To survive in the current low-price environment, exploration and production (E&P) companies must better handle the complexities inherent in their projects through practices that promote capital effectiveness and collaboration. Owners and operators must emphasize the long-term viability of their assets over high returns, an expert said.
In a presentation hosted by the SPE Gulf Coast Section Projects, Facilities, and Construction Study Group, Neeraj Nandurdikar discussed the collective actions the industry should take to improve project efficiency. Nandurdikar’s presentation, “Journey Towards Efficiency,” was the fourth installment of the study group’s Spring Event Series, “Delivering Projects at Less Than USD 50/bbl.” He is the director of the E&P practice at Independent Project Analysis.
Nandurdikar said that while simplification is key to developing efficient projects, the task itself is harder for E&P companies now because they do not engage in enough cross-disciplinary collaboration. In addition, with national oil companies (NOCs) and service companies managing their own projects, and NOCs partnering with specialists in other countries outside of their home base, the role of a traditional multinational E&P company is in flux. Nandurdikar said these companies can only determine the ways in which they can simplify their operations after they determine their roles in a low-price environment.
“If we want to achieve efficiency, we’ve really got to attack complexity,” he said. “We have to attack it everywhere we see it, and all aspects of complexity that we see. The reason is because complexity, or specialization, creates the illusion that we are headed in the right direction. We think we’re solving the right problems, but oftentimes, until the fog clears, we don’t know whether this is the best project to do.”
Nandurdikar said there are three types of complexities that E&P companies face in their operations: technical, political, and organizational. Technical complexities typically revolve around the geological aspects of a project such as water depth and reservoir pressures and volumes. He said the industry has learned how to handle most of these issues, but areas remain in which it can improve. An example he gave is technological redundancy on facilities, such as the use of unnecessary valves or separators.
Political complexities arise when dealing with the local conditions of a given project. These include local content requirements, government regulations, and the requirements of other stakeholders such as joint industry project partners. Organizational complexities are the additional departments, functions, and specializations present in companies that did not exist in previous years.
Nandurdikar said organizational complexities may not have a particularly negative impact by themselves, because adding functions and departments creates additional jobs. However, when combined with technical and political complexities, they may wreak havoc on projects.
To solve organizational complexities, Nandurdikar suggested that E&P companies not think of themselves in a transactional manner—as operators putting out projects and dictating needs to the supply chain—and start thinking of themselves as part of a larger, symbiotic ecosystem with service companies, subcontractors, and suppliers.
“There is no single company, no single supplier, that can do a project anymore,” Nandurdikar said. “There are these divisions. Any ripple effect cascades down the line, and you create problems down the entire supply chain. Until we start thinking of this as an ecosystem, I doubt we’re going to get the kind of innovation we need.”
Political complexities require the adoption of a concept called “co-opetition,” or competitive competition. He said it is possible for companies to embrace a collaborative spirit on issues like local content requirements in a region while still being mindful of their competing interests.
Nandurdikar used safety as an example. The industry’s push for increased safety in its operations in recent years is the result of a cultural shift that was accepted by owners, operators, and the supply chain. He said such a culture shift is necessary in the current economic environment.
“Yes, you are all competitors working for different goals. Chevron, Shell, BP, and Exxon are competitors, but guess what? They’re also working together, or they should be working together, on government issues or local content issues, trying to make sure projects are done safely. We’re going to bring that same culture that drove safety to now drive costs, and that’s not going to happen unless competitors are willing to cooperate,” he said.