Cost Excellence in Upstream Operations

Optimizing cost performance is a key component of Operational Excellence for upstream oil and gas businesses. It is a core part of the general mission of every operation in that sector: To find, develop and deliver as much hydrocarbon as possible, at the highest practicable margin, as fast as possible without harm to people or the environment.

Driving Cost Excellence means having the managerial and leadership discipline to focus on generating cash and optimizing unit (lifting) costs to create a viable, sustainable and profitable business. It also means working organizationally to develop a sense of “commerciality”. In other words a cost culture, at all levels of the organization — from leaders and managers through to operators and technicians.

There are a number of tactics and approaches available to managers when it comes to reducing cost in upstream companies. Not all of them are equally effective or sustainable. The diagram below captures a set of cost reduction tactics that range from simple “mandates” for managers (or vendors) to slash spend, through the reduction of demand for products and/or services through to the more sustainable optimization efforts focused on eliminating waste, variation and complexity from the operation.

Evolve takes the view that while cost reduction efforts need to include a broad set of fit-for-purpose tactics, the bulk of those approaches should be focused on “going deeper” into process simplification and waste elimination (e.g., value stream optimization).

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John Norcross

Though Canada is a long way from Antarctica, both places offer vast terrain for exploration. Inspired by the great 20th Century Antarctic explorer Ernest Shackleton, Evolve Partners’ John Norcross leads the firm’s efforts to expand our presence in Canada’s exciting, and rapidly growing, energy industry.