MANAGEMENT & ECONOMICS: Chevron team thinks like independent in pursuing US Gulf shelf assets

A leaner and meaner major?

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With huge investments in 10-year leases and high-dollar drilling contracts, many majors are foc-using much of their attention on finding and exploiting large deep-water assets. The rush to sell off or farm out continental shelf prospects has led to a mini-boom of sorts for independent oil companies who can turn a profit re-entering and producing older oil and gas fields. - Bay Marchand's Romeo Platform.

With oil and gas selling at or near an all-time high, the value of such fields has never been better. It is so good in fact that at least one major isn't giving up its so-called "harvest" fields without a fight. On the Gulf of Mexico's shelf, Chevron is reaping a "second harvest" in mature fields by empowering small tightly-knit teams to operate separately like small independent oil companies.

A harvest field, explains Chevron Asset Manager Phil Durrett, is one a major feels has nearly played out. These are typically older fields that have already produced a lot of oil or gas, and are now in decline. Rather than go to the expense of re-entering or working over these fields, the majors often harvest them. As the name implies, the operator produces everything it can out of the field without a major capital expenditure, then sells off the field and physical assets to an independent. So in the traditional sense, a harvest field is one that is about to go up for sale.

Bay Marchand

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Reducing operating expenses (opex) is key to a Harvest field's continued success.
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Durrett is asset manager for the Bay Marchand field, located in state and OCS waters offshore Louisiana. When he came on board in 1998, Bay Marchand was not officially on the block for sale, but the writing was on the wall. When the Bay Marchand Team attempted to obtain $25 million in budget dollars for a drilling program, they were given only $14 million. This was a clear sign that Chevron did not see Bay Marchand as a priority; in fact, it was at the bottom of the profit center's list of funded projects and clearly a candidate for sale.

Concerned that Bay Marchand was no longer economically attractive, Chevron's Gulf of Mexico Shelf Management Team, building on the recent success of another asset, made the decision to operate Bay Marchand as a "Harvest Team." The goal of the Harvest approach is to operate and prospect as an independent would, realizing profits that would not otherwise be viable.

In 1997, Chevron tried an innovative new approach to revitalizing a group of mature, declining assets. David Farr, Harvest Assets and Service Manager for Chevron, said operating costs were high and profits were declining. Changes made in the first six months were significant. Operating expenditures (opex) costs dropped quickly and investments in drilling produced much better results. Replacement of reserves accelerated.

Building on the success of this initial effort, the Bay Marchand team was launched in April 1998. This was followed by two more teams at Main Pass 41 in late 1998 and Main Pass 299 in early 1999. "That has built on itself because of the success," he said.

Each team works under the same over-arching philosophy, but depending on the specific field, the details will be different. In addition, each team learns from those that came before. From the beginning it was realized that without superior environmental and safety performance, the projects would not be a success. Beyond that, the critical goal is to lower opex. Expectations must be high, Farr said, and should be combined with accountability.

Into practice

The management team's mandate was clear: turn the field around in six months, or it would be sold. The Harvest approach to management is a radical departure from business as usual for a major operator. Durrett said the first thing he and his team did was to set goals for the first six months. These goals were based on best practices benchmarked within and outside of Chevron. The goal was to be competitive with Chevron's other assets for the same funding.

Benchmarks are a key to understanding where lifting costs should be. The real driver for this is external data. Chevron has participated in a study where different operators contribute operating expense data. This allows them to compare their opex with other operators on similar fields in the area (in terms of the age of the facilities and the gas-to-oil mix). "Our goal is to be in the top quartile," Farr said. These goals were set without regard for how they would be achieved. This is one of the keys to the Harvest approach.

Similar data is collected from the MMS on environmental and safety numbers. This gives the workers in the field some realistic goals to shoot for. While much emphasis is placed on cost reduction, it is not achieved at the expense of environmental or safety performance. Protecting people and the environment remain top priorities for the Harvest teams.

The first changes were the most difficult. About 35 employees were reassigned to other operations, cutting the field's personnel costs by half. Equipment costs were also cut back and every process was streamlined. While the smaller staff had to adjust to operating with fewer people, the remaining workers were motivated to succeed and were given the latitude to implement change.

Areas where cost cuts could be made were identified and addressed by the workers most qualified to evaluate them. The goal of impacting cost centers was shared with workers at the field level and then those workers were given broad latitude on how to do things better and for less money.

The crew on Bay Marchand knew the situation was serious as they watched other fields in the area being harvested and sold off. Durrett said this reality, along with a strong sense of empowerment, helped drive home the importance of the harvest team goals. "They felt good knowing they were given an opportunity to take a marginal field and turn it into a core asset," he said.

Making it work

Aside from personnel, one of the major areas of savings identified early on was transportation. The complex was operating four crew boats; this was cut back to one. The helicopter service was also reduced to one shared chopper, rather than a dedicated aircraft. Durrett said this was a classic harvest team solution. By planning out a detailed schedule, the one-crew boat and shared helicopter could perform all the necessary duties previously covered by the four boats and dedicated aircraft. Operators were given cost goals and the empowerment to achieve the goals. Despite many people saying it couldn't happen in a major oil company, the Bay Marchand Team made it work.

