A leading challenge for an Oil and Gas company in the current market is cutting opex costs without hurting production. This struggle stems from the inability to evaluate their well production information. Without drill-down insights, they’re unable to make strategic changes to connect budget and resource planning. “Cost reduction, after all, is a resource allocation exercise in reverse—a systematic review of where and how the company will invest or divest scarce resources to ensure the success of its strategy. This approach to sustained cost transformation goes well beyond cost-cutting. It’s about doing more with less to generate major productivity gains. By identifying poorly deployed resources, leadership teams can reallocate them to activities that can strengthen or reposition the company.” – Peter Guarraia and Véronique Pauwels from Bain & Company. For an O&G company reallocating poorly deployed resources means the operations team must have access to well data that they trust at the time they are making instant daily decisions to cut expenses and balance production.
A logistics analyst at a leading E&P company in the Permian basin who runs their well analytics on Seven Lakes technologies describes the business value of trusted data in action. “Since December we have been working pretty hard on produced water – water hauling makes up 34% of LOE in our region of Southeast New Mexico. Strangely there are a lot of things that we would expect Production Engineers to have and they typically do not. It took me about two months after I started this project to understand how little we know about some of these things.” To find savings on this expense, the analyst began to excavate production information and processes. He immediately runs into roadblocks; he wasn’t able to see how much water the wells produced and compare that data to actual contract amounts. By using enterprise solutions he connected these two separate data sources, and found that they were being over-charged because no one until his effort had recognized the volume discounts they left on the table. He unlocked a multimillion-dollar savings method.
“We just got back bids for water hauling in Southeast New Mexico and we are going to save close to a million dollars per month on water hauling and a lot of that is due to seeing what our actual production is, where it is and then be able to weight our pricing appropriately instead of throwing it out there and saying, ‘OK, we have some water in this area, how much is it going to cost us to haul it all?’ We can take them to a daily production quantity and then go from there and say, ‘Go from this township in New Mexico and you have a disposal well at this location so, what are you going to charge us for that?’ We are looking at significant savings.”
3 Steps to Dramatic Cost Savings and Improved Processes
1. Discover and act upon your well numbers- The Logistics Analyst didn’t let the unknown data barrier stop his efforts to reduce water disposal costs. He turned to the Engineering Analytics & Data Management department for answers. They gave him access to the solution that allowed him to analyze the water production reports and trends. With drill downs, state-of-the-art visualization and configurable reporting, he uncovered the information he needed. “By creating and applying filters, I have been able to find some data for which I had been looking and asking for, for about six months. With the solution, in 20 minutes or less, I was able to find and download water production for every well in the Cotton Draw Area.” With these reports, he proved the current contract rates didn’t match the production activity. They were paying the same haul-off disposal rates regardless of whether it was 5 barrels or 5,000 barrels. He was able to cut the disposal rates in by 30-50% by putting the contracts out for re-bid and negotiating lower rates.
2. Unify departments to develop efficient processes- The Logistics Analyst went one step further with the reports and collaborated with the Transportation Engineers to determine if the vendors were using the most efficient routes for disposal. He found that they weren’t, and based on the township and well locations, he was able to decrease the contract amounts by listing the routes that were most cost-effective. The logistics analyst collaborated with other departments to find all possible opportunities for cost savings. When the entire organization had access to production data and invoicing details, their collaboration led to data driven business decisions that set the company up for success.
3. Challenge operations to overcome production barriers- The logistics analyst changed the behavior for production because of the success he had with the solution. The engineers are now concentrating on top expenditures because they have access to actionable production trends. With the power to access real time data anywhere at any time, they are able to make production changes that are based on smart production insights. “Production only used to care about hydrocarbons but now water disposal is one of the highest spends for our LOE and that is what we have absolutely got to cut in the current environment. We can’t control what the price is, but we have to control our production costs. If you can put a dent in the highest cost, just by having information, then that is a pretty good deal!”
What a great deal indeed, he unlocked a $12M per year savings in their Southeast New Mexico Business Unit alone and they’re now moving on to their other business units and expect this savings to result in a total of $25 million to $30 million annually. By exploiting the companies’ data, the logistics analyst gained valuable insights that lead to an impactful cost cutting decision. He didn’t have to change the way the well was being maintained, but instead, found an improved process. The information was always there. Drastic cost reduction became possible only when the operations team was given technology that unlocked their data.
To learn more about the solution the Logistics Analyst used, please contact Lucy at email@example.com.