Author: Alex Page
SmartDigital™ Services Manager
One school of thought strongly suggests that the oil and gas industry can save billions of dollars annually simply by refocusing digital transformation investment on connected well construction workflows. Taking an alternative ‘standardized approach’ to integrating technical well engineering with its associated supply chains can generate truly astounding results.
We recently dealt with an oil and gas company that had discovered a perplexing dilemma while considering some of the benefits of their digital transformation program.
The company had always prided itself on attracting the brightest young talent and offering spectacular training programs that ensured it produced the absolute best well engineers in the industry. On the face of it, this strong culture of technical excellence seems to be a laudable trait. Their culture for excellence had developed a crack team of engineers capable of creating well designs of such sophistication that they were the envy of all their peer companies.
The Costs of Over-engineering Technical Excellence
So, what was the problem? When they sat down to look at their global wells budget to find areas where digital technology could be employed to create efficiencies and cost savings, one particular aspect of their business stood out as problematic: the supply chain was long, heterogeneous, and overly complex. It quickly became clear that streamlining the system by applying digital technology solutions had the potential to create massive cost savings for their organization.
They started to analyze the ecosystem in terms of the holistic value stream. They began to inspect every process and system from the initial well feasibility studies all the way through to well execution and on to final payments of service contractors and materials suppliers. Everything was considered.
The initial findings of this detailed analysis were a surprise to most people involved in the project. They found almost every well they drilled had either been substantially over-engineered or included some specially engineered component. They concluded that their strong culture of excellence had led to the reality that no two wells were drilled with the same engineering specifications. All well designs were unique in some way, which in turn led to long and complex supply chain problems where materials and components were frequently custom made.
Connected, Interoperable, Continuously Improved Well Construction
The team decided to investigate further and opted to study the last five years of well engineering, supply chain, and procurement data to test this hypothesis: ‘What would be the minimum number of standardized sets of well equipment needed to drill every well in the dataset with a 100 percent HSE record?’
The results of this study were also astounding; they found that by standardizing with a little more than 40 different packages of well hardware, every well could have been delivered safely. The most staggering surprise came when they computed that standardization would have saved the enterprise around 30 percent of their entire wells budget. For this particular global company that represents billions of dollars of savings every year.
These lines of data analysis demonstrate beyond doubt that well construction workflows and digital approaches espoused by Halliburton must be connected, interoperable and continuously improved. The relationship between technical well plan and design functions must be connected to supply chain, service providers, and execution systems to optimize value streams across the entire ecosystem.
Figure 1: Ecosystem of major components within the Well Construction lifecycle
Historic practices of optimizing individual aspects of siloed workflows have run their course and cannot deliver the step-change in performance dictated by current market conditions. Only holistic value stream optimization using hyper-integrated digital technologies can take the oil and gas industry where it needs to go.
Digitally Integrating Design and Components
Spurred on by these discoveries, the next phase of this project included the rapid design and creation of a digital software solution that supports standardizing the supply chain during the initial ‘well select concept’ technical feasibility engineering phase. This meant providing their well engineers with software that could automatically generate a range of engineering design solutions, satisfy the technical limits requirements, and comply with a standard catalog of components. The software enables better management of existing in-house inventory and, when integrated with the inventories of oil field suppliers, can lead to even more savings. Exceptions to standardized well design solutions that involve special engineering are still available; however, using them would require exhaustive justifications.
Figure 2: Accelerating the well construction value streams through:
1) Standardization of engineering componentry that simplifies supply chain and demand profiles and
2) By front loading inventory management processes to the planning and design phases
In short, supply chain standardization, use of integrated and ‘just in time’ inventory management across the operator and suppliers value chain, direct involvement of supply chain expertise in well design, and redesigned procurement practices will transform digital well planning and execution by dramatically reducing risk and cost.
Significant Savings for Wells Budget
In conclusion, digital transformation program budgets are commonly justified by oil and gas companies by enabling the company to attract the best new talent and retain highly trained expert technical staff. Yet, waste in the value stream could be directly attributed to the engrained systemic culture of technical excellence, in which wells are ‘gold plated’ or potentially over engineered almost as a matter of pride. The digital innovation created in this engagement has the potential to trim 30 percent from the cost of a massive wells budget simply by standardizing the supply chain.
However, this approach significantly changes the way engineers approach their craft. Standardizing the supply chain could restrict the natural tendencies of expert well engineers to create unique engineering solutions, which is in direct contradiction to their culture and training. The culture change must be managed thoughtfully and empathically in order not to disrupt operations and the people that generate value for the enterprise.
Should we always strive for technical excellence? Digital transformation will likely change our engineering culture norms forever. Perhaps the next challenge for the expert engineers will be to invent new technologies that can reduce the myriad of standard solutions to just a handful.
One thing is certain, the oil and gas industry is in the midst of a digital transformation that will generate even more disruptive innovation, not less. Our ability to change our culture and ways of working will require not only a growth mindset but, just as importantly, empathetic change management.
Value Stream Optimization Begins Here
To find out more about holistic value stream optimization with SmartDigital™, iEnergy®, and DecisionSpace® 365 solutions, and how your organization can benefit, today