Another area of savings specific to Bay Marchand was the shore-based fluids treatment facility. Chevron Pipeline Co., under contract with the field, had historically handled this process as part of a larger pipeline facility. This was changed. Bay Marchand personnel now operate the fluid treatment facility, processing their own liquid streams for substantially less money.

This, Durrett said, is a change that had been discussed for years, but never implemented. Under the Harvest Team, such changes were quickly evaluated and then put into practice. Cutting out the layers of bureaucracy is a crucial aspect to the Harvest Team model. With only six months to turn the field around, there is little time or money to study and evaluate changes.

By empowering the field workers, Durrett said Chevron got a clear idea of what changes could be accomplished without disrupting production. These front-line personnel have a working knowledge of critical path functions, and were eager to share their insights into what processes could be either eliminated or folded into another job.

Season of profitability

With these and other changes, Durrett said Bay Marchand was able to cut operating expenses from $46 million to $32 million between 1997 and 1998. Lifting costs, which is another expression of opex, was reduced from a high of $6/boe ($4/boe is about average for similar fields) to $3.90/boe. The geological staff was reduced from five to two with a trainee to assist them. These geologists shifted their focus to short-term returns, their goals was to make the most of every dollar spent. The shift paid off as the field began returning improved reserves.

This literally gave the field a new lease on life. With opex down, more budget money was made available. At the same time, experience led to further efficiencies. Durrett said this is typical of Harvest Team fields. By early 2000, opex had been reduced to $22 million. Such things as refurbishing existing equipment rather than purchasing new equipment, streamlining maintenance by getting equipment up to maximum efficiency, and keeping it there paid off in savings.

Bottom line, at a normalized oil and gas price, Bay Marchand will earn 400% more profit in 2000 than if 1998 cost and production decline trends had not been significantly changed by the Harvest approach.

Revisiting old procedures

Often the solutions for Bay Marchand were not the latest technology, but a throw back to the way things were done years ago. Tech-nological advances serve many purposes, and are a central component of the Harvest approach, but in many cases a low-tech solution worked as well and for much less money. An example of this is platform inspections. This work requires a visit to not-normally-manned platforms for 30-minute inspections. It used to be done by helicopter, airlifting the inspector to each platform. While the helicopter is much faster than a boat, it was on a two-hour rotation. That meant the inspector would complete his 30 minutes of work, then wait another 90 minutes for the helicopter to pick him up. This was changed. The expensive helicopter was eliminated in favor of a dedicated boat.

The boat is less expensive. It can wait for the inspector to complete his work and then immediately transport him to the next platform, saving around an hour and a half on each inspection. Common sense solutions such as this were responsible for cutting downtime on Bay Marchand from 27% to around 4%.

Areas where technology plays a key role are in automation and communication. A supervisory control and data acquisition system (SCADA) consists of a series of sensors and controls on the 120 producing wells in the field that allow monitoring and control from a central location. This minimizes the number of site visits required and allows a smaller number of highly trained workers to operate the entire field.

Streamlined staffing

Ronnie Lewis is the Field Coordinator for Bay Marchand. His office has a half dozen large computer screens and he alternates from talking on his hand-held radio to cradling the phone on his shoulder. With the streamlined staff at Bay Marchand, Lewis' job description has become very broad. He:

  • Coordinates the Romeo platform, which is where the field office is located.
  • Handles all incoming activity into the field, such as new drilling rigs or lift boats.
  • Oversees the movement of drilling rigs in the complex, as well as day-to-day operations on the complex including production levels, maintenance, and operation of the SCADA system.

This last consists of monitoring the various platforms and ensuring well tests are performed in accordance with government requirements. When the Operations Super-visor is off-duty, Lewis covers for him as well. "My job is basically 24-hours-a-day," he said. Because the platform has fewer night workers, Lewis said the overtime for those on the platform is high; still, at the end of the day, it is cheaper to pay the overtime than to hire additional workers.

Things are pretty quiet at the Romeo platform during the day. Lewis said all the workers are out doing their jobs, operating platforms. Lewis said at its high point, the platform employed as many as 150 people. Now, that has been cut by more than half. Lewis said the people they retained know their jobs and are the cream of the crop. He said the smaller staff concept works well because each worker knows his job, takes responsibility, and realizes that if something goes wrong, there is no one else to hold accountable.

Keith Brannan is the Field Coordinator for Main Pass 41, another harvest field. He agrees that the Harvest Team concept has resulted in a much better directed work force. The workers know what they are supposed to do and take responsibility. "We make our own decisions," he said.

Although things are more hectic with a smaller staff, Brannan said there are many advantages. For one thing, there is less time spent on receiving approval and more freedom to act independently. He said that if he sees something that needs to be done, it is not necessary to go through many procedures. "It's kind of like you're running your own little company down here," he said.

The big picture

While there has been success across the board, this concept has been applied only to late-in-life fields. Farr believes there is a broader potential. He said there is no reason this concept could not be applied to every field Chevron operates. There are skeptics who do not see the need for such belt tightening in a new field that is producing well.

The challenge, Farr said, would be to motivate people working on some of the most productive fields in the Gulf of Mexico to examine ways they could do even better. "It's a leadership challenge," he said. For the time being, Farr said he hopes the performance of the Harvest Teams will motivate others to see what can be accomplished. "One would think 'Why wouldn't you want the results we've had?' But it's a lot of hard work," he said.

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