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National oil companies (NOCs) need to rethink their operating models and clearly link them to strategic goals to achieve expected future production, cost and greenhouse gas emissions reduction impacts, a report said.
A report from professional services firm BCG, titled “The Future of Operating Models for NOCs,” noted that there is clear value in implementing lean operating models, as they can deliver 30-40% efficiency gains across the entire upstream oil and gas value chain.
This includes levers such as applying higher resolution reservoir models and linking them to production optimization, resulting in a 4-6% increase in well production and an 80% reduction in cycle time in early design and evaluation.
“As with any transformation effort, implementing a new operating model requires a detailed roadmap, clear teams with clear responsibilities, active change management, risk assessment and supporting IT systems,” said Bjorn Ewers, managing director and senior partner at BCG. “For NOCs, an integrated transformation approach should focus on a variety of key levers, including activities and processes, new ways of working, digital and technology, and decarbonization.”
Other levers include applying artificial intelligence (AI)/machine learning (ML) models and digital twins to predict non-productive time events and optimize oil recovery rates, which can lead to a 2-6% increase in production and a ~25% reduction in capital expenditures on drilling and completions. Leveraging predictive maintenance and exception management to increase uptime can reduce maintenance costs by 15-25%.
“The transition to low-carbon energy is fundamentally reshaping the way energy is produced and consumed, and MEOC has so far been ahead of the curve – expanding operations to include alternative energy, approving decarbonization investments, towards low carbon liquefied natural gas (LNG),” commented Szabolcs Mihalik, Partner and Associate Director at BCG.
“Hosting COP27 in Egypt and COP28 in the UAE in 2022 and 2023 will put Africa and the Middle East’s NOCs in a critical position to examine the challenges of climate change.”
International oil companies (IOCs) have begun to transform the way they operate. After decades of long-term upward trajectories, oil and gas companies’ total shareholder return (TSR) has underperformed the S&P over the past 3, 5, and 10-year investment periods, with few signs of relief in sight.
International oil companies have realized that the current upstream operating model is unsustainable; oil price volatility, oversupply and energy transition are forcing them to evolve. Individual portfolio strategies may vary, but it is clear that the success of any future model will require entirely new ways of working. To a similar extent, the NOC is in the same position as the IOC, and transformational change is necessary.
Transforming an oil and gas company’s operating model is a three-step process:
1. Change the way of business
The first is to redefine its business philosophy – a term that encompasses its vision, mission statement, principles, goals and key business practices. NOCs need to incorporate cost and carbon considerations into all aspects of their operating philosophy. This may include adopting a lean approach to continuous improvement – optimizing operations, eliminating waste and increasing customer value. It may revolve around key operational shifts, such as the commitment to unmanned operations.
2. Streamline core processes and rationalize activities
This starts with streamlining core production, maintenance and safety processes. This simplification eliminates unnecessary steps and eliminates unnecessary redundancies, taking advantage of newly available technologies and information. It includes reducing the number of activities such as daily inspections. At this stage, the company should optimize the ratio of corrective to preventive maintenance, as well as the schedule and frequency of preventive maintenance. This is also a time to revisit and rationalize the integrated operations planning process, correct gaps and cut back on non-value-added work.
3. Develop a future-oriented digital overall operating model
Digitization—including big data and predictive analytics, robotics, artificial intelligence (AI), machine learning (ML), and the Internet of Things (IoT)—can enhance and support every aspect of oil and gas company operations. The third step in the transformation journey is to develop a digital holistic operating model for the future. This means building advanced capabilities and taking full advantage of a variety of digital tools. Companies must be able to move from localized pilots to integrated large-scale implementations to have the greatest impact.
“Innovative ventures in this industry are unfolding rapidly, providing the NOC and the countries that depend on its income with the long-term ability to promote green solutions,” said Jean-Christophe Bernardini, Partner and Associate Director at BCG. The economy provides an important element of stability, especially as it streamlines the innovation process in its future operations.” – arab trade news agency
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