James P. ClancyFor more than a decade, the oil and gas industry has been reorganizing to function more efficiently and effectively. Call it down-sizing or outsourcing, the business has changed dramatically as oil companies have sought to define and focus on their core business.
Stewart & Stevenson Operations
Houston, Texas (US)
The traditional oil field service companies have followed suit, forming alliances, assembling portfolios of integrated service capabilities, and developing performance incentives to reflect the new needs of their customers.
The change in the oil field service sector has focused on drilling, completion, and well service operations - the business of making and maintaining a well. But between the wellhead and the pipeline lies another segment of the business that can benefit from the oil company's evaluation of their core business.
The outsourcing of the long-term management, operations and maintenance of oil and gas production facilities is an area of change which can bring substantial benefit to the oil and gas industry without jeopardizing the core business of the oil companies.
As service companies have taken on an increasingly larger share of the functions that have previously been the domain of the oil company, the goal has been the optimization of resources. This has been accomplished largely by placing responsibility in the hands of those companies best qualified to do the job, and managing that responsibility with performance-based contracts and incentives.
The owners of production facilities (offshore or onshore) stand to benefit from a similar approach: The contracting of the day-to-day, long-term management of people, equipment, supplies, inventory, logistics, operations and maintenance. Except for reservoir management and downhole operations (a critical and core responsibility of the oil company), a service company could provide total facility management, operation, and maintenance (MO&M) under long-term, performance-based contracts.
The key benefit is that under these service contracts, the oil company focuses its resources on the finding and management of hydrocarbons. The recruiting, training, allocation, and management of the manpower and infrastructure needed for the day-to-day needs of the facility become the responsibility of the MO&M service company, whose performance is guaranteed by an incentive scheme. Bonus or penalty is applied to production, cost control, efficiency and other goals which are mutually consistent.
Performance-based MO&M contracts have little history in the oil and gas production industry. In recent years, the oil companies have dabbled with contracting for outside labor (operators and mechanics) under day rate and short-term contracts. The supervising and management control of the labor remained with the oil company.
The proving ground for performance-based MO&M contracts for large production facilities is the power generation industry, where the concept has been highly successful. Many power production facilities, once operated by large, departmentalized organizations, are contracted to smaller, more efficient and more reliable MO&M companies.
Working under long-term performance agreements, this new generation of operating companies has:
- Minimized the workforce needed to run and manage the facility
- Minimized costs
- Increased production
- Increased reliability and availability.
Results of performance-based MO&M services for complex power generation equipment offer powerful encouragement for similar efforts in the oil and gas industry. Achievements include:
- Reductions in work force of nearly 50%
- Reliability increased from 95% to 99%
- Availability improved from 80% to 95%.
These dramatic improvements have been made without sacrificing safety, environmental performance, plant capacity or the long-term value of the assets.
While the power generation and hydrocarbon production facilities each involve distinct processes, the core organizational, management, and technical skills are very similar. And the goal is the same - management for the maximized benefit of the facility owner - whether the end product is electric power or oil and gas.
Throughout the oil patch, where the elusive gains from right-sizing are being evaluated at each level of the organization (labor, management, supervisory, or technical), the conclusion is often that the talent pool needed to maintain growth has changed little.
Outsourcing this talent to specialist organizations under performance-based, long-term contracts for MO&M services frees up significant oil company resources, permitting a stronger focus on the core business. The payoff is in enhanced competitiveness, clearly an established goal in the late 1990's.
Working with this new breed of MO&M service companies is the logical next step of the oil companies in their effort to focus on their core business areas.
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