closer to customers, and disrupt the usual ways of doing business. The only way to compete is to evolve.”
      ―James McQuivey of Forrester Research

Oilfield operations is the center of production optimization

Many, if not all, of you are on a digital transformation journey. By becoming an intelligent enterprise, you stand to be counted among the leaders in your industry, and the benefits are legion. How can you tell if you’re doing it right? What does success look like? Not surprisingly, operations is well-positioned to monitor progress: First, you can have a real-time view of upstream and downstream margins – by operating company – with a drill-down to bills of materials (BOM). Next, you can have a real-time view of profitability for every region, field, well, and pay zone.

If you’re looking for data-driven insights, you can project downtime analysis for operations and maintenance and analytics for rotating equipment and well operations. And if you want global visibility into critical operational processes, your KPIs can be tied to production performance and business process automation.

Customer success story: Large upstream independent

Company M is an E&P independent with production operations in the US, Canada, and Malaysia. Company M wanted to optimize production in its existing assets, expand development opportunities in profitable business units, and reduce operating costs wherever possible while strongly emphasizing health, safety, and environment (HSE) compliance. It was committed to integrated business and operational processes such as well profitability and operational integrity. Most importantly, it was seeking a business partnership that could deliver results quickly.

Its objectives were to have a set of common tools that could decrease downtime and operating costs as well as support future growth. Then, it would use best-of-breed applications that created silos of technology and operational inefficiency. And, it would leverage the latest cloud technology for analytics, mobile devices, and dashboards with real-time views into operations and profitability.

We helped Company M make better decisions on a global basis so it could have visibility into finance, procurement, supply chain, and asset management processes. And, we helped it manage well profitability and optimize operational activities – and provide decision-makers with back-office ERP data.

The benefits came quickly. The company achieved all of its focused transformation objectives and value drivers and provided better visibility into global oil and gas operations. And it was able to provide valuable information on well profitability and operational integrity to oilfield managers, which allows them to make better operational decisions.

  • 25 weeks from installation and testing to go-live of finance, procurement, supply chain, asset management, and HR.
  • 2-5% reduction in operating costs with automated manual processes and reduced non-productive time (NPT) for oilfield operations
  • 5%–10% reduction in spare parts inventory with an integrated business planning process (Source: SAP Benchmark Surveys)

“The real value for us is moving into upstream operations management – well P&L, thoughtful planning in plant maintenance, forecasting, and predictive analytics, not reactive fixes. We’re very excited about where upstream operations management is going to take us.”
      ―Director of IT Planning and Strategy, Company M

Oilfield supply chain capability road map

Your road map to organizational change goes like this:

  • Mile one: Evaluate all exploration and production plays to determine key opportunities to develop. Then, generate a global development plan for all oilfields that optimizes profit and minimizes operating costs. Next, develop a forecast and strategy for the hydrocarbon supply chain.
  • Mile two: Balance capital project demand and supply through rapid simulations and analysis, and align plans with the unified model for financial targets and metrics.
  • Mile three: Develop a supply chain for each region using common processes and improve production planning and scheduling. Then, access advanced order promising and allocation, and plan supply across the network to meet business priorities.
  • Mile four: Run multimode, domestic, or international transportation processes in one holistic solution and enable international coordination of logistics with tracking, collaboration, and yard logistics.
  • Mile five: Manage advanced distribution centers and production warehouses with optimization capabilities.

KPIs aren’t everything. They’re the only thing.

Of course, KPIs are not the only factor in your operations. You need to be aware of your employees, your wells, maintenance, changing technology, sensors, EPA and OSHA regulations, IoT, etc.

But when your KPIs fall into place, pretty much everything else will follow.

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Craig Kindleman

About Craig Kindleman

Craig Kindleman is a senior director in the Oil and Gas Industry business unit at SAP. He advises customer executive teams and leads priority shareholder value initiatives for the oil and gas industry at SAP. Craig has acquired vast knowledge in operations, asset management, marketing, and technology – all based on his experience designing global initiatives for multinational businesses and specializing in high-impact projects.

David Shimbo

About David Shimbo

David Shimbo is responsible for business development and value creation for energy and natural resources accounts at SAP. With a focus on upstream, midstream, and downstream oil companies and oilfield service businesses, he has deep expertise with upstream financials, asset management, maintenance, operational analytics, business case modeling, and benefits quantification. David has oil and gas industry experience with Exxon, BP, and Halliburton and technology experience with IBM, Oracle, and two startups. David is determined to make all SAP projects related to increasing productivity and reducing operating costs.