A high level of operational efficiency has always been of great importance in the oil, gas and petrochemical industries. Companies invest billions of dollars in high-quality assets and a return on investment is only possible if these facilities are operated safely and efficiently.
In the past two years we have witnessed high volatility in oil and gas prices, so the importance of operational excellence is greater than ever.
Investment targets in all O&G sectors can only be reached by addressing several challenges, including:
- Higher risk rates – country risk, which mostly consists of political factors that affect business in the region and globally;
- Investment climate that requires joint efforts of government and companies within each country and international partnerships;
- Project complexity and cost escalation – in ME main drivers are labour costs and EPC-contract works and services, closely related to factor 1 (risk premium), negative economy of scale effect – IEA predicts that the rate of cost increase would overrun general inflation;
- Supply of feedstock – depletion of resources and oil/gas production costs contribute to instability of fresh feed, thus on refining and petrochemical products availability and cut in margins;
- Regional demand for oil products and petrochemicals – though it is said to rise annually, in different parts of the world consumption of energy and chemical products varies and leads to the next challenge;
- Export/import balance – naturally, countries provide internal production sector and end users with petrochemicals and export the excess, but more than half the producing countries struggle with the lack of trade surplus;
- Technology development – modern technologies boost asset productivity, limit losses and produce high-quality fuels and chemicals, but as units get more complex, customised ‘state of the art’ technologies become less affordable for smaller independent companies;
- Safety and environment – these aspects are not attractive for business in terms of profit, but communities oblige organisations to become aware of potential impact and to be environment-conscious;
- Financing – industry projects usually are subject to debt financing that heavily depends on company’s financial status and budget allocation policies - banks are now more careful on which projects they are willing to support and companies don’t have internal resources to invest in long-term projects, even the mid-scale ones, and project financing as a way of solving the problem needs to be organised thoroughly.
The above-mentioned constraints of industry development urge investors to rethink their project and operation philosophy when looking at the efficiency of existing units and facilities.
In times of increased economic uncertainty companies are searching ways to maximise their returns and gain ‘a competitive edge’. A very effective way to promote these objectives is to implement Operational Excellence models, which have a good track record within the oil, gas and petrochemical industries. Many companies are adopting Operational Excellence models using Key Performance Indicators (KPIs) to measure business and operational systems such as management & leadership, loss production & control, production optimisation, reliability & maintenance, etc.
The main objective of Operational Excellence Programmes is to neutralise risk and maximise value creation. The Operational Excellence approach is placing people at the centre of business improvement practices. Key drivers of Operational Excellence for improving organisational performance include (1) strong leadership, (2) conductive organisational structure and (3) clear focus and plan of action. Strong leadership implies commitment by corporate leaders to embrace the Operational Excellence approach – the leadership must present clear and unambiguous goals and plans. A suitable organisational structure can be categorised as including a well-informed work force with integrated team structures, a clear line of accountability and performance measurements and motivational feedback on goals and achievements within the teams.
A clear focus and plan of action is the ‘foundation’ of the Operational Excellence process requiring a good communication system. The aim is to identify all the areas, which need to be tackled and improved with particular emphasis for training and development. A clear plan of action is designed to promote best practices and work towards improving organisational performance.
Euro Petroleum Consultants has been involved in a number of projects where the aim was to improve overall company operations, and we would like to share our experience in this area with the readers.
Potential Areas of Improvement within OE Programme:
- Operational Excellence - Debottlenecking, Gap Analysis and Utilization of Findings, Reaction Plans and Corporate Procedures, Communication
- Asset Integrity & Availability - Risk-based Maintenance, Preventative and Proactive Approach, Relevant Data Collection, Efficient Asset Management, Inspections.
- HSE - HAZOP, Bow-tie, Behavioral change, Environment protection, Reliability, Risk Policy.
- Margin Improvement / Cost Optimisation - Improved Scheduling, Planning and Cost Control, Performance Enhancement, Target oriented Approach.
- System Origanisation - Rational Decision-making, Role of Leadership, Responsibility and Accountability, Timely Reporting, Action-oriented and open Environment, Competency Improvement.
Usually this programme includes several documents:
- A Transformation Map, which identifies the steps that the business will need to complete over time in order to achieve its improvement vision
- A Business Improvement Plan, which outlines the sequence and alignment of activities that are required to help the Company achieve its business objectives
- A Business Case, consisting of:
- financial benefits for Implementation
- Indicative Capex requirements for the different projects
- Indicative Opex requirements
- Estimated resource requirements
The Business Improvement Plan will help deliver the identified increased value via an Improvement Implementation Plan (IIP).
The process might be structured in different ways, one of which includes 5 main steps:
Goals of BIP are:
- Establish clear goals & targets & communicate across the organisation
- Take an interest in rewarding the correct corporate values
- Align the competences of the organisation to the work required, clarity of roles and ownership of individual and team results
- Support implementation of management processes with a focus on review and decision taking
- Ensure the appraisal and formal coaching of staff
- Empower lower levels of the organisation to drive productivity and quality
- Align training to business need as well as individual interest
- Drive implementation of effective measurement (KPI’s)
- Support implementation of service level agreements between R&M and service providers
Case study: Implementation of Operational Excellence Programme (BIP)
Petrochemical companies can post dozens of implemented Operational Excellence projects similar to the programme developed and implemented by Petrochemical Industries Company (PIC). Based in Kuwait, PIC was founded in 1963 as the first chemical fertiliser complex of its kind in the region. Today, PIC is a petrochemical industry leader in Kuwait and throughout the Middle East.
In addition to manufacturing and marketing fertilisers, olefins and aromatics in Kuwait, PIC participates in multiple joint ventures that also produce and market chemicals both locally and internationally.
At the initial stage of the programme development PIC’s concept of operational improvements implied formulation of vision, strategy and objectives. The company decided to develop the programme on the basis of three standard principles: Lean Production (Lean), Quality Management (Six Sigma) and Project Management (PM).
Among the top priorities were HR performance, focus on the consumer’s individual needs and the process approach under the slogan “Better, Faster, Cheaper!”. The operational performance metric included criteria such as expenditure level, production cycle time and the rejection rate. Improvements were introduced by using a standard procedure aimed at building a knowledge management system as the backbone for further optimisation. A critical factor was effective employee engagement, i.e. explicit goal-setting and adequate incentives, effective interaction and communication, and a consistent process of project evaluation and selection. Such process needs to be well established, continuous and consider borrowing needs.
The company saved $173 million, successfully completed 524 projects, obtained 84 certified project managers (leaders).
According to PIC, thanks to continuous leadership training of top managers, annual awareness sessions and quarterly trainings for identifying improvement possibilities the company saved $173 million, successfully completed 524 projects, obtained 84 certified project managers (leaders), acquired new competencies and revised the corporate culture to conform to the best global practices.
A lot of resources and effort is put into trying to develop increased efficiency projects. In a time of financial constraints many of these are never approved or completed. Furthermore, even those that are, progress at a slow pace - completion taking years from inception to completion.
Experience from around the world shows that developing an Operational Excellence Programme (and BIP as part of it) using best industry practices and having in mind specific company goals helps significantly save the time and amount of investment needed while company is making sure that the result follows exactly in line with corporate strategy.
In any case, it should not be a once-in-a-lifetime exercise, a company should take Continuous Improvement approach principles as a basis for its ongoing work towards Excellence.
Continuous improvement has to be an ongoing process. The key to success is to develop the right culture within the company - get the buy in from all the company staff and to ensure that everyone benefits from this success.