Operational Excellence: The Key to Success for Oil and Gas

John W. (Bill) Mooney & Christopher Smith
The Oil & Gas Monitor
August 20, 2012

In today’s increasingly commoditized and globalized business environment, companies in all industries are finding it necessary to increase their competitive advantage. Indeed, companies in the oil and gas industry are looking to increase their bottom line by boosting their operating efficiency and reducing fixed cost. Achieving this, however, is challenging, especially within the context of the increasing complexity of remote and extreme operational environments. One strategy oil and gas companies are employing is the full integration of all assets and processes into a single management system. In doing so, oil and gas companies have great potential to increase their operational efficiency and realize significant reductions in fixed cost.

The Beginnings of Integrated Asset Management

The move toward integrated asset management initially started with companies focusing on Process Safety Management (PSM) within the context of a health, safety and environment (HSE) system. Oil and gas companies often operate in extreme environments utilizing highly hazardous processes. These processes must be managed with extreme precision to avoid significant process-related incidents. To accomplish this, companies would develop PSM procedures and programs that were typically housed within the HSE function.

In order to assist hazardous process industries as a whole, the U.S. federal government and leading companies, including DuPont, came together to create a responsible care community. This community –composed of manufacturers, chemicals producers, oil and gas companies, etc. – focused on what an operating system needs to look like to be responsible and avoid incidents. Eventually, the federal government, with input from this responsible care community, worked with International Organization for Standardization (ISO) to develop a standard for PSM. While this standard applies only in the United States, there is currently a global expansion underway to promote the implementation of ISO standards in other regions, thereby ensuring that companies operating outside of the U.S. know what is required to manage their operations safely.

Operating a PSM program within the context of the HSE function will likely minimize process-related events, however, due to the narrow scope; opportunities to create efficiencies and to leverage synergies between the various business functions are often missed. The solution to this – an integrated asset management program – requires a concrete strategy as well as the time and expertise to execute. In the move toward integrated asset management, oil and gas companies often attempt to integrate their assets in an initiative-based approach, without the needed foundation, policies and practices in place.

Challenges to Success

As oil and gas companies look to increase the efficiency and integration of their assets, many of them have implemented initiatives geared towards different aspects of the business. There would be an HSE-based initiative coupled with a PSM-focused initiative, for example, which were then tied to a production initiative and so on. The problem with this model is that, ultimately, an initiative-based approach to integrated asset management leads to overload. Businesses find themselves with too many disparate initiatives and an inability to allocate resources. The challenge to corporations is to figure out how to manage various initiatives in a holistic way. The goal is to manage all of the priorities – safety, production efficiency, cost effectiveness – together and across the organization, from the corporate headquarters, to the various plant sites.

Rather than administering various processes and programs separately, DuPont believes what is needed is a model that combines the technical processes and operational capabilities of both HSE and PSM and applies these competencies to a company’s assets in a way that fosters continuous improvement and drives cost productivity gains. Such a holistic model focuses on operational excellence, which includes all business components, from technical capability to operational considerations, including asset management, to elements outside of manufacturing, such as the supply chain.

Many companies believe they have adopted a model of operational excellence, but in reality, a majority have implemented a model of integrated asset management that is focused solely on HSE. Operational excellence is built upon standardizing the components of HSE and PSM into one overall effort.  True operational excellence should go beyond HSE and PSM to tackle cost performance and the performance of people.

A Comprehensive Solution

This process of standardizing business processes can be particularly difficult for oil and gas companies, which often view the corporation as an entity similar to a holding company.  Each business area – exploration, upstream and downstream production, refining – is distinctly different, and it may seem as though standardization is impossible or illogical. With a greater understanding of what is required to be successful, which may differ from one worksite or business unit to the next, it is possible to develop common and standardized core competencies across the business as a whole. To successfully accomplish this, experts from each of the core areas – operations experts, safety executives, maintenance and reliability directors, and management – must come together and participate in designing a model that is broad enough to be applicable to all of the assets. Creating standardized approaches to various business functions allows for centralized knowledge and oversight, while giving flexibility in implementation, allowing business units in different operating environments to apply common knowledge and standards.

For many oil and gas companies, achieving operational excellence requires a cultural transformation within the company as a whole. Business leaders need to look at the broad picture to determine a short term plan for leading their company to integrated asset management while also developing a long term plan for achieving operational excellence. For an oil and gas company focused on HSE and PSM, the culture must become one of standardized processes that lead to integrated operations and management.

Regardless of a company’s size, location or even industry, one aspect of operational excellence that is often overlooked and underrated is people. Most companies, particularly in hazardous industries, train their people to perform their jobs safely; however, safety (and the broader HSE category) is only one component of operational excellence. To achieve operational excellence, companies need to have a culture where their people do the right thing all the time for the right reason. Of course, this is easier said than done and there is a general lack of understanding of how to achieve a culture of operational excellence. Many businesses revert back to an initiative-based approach that houses the training of employees with one staff function.

Rather than isolating the people piece of the puzzle, companies should factor in the mindset and behaviors of employees from the beginning.  The goal is to enable employees and business leaders as well, to shift their behavior and to reinforce good practices so that they become habits. The most successful organizations are able to change their culture in such a way so that every employee, regardless of the job function or location, supports and practices operational excellence and contributes to making that ideal a reality.

Achieving operational excellence goes beyond simply “checking the box.”  True operational excellence rests on the idea of a continuous improvement mindset. The ability to make improvements and to take learnings and apply them must be built into the business operating model. Continuous improvement also enables continued employee engagement – the business is never done growing, improving and learning, and employees are part of this process every day. The oil and gas industry as a whole has made significant strides in how they operate, and individual companies have the opportunity to come together to learn from one another, to share best practices and to ensure the advancement of the industry as a whole. How you deploy an integrated asset management system is just as important as the design.

View the full Operational Excellence article.

Copyright © 2012 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, The miracles of science™ and all products denoted with ® or ™ are trademarks or registered trademarks of E. I. du Pont de Nemours and Company or its affiliates. As published in Oil & Gas Monitor, August 20, 2012