“People, products and processes are vital to keeping a business afloat!” – Marcus Lemonis states his business mantra loud and clear on CNBC’s “The Profit”. When Lemonis isn’t running his multibillion-dollar company, Camping World, he invests his money and time into struggling businesses that are in desperate need for his expert advice to increase their productivity and profits. In this TV series, Lemonis evaluates struggling businesses against his three-part principles which are the basis for his own company’s success. He unveils the operation processes that are holding the company back from achieving top productivity and introduces proficient practices to eliminate unnecessary costs.
It’s not a secret that COOs and Production Managers for oil and gas companies are under intense scrutiny to do what’s necessary to optimize cost performance and boost capital productivity. A study from Wood Mackenzie states, “Unit operating costs have steadily increased over the past decade by 60% in real terms. This prolonged period of cost escalation has been followed by a collapse in oil prices over a relatively short period – the average Brent price during the first half of 2015 was 43% below the average price in 2014.” O&G companies don’t have control over the price of oil that’s hurting their costs but they do have ability to improve their business processes to not only adapt to the current economy but survive and thrive. They must link budget and resource planning to strategy which is based on operational excellence. “Operational excellence occurs when the business has to function together as one cohesive unit.” -Michael Treacy and Fred Weirsema state in their book, “The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market”.
Why is there a need for change in oil and gas operations?
Not only are O&G companies suffering from the low price of crude oil and escalated production costs but hedging contracts are expiring and they no longer have the robust budgets they once had. Without these budgets available to put more people and money to focus on field issues to maintain/improve production, they must focus on their production processes to reduce opex costs. The spotlight must be strategically placed on the front lines to protect the cash where it’s made out in the field. “I’ve never believed that you can cut your way to a profit. But I do believe that you can throw your profits in the trash can if you’re not focused on expenses.” Marcus Lemonis stresses the importance of concentrating on your costs and improving operations. Operations can only be improved when the entire organization works together. O&G companies must promote communication throughout the entire organization and empower their employees with integrated information systems that allow for fast management decisions.
Who should O&G companies invest in to achieve operational excellence and improve production? … Lease Operators
Without their hard work out in the field, the wells won’t be profitable. They have the critical responsibility to ensure that the wells are operating properly and efficiently. Their extensive daily duties are crucial to ensuring that production is at its full potential and downtime is reduced.
In each episode of “The Profit”, Lemonis analyzes a business’ product by evaluating each component and determining the total cost. O&G companies need to perform this constant analysis in order to maintain low production costs throughout the entire life of a well. The responsible Lease Operator should be able to understand the costs per bbl in terms of chemicals, water disposal, maintenance, repairs, workovers, etc as they pertain to his/her own wells to deliver effective cost savings while sustaining production. If the front line employee who works on the wells everyday does not have an efficient tool to record or look up this data, how can Operations make strategic decisions to cut production costs in a surgical manner? Operations must empower their field men with the most efficient tools, processes and resources so that they can sustain and improve production which will result in lower opex costs. Lemonis vows that operating processes are key to ensuring a business’ efficiency and opportunity to scale. COOs and Production Managers have the ability to enable their Lease Operators with intuitive tools and technology that will allow them to gain insights, and collect quality field data by enabling automatic validation of field data entry while allowing for the necessary mobility. By investing in the front line, companies acquire the capability to improve production and make a positive impact on cost, revenue and overall profitability of underlying assets.
So what are 4 pieces of advice Mr. Lemonis might provide to a Lease Operator? Stay tuned…