Low Cost Oil – High Cost Extraction – OPEX Reduction Necessary

Introduction

Once again, we find ourselves in a market slump caused by rising costs and, on this occasion, tumbling oil price.  To many, that may seem like just another dip in the cycles experienced across the industry, typical of the surges and dips evident across the years.  However, whilst that may reflect the industry as a whole, that simplistic view may not be applicable to the UK industry, where the potential for a much larger impact exists.

The UKCS is already in decline – that fact is undeniable.  A simple look at DECC’s production and projection figures since 1998 shown in the figure below illustrate the challenges faced by operators in the coming years.

production and projection figures

Overlay that with Oil and Gas UK’s review of Operating Expenditure (OPEX) which has shown a 50% gross increase in OPEX since 2005 and the projection for the industry looks trying.  Furthermore, over the same period, the unit operating costs expressed in £ / boe have risen by some 350% – that is daunting to say the least.  It clearly demonstrates that part of the solution to extending the UK oil and gas industry is to reverse, halt or at least slow the spiralling OPEX costs.

Stemming the Impact of Rising Costs

Prior to the recent oil price downturn, the operating community initiated steps to stem rising costs, which saw the beginning of project deferrals, rate and personnel reductions.  The slump in oil price from September 14 onwards both accelerated and expanded those activities.   As a result, we have experienced substantial cutbacks in personnel, significant recycling and deferral of projects, and reduced exploration.  All of this is aimed primarily at reducing Capital Expenditure (CAPEX).  The same cannot be said about OPEX reductions.

In times of downturn, OPEX reductions frequently translates to maintenance deferral.  This will only come back to bite at some point by the resultant reduced reliability, and hence less uptime, and / or increase in corrective repair costs due to failures.  As we look ahead at the projected decline of the UKCS basin, to keep the regional industry alive and push back decommissioning, (as well as providing a key component of the UK’s energy requirements) tightening OPEX costs will be a crucial element in controlling unit operating costs.  So, are there any silver bullets?  In short, no!  There is no substitute for working smarter across a range of areas, including improved planning, more efficient maintenance management and greater and better use of technology.  The whole rationale is to focus on the work that must be done that adds value, rather than merely adding backlog hours.

Planning

Taking a strategic view of planning will provide greater clarity of what is coming to enable effective plans of action to be developed.  Looking ahead 3 to 5 years will identify key challenges early.  This will allow plans to be developed to ensure efficient action is taken at that point or to allow the maintenance engineers to seek alternative options to overcome the challenges at lower cost.  Most importantly, it will allow strategic OPEX budgets to be assessed, which will feed into company financial plans to enable smart decision making.

Maintenance Management

Maintenance management systems across the industry are choked (and I do mean ‘choked’) full of strategies and routines, all of which have been populated in the system for good reason.  However, there are common threads that persist, regardless of operator:

  • The hours associated with the strategies and PMRs are too high to liquidate fully.
  • Continual updates, upgrades and new equipment add to the existing load without proper coordination to align maintenance packages. As a result, the burden increases.
  • Incorrect categorisation of critical elements.
  • Limited parent, child consolidation to reduce the overall maintenance burden and reduce the backlog hours.
  • Ineffective and / or non-targeted approaches to visual inspection samples. This results in cherry picking of samples and sample sizes that is not representative of the overall conditions.
  • Limited zonal approaches to consolidating maintenance activities. The effective implementation can substantially improve the efficiency of maintenance activities, with a direct reduction on backlog hours.
  • Lots of data, limited information. Whilst the data may be useful in determining what has been carried out, the lack of information on exactly what has been done is detrimental to having good histories that can be used to stimulate changes in strategies and PMRs. Enhancing the back-up information can be used to drive better risk based maintenance programmes.

Benefits

By addressing the above points, it is entirely feasible to implement much greater efficiency in the maintenance management system, which will result in substantial reductions in backlog hours and sizeable improvements in achieving maintenance routine completion.  As a direct result, it is not unrealistic for operators to see reductions in:

  • The number of personnel required as core crew on offshore assets.
  • Vendor visits to assets.
  • The level of spares required to be held.
  • Annual maintenance costs.

performance

Health and Performance Monitoring

Taking this further, UKCS offshore installations are awash with monitoring and recording systems.  The data this generates could be used far more effectively to monitor the performance and health of installations.  Whilst health monitoring systems are readily available and are already an integral part of the installations, there are questions over how well the systems are being used and who is exploiting the information provided and to what effect.  Additionally, while these are capable systems in their own right, their value can be heightened by using them in conjunction with the wealth of performance monitoring systems in place.  By integrating the performance and health monitoring data with the maintenance data, a more holistic view of the health of the plant can be determined and, most importantly, trended.  In turn, this will lead to increased safety, more efficient production, greater use of predictive maintenance and, most importantly, further reductions in operating costs.

Summary

In short, there is enormous opportunity to improve the efficiency of maintenance execution while reducing backlog hours, and achieving substantial reductions in OPEX costs.  It is entirely feasible to shave 20%+ off the typical annual maintenance bill while at the same time improving reliability and uptime, with associated returns in increased production.

At present, Theon is providing this service to a number of operators, where we are currently focused on stripping out waste and inefficiency from maintenance management systems.  In parallel, we are revising maintenance strategies and planned maintenance routines, especially using Reliability Centered Maintenance techniques.  All of this is being carried out using the equipment histories, experience of operations and maintenance personnel, and the change in process conditions to ensure that the correct maintenance requirements are identified and implemented using a risk-based approach, which ensures that the right maintenance is targeted, prioritized and executed correctly.

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