In Turbulent Times, Oil and Gas Finds Value in EAM
How can oil and gas companies leverage new or legacy Enterprise asset management (EAM) solutions for cost savings during its darkest hour?
Call it the bust after the boom, call it marketplace contraction, call it "bearish," dress it up any way you'd like. The facts are the facts: The oil and gas industry has seen better, more profitable days.
As The New York Times reported, last year oil costs per barrel dropped to a low of 70 percent below 2014 levels. At the onset of 2016, prices dipped even deeper than they did after the 2008 recession. These days, exceeding $50 per barrel, however slightly, is something to celebrate, even though businesses saw costs double that not more than two years ago. Turns out, "silver lining" is about the only thing you can't make from petroleum.
Businesses operating in the oil and gas industry aren't necessarily seeking out tangible dollar amounts so much as the promise of real, inextricable worth while the energy sector as a whole reinvents itself, at least in part, under a banner of efficiency and environmental awareness. Amid the volatility, enterprise asset management could assist oil and gas in traversing murky market waters and provide sandbars of value these organizations can rest on while they wait for the worst of it to pass. How can oil and gas companies leverage new or legacy EAM solutions for cost savings during its darkest hour?
Balance weak demand and oversupply with asset reliability
Up-trending operational costs for remote oil and gas equipment emphasize the need for a tighter rein on performance. Research from Ernst and Young revealed between 2007 and 2014, the compound annual cost escalation rate for operational expenditure per barrel of oil during the extraction process grew by a rate of 2.85 percent for major oil providers, just over 5 percent for national oil companies and 5.54 percent for independents. Across the board, oil companies of all sizes experience opex increases, perhaps due to more than half of all global production relying on assets past their life cycle midpoints.
Ensuring efficient uptime for each disparate remote asset requires a centralized CMMS platform where operators, managers and decision-makers assess real-time operational information via configurable dashboards, as well as an intuitive priority-based maintenance work order hub capable of dispatching technicians with valuable historical data on failure codes accessible through mobile technology.
Yet, operational excellence is only part of the picture – EAM solutions also allow oil and gas companies to more adequately comply with regulators and forgo steep violations at a time when every penny counts. In fiscal year 2015, the U.S. Environmental Protection Agency alone reported levying:
- $7 billion in fines for injunctive relief, with an extra $3.8 billion on the books for FY 2016
- $205 million in federal administrative and civil judicial penalties
- $2 billion in environmental cleanup costs
- $106 million in oversight costs
- $88 million in criminal fines, not to mention the "additional $4 billion in court ordered environmental projects and $112 million in restitution."
Unfortunately, many of the organizations on the receiving end of these violations were oil and gas companies or businesses operating in the energy sector. With enhanced remote monitoring capabilities to catch slight deficiencies before they turn into catastrophes, asset reliability measures could feasibly circumvent larger, more costly environmental incidents, saving businesses capital and the value of their reputation all at once.
Optimize M&A activity with EAM data
Mergers and acquisitions are a natural part of any asset-intensive industry suffering heavy losses. According to a recent BDO poll of Chief Financial Officers from major oil and gas service providers, 3 out of 4 believe M&A activity will expand throughout 2016 and about half anticipate undervalued asset shedding to be a "major driver" of transactions within the oil and gas industry in the near future.
Asset divestment under current market conditions makes sound financial sense for businesses with little recourse. For selling off expensive and/or superfluous equipment or facilities, oil and gas providers retain capital and pass risks off to the highest bidder. That is, of course, if anybody decides to bid and how much they plan to put down.
"EAM solutions play a pivotal role in the M&A process."
EAM solutions not only prepare users for asset investment and integration, but they play a pivotal role in the M&A process by aggregating a wealth of data from which divesting bodies may draw conclusions regarding which assets should be sold off based on metrics like historical performance, resource burn rate, energy consumption, general use, etc. Furthermore, for divesting organizations with both a CMMS and a scheduled maintenance program already underway, businesses can utilize comprehensive service logs at the negotiation table to justify higher asking prices for well-preserved machinery or facilities.
Ensure talent acquisition at crucial hour
In the midst of the turmoil surrounding the cost of oil, the industry also has a retirement gap looming just off in the distance. A 2014 Mercer survey found many larger U.S. oil and gas companies could lose between 50 and 80 percent of their retirement-eligible employees before 2020, exacerbated by the need to add an additional 530,000 jobs to keep up with innovation.
Behind every great EAM strategy is a team of dedicated and intelligent operators and technicians. That said, the threat of tribal knowledge – undocumented siloed process information valuable to an enterprise – remains all too real. As workers age out of employment and oil and gas struggles to fill open positions with industry "greenhorns," these organizations will need to develop a plan for delivering highly technical training as quickly and cost-effectively as possible to prevent what little available capital they do have from slipping through their fingers.
To preserve the knowledge base created by experienced staff members over many years and decades, oil and gas can turn to CMMS software to store and catalog relevant data in actionable databases accessible though multiple points of entry. New hires, therefore, work from an ever-expanding library curated to the exact specifications of the employing organization.
Oil and gas has a long road ahead, one that will undoubtedly differ from any it has traversed before. EAM solutions and proactive maintenance strategies help cast light on even the dimmest forecasts to offer guidance and clarity in an uncertain world.