Case Study of Applying Performance Management to a major Canadian Oil and Gas Production Company to Increase Production:

Introduction:

A large Canadian Oil and Gas production company was experiencing inefficiencies in field operations. A considerable amount of behavioral effort was expended for things like manually collecting production information, validating the information, distributing the information, and reworking the production operation information of assets like oil wells, gas wells, batteries, and plants. Field operators who managed these production assets where experiencing additional shutdowns, outages, and lacked the ability to respond to these situations because of the uncertainty and lack of timeliness of this information. Also, field operators simply did not know what was the cause of these production problems. These inefficiencies of the operator’s behaviors were frustrating and did not allow them to focus on their more critical results of monitoring the assets and keeping them up and operating as efficiently (optimal production for market demands) as possible. An opportunity to increase the overall company result of increased production was contemplated by the producer and AnMar Management Inc. was contracted to help analyze the performance improvement opportunities that could help the field operator’s become more efficient. The company valued becoming “the lowest cost producer”. In Performance Management additional costs are incurred when “behaviors” become excessive for the results that people’s job roles are trying to accomplish, and often the results are rarely accomplished. A comprehensive Performance Audit was conducted by AnMar Management Inc. to help this producer measure the increase in results opportunities and to provide suggestions for possible solutions.

Consultant’s Business Analysis:

A Performance Audit is a systematic performance measurement approach to identify the best performance improvement opportunities within your business. When you analyze potential performance improvement opportunities you do not start with individual job roles. The principles that guide us toward measuring only the performances that have real economic potential are to start with general measures before going to more specific ones. This is primarily because if we focus on an individual job role’s task lets say, we have no way to compare the measures of that task with others to assess the performance improvement opportunity. Therefore, the performance of the organization provides a context for interpreting the performance of it’s people. In this particular case that context was to look at “overall production performance gains from field operations”. Only by knowing that production is a significant problem are we able to see how we can help enhance the individual field operator’s job role. This large Canadian Oil and Gas producer was experiencing high growth in field assets through acquisitions of other significant company assets. This increase in asset base from acquisition was creating a very diverse and disparate set of field operation procedures. It also created a diverse and disparate set of instrument technologies like automation computer systems which provided critical operational information which would prompt the field operator’s performance - give them direction on what to do. The steps AnMar Management Inc. used to conduct the Performance Audit where as follows:

• Identify the key results of all of field operations.
• Identify the key measurement requirements of all of field operations.
• Identify the areas of field operations (geographical management areas) who where the best as measured by the performance data.
• Measure and compare the best with typical performance.
• Compute the opportunity for performance improvement.
• Translate the performance improvement opportunity into economic value for the company.
• Build a results chain map (a picture that links the required “sets” of behaviors that will produce the measurable results for field operations).

The Solution:

The systematic approach to problem solving problems in human performance is always to first gain a precise definition of the performance problem (results, and supporting behaviors) and to start at the highest level for the performance area, like overall field operations in this case. Once that is accomplished we can set up measures to determine how to improve on these critical variables of results and behaviors. In the case of this major Canadian Oil and Gas producer the measurable results for all of field operations were identified as:

• Increased accuracy provision of asset production operational information (result).
• Increased safety (result) through reduction in road travel time for example (behaviors).
• Increased speed of diagnosis of facility asset problems (results).
• Increased speed of facility asset trouble correction (results).
• Increased accuracy of meeting production demand schedules within the facility limits, or ranges of possible production (results)

All of these field operational results are in the control of the various field staff like maintenance crews and facility well site operators for example. If all of these accomplishments were being completed perfectly they would contribute to the overall company result of “increases in oil and gas production” and “accuracy of production schedules”. What follows is a graphical map that links the initiatives (larger set of behaviors – or what to do for field operations) to accomplish these results (proposed solutions). The diagram is referred to as a “results chain map”. Briefly, the circles represent measurable results, the squares represent groups of behaviors (what to do to get the result):

Summary of Performance Improvement Opportunities’ Results:

• Financial Benefits Calculation (Assume Implementation in one geographical area “only” first):
•  
• 2% increase in gas production volumes from improved uptime of existing assets (system wide)
• 365,000 Mcf / day current production
• 1% increase in uptime is 3,650 Mcf / day
• Canadian wellhead gas price was about $7 per Mcf
• Gross benefit is $25,550 per day before netback
• Gross benefit is $9, 325,000 per year before netback
• Gross benefit is $4,660,000 per year after netback
• Gross benefit for 2% increase in production volumes was $9,300,000 per year
•  
• Increased efficiency and accuracy in production accounting information (office work)
• Current staff level was approximately 20 production accountants (Operating and Non-Operating and administration support)
• Estimate 50% of work efforts on volume allocation reporting or 10 Full Time Equivalents (F.T.E.s)
• Estimate 50% of work efforts on validation and rework of reports = 5 F.T.E.s
• Eliminate 75% of this effort = 4 F.T.E.s
• Financial estimate of these inefficiencies (cost of additional behaviors) is $400,000 per year
•  
• Additional Increased efficiency and accuracy in production information (field work)
• Financial estimate of 50% of the “office work” of production accounting as noted above or $200,000 per year
•  
• Increased efficiencies in field labor and increased safety (through reduced windshield time, data gathering, etc.)
• Monthly company wide Lease and Operating Expense (L.O.E.) – labor related: $1,300,000 per month
• 25% reduction in field visitation and data gathering efforts = $650,000 per month
• Financial estimate of $3,900,000 per year
•  
• Reduced vehicle costs:
• Monthly company wide L.O.E. cost for vehicles was $300,000 per month
• Financial estimate of 10% for this geographical area was $360,000 per year