Drilling Wells on a Budget: Lessons from Low Cost Airlines

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In the current tough time of low oil prices we need to get creative and think ‘outside the box’, or rather outside our industry, in search of ideas to streamline our processes and save costs.

An analogy to the airline business is worthy of consideration here. From outstanding safety records, excellent maintenance systems to precise logistical operations, these and many other aspects are common to our Oil & Gas industry. If the airline industry is sustainable in a fluctuating, fast paced, high risk environment like ours and can handle 100,000 commercial flights a DAY that move 3 billion passengers a year, I believe we should take a moment to study this industry in depth.

Given our difficult economic environment right now I will draw immediate parallels to the Low Cost Carrier (LCC) or budget airline model. What brought about the rise of the budget carrier, and how did they become so successful alongside their full fare counterparts? They operate the same airplanes as non-budget airlines and also draw professionals from the same pool. The pilots need the same training system, as well as in-flight and ground personnel. Most of them even share the same airport facilities. So where is the actual difference that allows them to lower the ticket price and still be profitable?

The budget airlines began with a different business model. They detected many services that were not fundamental for customers and cut back, while still working to ensure they were able to safely move a person from A to B. Making point-to-point flights reduced the complexity in connection, baggage handling, and connections to other airlines. This basically eliminated the need for travel agents and other resellers. Budget airlines also reduced the amount of different aircraft they utilised (for example Boeing 737 or Airbus A320), so training and maintenance is much simpler. As anyone that has flown with a LCC knows they also cut all non-essential aspects of the flying experience such as lounges, frequent flyer programs and meals; only offering extra features as an ‘add-on’ that would increase the base fare for the passenger. Finally, they streamlined and increased the productivity of all their remaining processes (self-check in systems, no luggage transfers, no connections etc.)

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So what can we learn from this that can be applied to our drilling activities?

While LCCs started disrupting the business model by simply eliminating or charging extra for non-essential services, they also took this opportunity to streamline and optimize the rest of their business operations, which can be an inspiration for drilling in Oil & Gas.

Since drilling can be onshore, offshore shallow, deep, ultra-deep water etc., it is hard to make specific recommendations, and companies do face unique challenges specific to their region and businesses. Despite these varying complexities some general lessons can be passed on from the LCC business to Oil & Gas. I believe the main points to consider are:

• Do the rigs (and other main service providers) have common modus operandi and similar procedures? If not, can anything be done to simplify operations?
        LCC: Flying a single aircraft type reduces the complexity and cost of maintenance. Aircraft manufacturers offer a wide range of aircraft (covering volume, distance, and different purposes), but budget airlines only choose a few of them and assign them to as many routes as possible. In our industry manufacturers build “fit for purpose” drilling rigs, but they could also standardize them in a similar fashion to airplane manufacturers designing their planes.
• Could operators be using no-frills equipment that can do the same job at a lower unit cost?
——LCC: No frequent flyer programs, no seat allocation, no in-flight entertainment etc. included in the basic cost of tickets.
• Do we know exactly which top 20% of operations are taking up the most time and cost? Are these operations under control (execution time has low dispersion from many samples)? Are they benchmarked against other rigs and other operators?
——-LCC: Reducing capital and leasing costs, airport costs, general overheads, ways to reduce fuel costs.
• Is there a very precise plan drawn up before drilling which can be followed up operation by operation? This gives the opportunity to assess the impact of unplanned operations that are executed as well as the impact of planned operations that aren’t executed. These types of operations are anomalies which can have costly consequences, directly or indirectly. They need to be understood and have a root-cause analysis clarified, in order to prevent any ongoing waste of resources.
——-LCC: Keep routes simple and profitable, with regular evaluation of the viability of each; benchmarking each flight for continuous improvement.
• Are the logistics programs kept informed of the latest changes in the well development, ensuring the correct amount of resources are utilised at the correct time? We want to avoid a shortfall (wait on resources) or an oversupply (no space to store) during drilling activities.
——-LCC: Simplified maintenance program, tight integration between operations and logistics; luggage handling, limited connections etc.
• How can we handle an outstanding safety program across the whole industry?
——-LCC: A very detailed safety program; thorough root cause analysis; safety regulation from operators, regulators, government, supplier, etc. The whole ecosystem is prepared to maximise safety. That’s why safety records haven’t been compromised even with the increased number of flights sold and delivered in this ‘budget’ manner. It is worth understanding that the aviation industry as a whole was born with ultimate safety in mind as the failure costs are enormous, affecting human lives directly. Despite their cuts, LCC companies continue to operate on the existing safety paradigm. Oil & Gas started a safety program which is growing in effectiveness and its application, but only the collective responsibility of all parties involved will lead to outstanding results.

