Gone are the days where oilfield employees can easily grab the corporate credit card and purchase supplies on a whim with little to no advance approval from management. With oil prices at historical lows, pressure to lower operating costs is reverberating through the oil industry. And unlike the low-priced environments of the past, the current crisis is forcing radical changes in maintenance, repair and operations (MRO) and the evolution of the digital supply chain to preserve the financial future of the oil and gas industry.
Profit margins are being squeezed throughout the production chain but are especially challenged in the upstream sector. Planned capex has been slashed across the industry, with total capex expected to fall more than 30% from previously budgeted levels, according to Baker Hughes, and the reduction of drilling activity greatly reduced with more than 50% of rigs idled over the past couple of months. Rystad Energy also paints a grim picture, projecting that global capex of E&P companies will reach a 13-year low.
In this low-priced environment where every penny is now scrutinized by the C-suite, many oil and gas companies are reluctantly dependent on traditional methods for tracking expenditures and sourcing supplies, sometimes waiting several days to receive important shipments. Unfortunately, advances in supply chain management have not kept pace with innovations happening in the rest of the oil patch, such as the viral adaption of machine learning to detect equipment failure.
These realities are putting pressure on firms to increase utilization of existing assets and extend the life expectancy of these assets with improved MRO programs. Technology is presenting the opportunity to provide big gains in helping firms more efficiently managing their MRO spend and maintain their asset bases.
Gaining detailed visibility on existing expenditures
Any successful program to lower costs must start with a clear picture of all current spending and the rate of consumption of all the parts, supplies and services utilized by the asset. This spending analysis should encompass the full scope of MRO for the asset. A good way to define this is to categorize this MRO as anything that wears out, runs out or breaks, along with whatever routine servicing to maintain or repair the asset is required. This should be done asset by asset and encompass detail on the full scope of parts and services procured to maintain the asset.
For example, GoExpedi underwent this exercise with Ensign Energy Services to provide the global drilling company with an innovative tool to enhance its supply chain capability and support their 24/7 drilling operations. Through this process, a clear picture of spending detail will highlight immediate opportunities for savings, if the following questions can be answered:
- How is spending varying from asset to asset to maintain similar assets? Why is more being spent to maintain one asset than to maintain another of the same assets?
- What are the expenditures for the individual part, supplies and services? Is the company paying consistently for these, or is the price varying by location, vendor, quantity, etc.?
- How consistent is the consumption of MRO across each asset? For example, if a company is buying safety gloves at the rate of eight pairs per hand each month on one drilling rig but 12 pairs per hand on a different rig, why is there a difference? What amount can be standardized each month?
Standardizing budgets, establishing management controls and challenging exceptions
The industry’s supply chain is often siloed and reliant on cumbersome and time-consuming processes like phone and email. As a new era of younger, more tech savvy decision makers are reaching the oil patch, they are primed to accelerate the adoption of e-commerce in an increasingly digital world. Furthermore, the digitization of the supply chain will tear down the walls that have long separated the oilfield worker in West Texas from management at corporate, creating a fully transparent and integrated ecosystem that has the unique ability to empower both parties. Once everyone has an accurate picture of spending through the help of digitalization and e-commerce systems, they can unanimously define what should be the appropriate level of procurement for each rig and set a standard budget. With budgets in place, controls should be established to track and approve spending against these budgets so that any drifting off budget and exceptions can be readily identified as well as approved or denied by management as appropriate.
With Ensign Energy Services, a custom procurement platform with visual dashboards was created that allows rig managers to procure necessary materials and supplies directly from their rig site and review detailed data and analytics on all expenditures, providing a direct line of sight to expenditures in real time. The tailored dashboard puts critical management controls in place and highlights any discrepancies in the established budget.
Creating proactive maintenance and service programs
With the enhanced visibility through digital dashboards, the industry is in a much better position to predict when supplies are needed, maintenance may be required or a critical part may be near the end of its life expectance. Unplanned rig downtime can generate significant losses, whether in the form of lost revenue or higher than necessary emergency repair costs. With the data now being collected and monitored, many of these unexpected repairs or part replacements can be better anticipated. For example, if mud pump pistons are lasting 63 days on average on a particular rig for a particular style and manufacturer of the piston, then the need to have spares on hand can be anticipated prior to their failure and avoid the pump going offline unexpectedly.
In addition to this creating opportunities for proactive and predictive maintenance, parts and supplies procured with a high degree of regularity and on a subscription basis (e.g., Amazon) ensure continuity of the supply of these items and opportunities to reduce the ongoing costs of these items by working with supply sources to set up discounted regular fulfillment of these items.
Embarking on an e-commerce arms race
To survive the latest downturn, companies must search for technologies that will help reduce capex and mitigate financial risk. Similar to how the retail industry conformed to Amazon’s e-commerce platform, the oil field must adapt solutions with interactive schematics, real-time reports, transparent approval processes and an enviable global supply chain to help operate as efficiently as possible. As operators embark on an arms race to digitize their supply chain, they are turning to e-commerce to reinvigorate the industry and navigate a tremendous shift in the operational and financial landscape of oil and gas.
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