Oil and Gas Industry Council

X-Sector Efficiency Study

Findings and conclusions

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Agenda

1. Introduction and Approach

2. High level findings

3. Conclusions

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We studied high performing operations in ‘adjacent’ industries in an attempt to identify lessons for the UK O&G sector

Aerospace, Automotive, Chemical, Railwere selected for the common characteristics they share with O&G and their relative maturity

We found that :

• Other sectors have been strategic in their response to economic cycles and changes in market conditions

• The UK O&G sector on the other hand has largely displayed short term, reactive behaviours to changing industry dynamics

• There are useful lessons that the UK O&G industry can learn from these mature sectors to shift the performance paradigm

Degree of commonality in the dimensions of comparison across chosen sectors

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As part of the study we spoke to over 30 experts and operational leaders from various organisations

4 Industry councils

5Cross-sector

bodies

>20Companies

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Our study has shown that company specific improvements reinforced by industry collaboration and an effective regulatory environment are needed to achieve a step change in sector performance

1.Company specific

improvements

3. Regulatory environment

2.Sector wide Collaboration

Maximum impact

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Leading companies focus on Seven Fundamentals to drive Operations Excellence

Leadership

Operations as a strategic

asset

Process and IT

architecture

Knowing and building your

core

Organisationand People

Performance Management

Innovation and Change

Treating Operations as a strategic asset and not a cost of doing business

Visionary leadership that builds trust inside and outside the

organisation

Focusing on end to end business

processes and an enabling IT architecture

Building an organizational structure

and skills to manage Operations of the future

Measuring what’s important and using it to drive improvement

I

II

III

IVV

The Seven Operations Excellence

Fundamentals

Understanding and building core

competencies and collaborating for the

others

Constantly looking for better ways of doing things and managing

change effectively

VII

VI

1. Company Specific Findings

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At a sector level, several recurrent themes emerged through the study which can be adapted for the UK O&G sector

Aerospace RailAutomotive Chemical

• Industry wide programmes to improve supplier maturity and consolidate supply base

• Increased collaboration among operators and train manufacturers to optimise whole life costs

• Advanced supplier management based on a robust understanding of core/non-core

• Innovative performance/ availability based contracting models of the supply base

• Large maintenance contracts awarded to a consortium of suppliers based on geography to achieve scale efficiencies

• Standardised processes and interfaces through strong operator and tier 1 OEM collaboration

• Modularisation of the product which has streamlined supplier topography

• Focus on manufacturing and production line efficiencies (lean, six sigma, TPM)

• Lean/ Frugal Engineering to optimises whole life maintenance of assets

Supply Chain Collaboration

Sophisticated Contracting

Standardisation

Process Efficiency

2. Sector Wide Findings

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A strong regulator and active relationships with industry councils and trade bodies have brought benefit in the sectors studied

CAA (Civil Aviation Authority) takes a lead role in driving the sharing and use of reliability data

The FAA, EASA sets goal oriented standards as opposed to prescriptive standards

Trade organisation ADS works with the regulator CAA and primes to improve supply chain collaboration

The ORR’s (Office of Rail Regulation) set up Network Rail to manage rail infrastructure.

The automotive trade body SMMT worked with the auto regulator in the 1980s to bring together Toyota, Nissan and Honda

Improvement in operational safety and efficiency among operators. Increased trust.

Reduction of design and testing overheads

Improvement in on-time delivery and reduction in supplier interface overheads

Scale efficiencies through expanded scope, multi-year maintenance contracts awarded to a consortium of suppliers

A step change in the UK’s automotive supply chain competitiveness

What we found in other sectors The Benefits

Aer

oR

ail

Au

to

3. Regulator/Industry Council Findings

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Specific case studies provide further evidence of what is possible

Alliance Model for large scale Capital

Projects (ACA)

Operator-OEM dynamic in

Aerospace vs O&G (GE)

Accelerating the competitiveness of

UK’s aerospace supply chains (ADS)

Availability based maintenance contracting

(Rolls Royce)

Operational transformation of a

tier 2 chemicals distributor

Achieving Standardisation through Product

Platforms (Bombardier)

Significant operational

improvement in tough market

conditions (Bombardier)

Multifaceted approach to

operations excellence (IOC)

Competitive advantage through

manufacturing excellence (SMMT IF)

Aerospace

Rail

Chemicals

O&G

Automotive

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Case Study #1 Significant operational improvement in tough market conditions – Bombardier Transportation

Context

• UK’s only train-building site - facing shutdown

• Quality issues damaging relationship with London Underground (LU) - the only client

• Siemens awarded Thameslink contract

Changes

• New leadership / RACI

• Re-designed assembly line

• Multi skilled workers

• Improved reporting

Relevance to Oil and Gas industry• In a similar situation to the UKCS, the UK rail industry was

facing significant cost pressures as well as declining productivity.

• Bombardier showed that by significantly improving operational performance, that it is possible to compete on a global scale

Results

• Direct working hrs/unit cut by 40%

• Build quality improved by 4x

• Derby – moved from bottom to top 5 among 40 manufacturing sites

• Won £1bn x-rail contract

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Case Study#2 Manufacturing Efficiency in Aerospace vs O&G

Context

GE’s comparison of mechanical drives for aerospace applications vs O&G application highlights the benefits of standardisation and a greater role of regulatory bodies in reducing design overheads through goal oriented standards

Relevance to Oil and Gas industry• Retrospective standardisation of legacy North Sea

infrastructure is not possible and we must recognise the unique operating conditions for equipment offshore

• Still, this case study suggests a significant opportunity for greater collaboration among operators to address inefficiencies around design and testing standards in conjunction with sub-sea equipment manufacturers and other OEMs.

Comparison

Area O&G multiple

Reason

• Design EnggHours

7xNon-homogenous specs across operators

• Material costs 2-4 xOver specified material integrity requirements

• Testing hours 4xMultiple 3rd party inspections and the contracting structure

GE mechanical gas turbine for O&G application*

GE gas turbine for aerospace engines*

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Conclusions

Studying Operations Excellence in ‘adjacent’ industry sectors provides potential learnings for the UK Oil & Gas Sector

Seven factors feature consistently in high performing operations

All seven factors appear to be applicable to Oil and Gas companies operating in the UKCS

However, company specific improvements alone will not maximise the improvement potential

Significant opportunities lie in more effective collaboration between organisations to eliminate duplication and reduce cost

An effective regulatory environment will further promote and encourage the awareness and adoption of best practice

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Thank You!

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