These key points, among others, need to be reflected on in order to bring our industry to the next level. Even in the high risk and volatile Oil & Gas industry it isn’t impossible to create an ecosystem that can lead to further savings without jeopardizing safety. That’s what the airline industry, budget or not, has safely and successfully achieved to deliver growth and profit, after all!

– Carlos & Mike

 

 

Big Data – Let’s Put It Into Perspective

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When reading about Big Data it often strikes me how many different industries are championing the buzzword, whether that be companies trying to sell analytic services to said industries or big players trumpeting how they are utilising Big Data to better serve their customers. This is despite the fact that at this point in time the potential impact of Big Data is revolutionary in some circles while in others the tangible benefits are more limited. For example, outside the Oil & Gas industry you might be hard pressed to believe that Big Data is the brainchild of the social media marketing sector. Every day we see new reports tagged with Big Data highlighting the latest trends across the social media platforms. Sure, it sounds impressive when we learn that so many millions of photos are being uploaded to Instagram by XYZ demographic around a certain time, but what tangible, revenue generating good can we immediately produce from this?

Yes, social media produces petabytes of data, and it IS Big Data, but we need to put things into perspective when reporting on the phenomena. Big Data provides some great insights for marketers, but they often struggle to convey the impact of their digital efforts in dollar terms, whereas in the Oil & Gas industry, where companies live and die by the dollar, the impact of Big Data is immediate and clear. According to GE, utilising Big Data to reduce capital expenditures by as little as 1% would save over $90 Billion of accumulated costs over a 15 year period. That is, Big Data has a clear, tangible impact on the goods produced by the Oil & Gas industry; the impact of which is far reaching, as oil and gas currently powers most of the world.

Despite the significant difference in tangible benefits available today, the amount of Big Data generated by the Oil & Gas industry is actually miniscule compared to what social media produces. On one hand this is the consequence of design, as social media by nature is completely virtual and connected, while Oil & Gas operations are essentially physical and only driven by insights from data and other areas. This paradigm will soon shift, though, as the cost of measuring Oil & Gas operations, and thus producing Big Data, is going down fast. According to Goldman Sachs, the price of the average connected sensor for measurement will have dropped from $1.30 in 2004 to nearly $0.50 in 2016. Thus the drop in price enables each and every new operational endpoint to have more sensors, creating exponentially more data for Oil & Gas operators to exploit to drive better decisions.

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I would go as far as arguing that Big Data produced by Oil & Gas is far more manageable in the field, too. For example, in Oil & Gas we know that the reservoir data has a low correlation with data from the refinery processing plant. This means we don’t need to combine them in the same bucket; looking for “emerging relationships” (from data mining and predictive analytics). Therefore, even with the sheer amount of data collected, it can be decomposed into more manageable sub-sets that we can quickly utilise to make decisions. Social media delivers a lot of big data surrounding demographics and behavioural patterns; information which can’t be utilised as quickly as adjusting a drilling operation in the field, for example.

Despite the overarching positives surrounding Big Data in Oil & Gas, I am a little concerned about the popular mindset that we should be rushing to acquire more and more data. Though, this is coming more from technology providers than from the data analytics folks. More data is great, but only if we can analyse and use it to make real operational decisions. Data that is collected and not utilised is simply adding to the noise, and operators shouldn’t be paying to make their own analytics more difficult, costly or time consuming.

In summary, I hope I have demonstrated that there is big data, and then there is BIG DATA. We need to be aware of this and make the distinction in the overall discussion, as right now each industry’s utilisation of Big Data differs too much to be represented or explained by the single buzzword.

Long live Big Data in Oil & Gas!

– Carlos & Michael