AIM: the key to coping with oil gluts
The global crude oil crash would be old news if it weren’t continuing to worsen. The optimism that reigned in mid-2014 when prices fell below $100/bbl has turned to pessimism as it crosses the $40 threshold. After multiple rounds of layoffs and project postponements, the industry is out of easy options and must reach deeper into operations to find enough savings to be profitable. A key area of opportunity is the management of physical assets – drilling rigs, vehicles, motors, pumps, and the like – that are the foundation of the industry. If there is a silver lining in the gloom, it is that in many cases these assets have not been well managed, and major savings can be had.
Ovum has addressed the principles of effect asset information in several previous reports, including "A lifecycle approach to asset information management can deliver big benefits," published in April 2014. Core ideas discussed in that report, and explored in a related survey, are that to be successful, asset management solutions must be comprehensive and standards-based, and they must make it easy to capture, storage, manage, and retrieve relevant asset information. These principles have only become more important as business conditions in the oil & gas industry have worsened.
The crude market hasn’t hit bottom yet
A year ago, many observers still expected that rising global demand, particularly in China and India, would exert enough upward price pressure to restore prices to the $100/bbl level that had existed for several years before the crash. But China’s growth has fallen below expectations. And US producers’ success in expensive unconventional shale plays has contributed to global oversupply. Saudi Arabia could push prices upward simply by curtailing its own output, but instead seems intent on maintaining its market share by driving out the high-cost US producers.
The impact has been wrenching. Since mid-2014, the upstream industry has shed a reported 250,000 jobs globally, with about 80,000 of those in the US. The industry has also postponed or cancelled a host of projects such as the construction of drilling rigs and floating storage platforms.
Today, few observers expect that crude prices will regain their previous highs, and some fear they could fall as low as $20. That prospect has the industry taking a microscope to operations in search of further cost reductions.
Asset management is an untapped opportunity
To manage their disparate physical assets – drilling rigs, mud pumps, frack trucks, drill pipe, motors, compressors, and the like – producers and oilfield service companies rely on a variety of tools that often include purpose-built software but also include spreadsheets, email, telephones, and paper. Despite all these tools, asset management is often highly fragmented and error-prone. As explained the Ovum research white paper, "Managing Assets for Maximum Performance and Value", asset information is frequently incomplete, out of date, or incorrect. It is often isolated in silos. Operators often don’t even know how many of a given item they have, let alone what condition the equipment is in or whether it is available to promise for the next job.
As a result, workers spend too much time just finding and validating core information – often more than required to do the actual work. Once they have the information they need, they often have no easy ways to easily collaborate with suppliers, partners, and customers, because asset management systems typically do not cross corporate boundaries.
Whatever the causes, the results include misunderstandings, delays, errors, and inefficiency. Too often, people have to send extra emails or make more phone calls to update or verify information or to sort out conflicts. Even in the absence of outright errors, asset management processes have inefficiencies built in because any particular record might be stored in multiple databases, each of which must be updated individually when a change occurs.
Missing, conflicting, and inaccurate data has various spillover effects. It affects maintenance operations, causing capital to be wasted if service is performed either too soon or too late. It also leads to asset failure, which in turn causes expensive unplanned downtime. For example, when a drilling rig is idle, rental fees continue to mount.
Good asset management is comprehensive and spans the entire asset lifecycle
It would be difficult to overstate the importance of effective asset management to overall operational efficiency and bottom-line performance. The good news is that the tools required for effective asset management are growing in capability and declining in price.
Key capabilities of such solutions are that they are comprehensive and granular, and that the information they track is readily accessible. Being comprehensive means tracking as much information as possible about all key assets and their component parts, across the full life cycle from concept and commissioning through end-of-life and disposal. Granularity is essential to understanding details of service history and maintenance, as well as the availability of critical parts required for the equipment to be available to promise.
These issues have been discussed in previous Ovum reports titled, "Modern Asset Management Critical in Heavy Industries" (April 2014) and "Managing Assets for Maximum Performance and Value" (March 2014). Ovum also conducted an in-depth survey on asset management needs and practices, the results of which were published in a slide deck titled, "Asset Management in Energy Industries: Survey & Analysis" (August 2014).
Accessibility of asset information involves two key technologies:
- One is that as much equipment as possible must be fitted with sensors that gather and transmit data about location and status; this information must be networked (in Internet of Things networks) so that operators have real-time visibility of their asset landscapes.
- The other key technology involves the capture and management of asset data. Information-capture systems must be able to take in all types of data and documentation, from parts lists and material safety data sheets to contracts, letters, bills of sale, images, and more. They must organize all of this information and make it available on demand to workers in a variety of job roles, from operators and service crews to business process analysts charged with maximizing operational continuity and productivity.
Effective solutions are aligned with core asset management standards such as ISO 55000; ISO 27000, which deals with information security; and ISO 15926, which addresses data exchange among organizations. It is also crucial for investments in asset management tools be aligned with a well-thought-out maturity model, to ensure that the solutions are comprehensive, and that they mesh with existing infrastructure and corporate strategy. Aligning with a maturity model also enables flexibility so that the asset management system can adapt as business requirements change. The crucial advantage of a comprehensive approach to asset management is that it simultaneously reduces costs and risks and improves operational performance.
Warren Wilson, Lead Analyst -- Upstream Oil & Gas Technology
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