Critical Drivers of Exploration and Production Clockspeed a report by Ruud Weijermars Department of Geotechnology, Delft University of Technology


The performance of oil and gas companies takes place in a highly competitive market where everything is related to timing. In a bull market, companies that respond the fastest to internal and external signals of growth opportunities can take measures to further accelerate their growth. In a recessional market, companies can prevent overly steep deceleration of their business size by taking adequate action to adjust the company to the changed outlook without undue delay. Response time and timely measures are crucial for best-in-class performance, which is the result of supreme clockspeed management. Individual companies can perform better than others by monitoring the critical settings of their clockspeed and by rapidly synchronising their accelerators with the business environment when appropriate. In this article, the critical drivers of exploration and production (E&P) clockspeed and specific actions for clockspeed synchronisation and optimisation at individual companies are outlined.


Global Business Climate


The business environment for the oil and gas industry remains firmly controlled by the prices of hydrocarbon commodities, which rise and fall in step with the global economy. Although the profitability of the oil and gas business steeply receded in 2009, an impressive record was set over most of the past decade (see Figure 1). The oil price clearly led the profit growth as well as the decline that followed during the 2008–2009 recession. Cost of services (logs and seismics) and supplies (rigs, drilling crews, pipes, etc.) are high in times of growth and recede when the commodity market is in a down cycle. In fact, oil profits began to retreat when the cost of resources doubled in the period of 2006 to early 2008, immediately prior to the great recession. Renewed interest in exploration and new field development resulting from delayed investments by nearly all major companies caused a huge demand for E&P services and supplies in the period 2006–2008. This need for new developments at the peak of the up cycle led companies to accept higher exploration and development costs. As a result, even the steady rise in oil price in the period 2006–2008 could no longer translate to higher profitability, e.g. return on capital employed (ROCE), but only cushioned an early decline in oil ROCE (see Figure 1). The lower oil prices in the second half of 2008 and in 2009 accelerated the decline in corporate profits.1


The performance of the natural gas industry, like that of the oil industry, has rarely remained immune to the global cycles of economic growth and decline; its operational profitability is commonly affected by these cycles. For example, slowing demand led to a global oversupply of natural gas in 2009 and contributed to exceptionally low natural gas prices throughout 2009.2


financial crisis evaporated credit lines and low natural gas prices compounded the problem. Although the demand for oil and gas remains firm even in times of recession, clockspeed adjustments are continually required to keep ahead. This study inventories the actions and priorities that can help optimise the E&P clockspeed for sustained recovery from the recession.


Clockspeed Accelerators


The oil and gas industry is continually challenged to develop and adopt new technologies and frontier concepts that can help optimise both the operational and financial value chains while meeting society’s energy needs. Knowledge concepts and tools aimed at optimisation across the value chain provide powerful competitive instruments for the industry. A new Clockspeed Accelerator™ tool enables E&P companies to critically assess their performance in terms of operational workflow efficiency, risk management and value accrual. Clockspeed refers to the efforts of oil companies to remove obstacles from the value chain and accelerate reduction of lag-time between exploration and production, to improve the balance of risk and opportunity and to reduce response time to supply and demand volatility. What marks out industry leaders is not just superior technology, but superior technology applied in support of optimisation of workflow speed, risk mitigation and value accrual.


Individual companies can outperform their competitors by superior clockspeed pacing when they succeed in moving each of the three clockspeed accelerators to higher settings. The three clockspeed accelerators monitor and direct the rate improvements (see Figure 2) for workflow speed and productivity, risk mitigation and portfolio value accrual. These three clockspeed accelerators provide practical gearshift levers for the optimisation of overall clockspeed at individual companies in time-based competition.


The competition for faster E&P clockspeed has been intensified further by the emergence of new challenges for oil and gas operators. Even the major international oil companies (IOCs) with dwindling global reserves are driven to deeper waters, colder seas and riskier political regions for access to scarce new acreage. Likewise, national oil companies (NOCs) with depleted national reserves are now also moving abroad for new opportunities. Traditionally divided into two distinct groups – IOCs and NOCs – privatisation of over a dozen NOCs in the past decade has created a third, major group of E&P players: public–private partnership NOCs (or PPP oils; see Table 1). The PPP oils are now increasingly contributing to the acceleration of the E&P industry’s clockspeed;4


As a result, the utilisation of gas land rigs in


the US had, in 2009, dropped to 43% of the previous year’s peak count.3


What is more, the reduced rig cost did not trigger a new round of exploration. Such exploration is typically led by smaller, high-risk companies that commonly venture into the non-conventional US gas plays. These companies need credit facilities for new ventures but the


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this is because PPP oils are


rapidly learning to take on more risk as easy oil reserves have become scarce in their home countries (e.g. Statoil, OMV, ENI). These PPP companies now develop entrepreneurial strategies, which were previously mostly championed by IOCs only and distinguished them as leading in the business; it also kept the business tactics of IOCs and NOCs distinctly apart. By mastering the technology and the strategy viewpoints of both


© TOUCH BRIEFINGS 2011


Industry Outlook


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