Scalable Governance Model And Best Practises For Oil & Gas Companies

According to the International Energy Agency’s report, the global demand for energy is set to grow by 37% by 2040. To meet this growing demand, the Oil & Gas industry needs to invest over $900 billion a year by the 2030s. By this time, it is estimated that oil and gas will account for around 60% of global supply growth. However, oil producers are facing unprecedented challenges in achieving a scalable governance model.

Oil and gas companies operate in some of the most physically and politically challenging environments on the planet. Along with factors such as volatile market prices, fluctuating demand, complex compliance, and national frameworks, it’s safe to say that oil and gas companies have some of the most complex operations on earth. The entire industry is plagued with many challenges and hurdles, due to its complexity. The industry lacks process uniformity and suffers from an inefficient internal communication channel. Apart from that, a lack of centralized governance policies results in many adopting the system of their convenience. This leads to sub-optimal utilization of resources. Resistance to change and the inability to enforce proper governance has prevented Oil and Gas companies from reaping the full economic benefits of their resources. They need to streamline operations to reduce costs, add capacity and capability, speed up decision-making and improve quality while managing risk.

The O&G companies need to develop a Centre of Excellence (CoE) with a leading industry framework to ensure standardized governance practices and to focus on automation. The key is to adopt a scalable governance model that not only meet existing organizational requirements but future requirements as well. Here are some of the ways Oil and Gas Companies can improve their operational excellence.

The industry has three predominant sectors – upstream, midstream and, downstream. The article— Fueling Oil and Gas Industry with Artificial Intelligence explains how AI can improve each of these sectors.

Use of AI Technologies: Oil and gas companies need to adopt a comprehensive and agile digital business strategy that leverages intelligent automation to seize opportunities and deliver value. AI-powered Chatbots can be used to drive efficiency and returns across an organization. A Communication-focused AI Conversational tool with predictive behavior can do wonders in an O&G Company. Often described amongst the best progressive collaboration between humans and machines, Chatbots make a communication to be stress-free. To streamline common work activities and improve organizational efficiencies, companies can make use of AI chatbots.

Automation Strategy: Today’s businesses need to be fast-paced, agile, and efficient, and that means automation is no longer optional. Automation is a force multiplier that helps to seize opportunities for structural business change. It a new strategy that helps O&G companies to constantly discover, learn, change and grow as they strive to meet business objectives. That said, there are many challenges when it comes to automation. The hazardous conditions that pervade the industry, the remote environment of field locations in upstream operations and the diverse workforce with various experience and expertise, all need to be considered before implementing an automation strategy.

Technological Advancements: When it comes to the Oil and Gas Industry, technology has caught up with the industry’s needs. However, the industry still lags in leveraging these technological advancements. A good technological strategy has the potential to improve business functions across the O&G industry. Technologies such as Big Data Analytics, Digital Oil Field, Cloud Computing and IoT can significantly streamline the demand management and delivery process to a centralized system.

Good Governance: Proper governance should be established with all the guidelines and necessary processes to dictate how an O&G company operates. It should be arranged in a centralized framework and adherence to the guidelines should be strictly enforced. Proper governance ensures that all core activities are done in the most effective way to achieve measurable results.

Proper Operating Model and Strategy: A good operating model will outline how the process, people and various other systems interact to support the business. The operating model shows how various assets of the company are arranged and prioritized to achieve maximum operational efficiency. O&G companies should set up a leading practices library and service catalogs to ensure highly-efficient operations.

Integrated Planning: O&G Companies often struggle to implement good activity planning, which is essential to ensure reliable and cost-effective operations. Poor planning is expensive since it leads to labor overruns, overtime, missed deadlines, and under-used resources. Thus, integrated planning is key to achieving operational excellence. With proper planning, the inefficiencies and non-productive process from operations can be removed to achieve safe, reliable and cost-effective practices.

Organizational agility: Organizational agility is a crucial factor for companies to achieve operational excellence. It is the ability of a company to rapidly form cross-functional teams and reprioritize tasks to adapt quickly. That said agility should not result in chaos. To achieve organizational agility, a common culture or process should be followed to allow faster collaboration. Setting a standard and simplifying processes enable companies to react and learn quickly to unforeseen events all the while improving productivity.

Defining core operations and outsourced operations: Oil and Gas companies need to define what activities they need to control in-house and what operations they need to outsource via partnerships and supply-chain relationships. Apart from that, they need to move away from contractual arrangements and adopt long-term strategic partnerships with a network of suppliers. This way contracts or suppliers can be integrated into overall operations programs and contribute positively to business performance. Today, access to resources is no longer a key strategic differentiator, and large oil companies may need to rely on specialized explorers instead of in-house exploration teams for reserve replacement.

Employee Engagement: The oil and gas sector hires thousands of people every year. It’s crucial for an O&G company to have a higher employee engagement rate. Employees need to understand their role and how their job affects the overall performance of the organization. How well employees can identify real‑world problems and make use of technology to solve those problems, drives business results. Through employee engagement, every employee can be empowered and supported to make choices that help to achieve operational excellence. O&G companies should formulate a roadmap that contains training and communications to achieve higher employee engagement.

Cost efficiency: In this fluctuating oil and gas market, cost efficiency is a clear priority for operators. Operators in the oil and gas industry need to reduce their costs to remain competitive and maximize economic recovery. This can be achieved by stopping low-value activities such as Maintaining redundant equipment, Carrying out maintenance/inspection of equipment too frequently, etc. Companies can utilize digitalization and advanced technologies to reduce operational costs. When carried out, cost savings can bring improved production efficiency/uptime, better organizational focus on key activities and can achieve sustainable safety and integrity.

Risk Assessment: A key aspect of planning and decision making in oil companies is accounting for the varying amounts of risk inherent in the operations. There are three types of risk in all oil and gas industry – Environmental risk, Geo-political risk, Financial risk. These risks can lead to a higher possibility of large financial loss. Hence it is crucial for Oil and Gas Companies to have optimization principles and models to assess various risk-return relationships.

The Oil and Gas Industry is constantly shifting. Uncertain energy policies, geopolitical complexities, and increasing operating costs all pose significant challenges. Failure to adapt quickly to changing expectations and industry landscape has prevented many O&G companies to reap the industry’s full benefits. Newly developed technologies and new regulations are being introduced to drive growth and efficiency. The Oil and Gas industry needs to embrace new guidelines and scalable governance model to achieve operational excellence.