How Some West Texas Producers are Facing Headwinds from Increased Complexity, Resulting in Decreased Cash Operating Costs/Barrel
Since 2009, we've seen US production of oil & gas double to over 10MMBPD and, according to the EIA, we are on our way to 15MMBPD by 2025. Production in Texas alone has seen volumes increase to over 5MMBPD. This has created a number of logistical, planning and scheduling headaches for operators.
The challenge operators face
- Fracking sand demand has risen to over 10MM tons a month. Wisconsin provides 1/3 of that quantity. With primary destinations including West Texas (Permian), Pennsylvania (Marcellus) and Barnett (North of Dallas / Ft. Worth), the logistical coordination of shipments and on-time deliveries is crucial to maintaining a cost advantage.
- Procurement and logistics of inbound material, in addition to scheduling OTIF (on-time, in-full) deliveries, becomes increasingly difficult in the absence of the appropriate tools, data and decisions systems, skills and process. We have observed that operators who have embraced a holistic end-to-end supply chain strategy are commanding advantages of up to 15% - 22% in EBITDA/barrel.
- Cycle time -- from spud to first oil/gas -- has decreased considerably in the last couple of years. Drilling & Completions that would routinely take in excess of 90+ days are currently being done, inclusive of work overs and hydraulic fracturing, in 14-45 days. This vast improvement is mostly due to better planning, enhanced data capture and analysis and continuous optimization via more frequent look backs and analysis. As a consequence, employees have acquired new skills in data analysis for well optimization in production and overall improvement in unplanned deferments.
- In a multi well-per-pad environment, as in some locations across the Permian, complexity seeps in with varying degrees of delivery and access to sand, water and horsepower (in terms of deploying crews and equipment). To continue pursuing sub-$10/barrel cash operating costs scheduling becomes ever more critical and the right tools, processes and capabilities are required through a coordinated supply chain effort.
How can West Texas producers respond?
Oil and gas producers will continue facing major challenges in 2019, including a pronounced erosion in human capital. Producers will need to get creative in their talent acquisition and retention strategies, especially as more workers move past retirement age. Responses to this challenge may include bringing retirees back as consultants while, at the same time, renewing focus on digital transformation, artificial intelligence, IIoT applications and intelligent production.
When factoring in all the demands of augmented surveillance, tightened safety and environmental compliance and the ever-increasing cost of technological complexity, it's no wonder operators employing the "same old ways“ find themselves in a world of hurt. How can operators rapidly change the way they think, behave, decide and act, embrace data analytics and learn the new skills and capabilities required to attain higher output, faster, better and cheaper?
We've found there is a proven way to realize sub-$10/barrel cash operating costs. Taking a holistic supply chain view to procurement, operations and logistics, based on a solid foundation of data analytics, critical skill development and clear and defined roles and responsibilities has a direct impact on reducing Lease Operating Expense (LOE) and Gathering, Processing and Transportation costs. We refer to this approach as Total Value Optimization (TVO)TM.
TVO's direct benefits, together with a tighter focus on data analytics, help reduce the complexity surrounding logistical, planning and scheduling challenges. This better positions operators to obtain the full value of volume increases faster, and at lower costs.
Maine Pointe is a global supply chain and operations consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in EBITDA, cash and growth across their procurement, logistics and operations. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)™.
Maine Pointe's engagements are results-driven and deliver between 4:1-8:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com