Controlling costs in slow times: the importance of data tracking
by Curt Finch
As oil prices stabilize and production continues to grow, the oil and gas industry has the need to continuously focus on controlling costs. According to a recent Reuters article, the rapid growth of oil production activity worldwide has led to an increase in equipment and operating costs, as well as a shortage in specialized workers. What this means is that companies must reduce their per-unit costs in order to grow their profits.
Fortunately, improvements in rural cellular coverage and mobile technology offer a solution. Companies can now track their data electronically, offering visibility into and control over their lift costs. And with oil prices moderating, controlling costs may be one of the only ways to get a competitive edge in an increasingly crowded field.
The oil and gas industry has always generated a vast amount of data captured through oil wells, process equipment, financial operations, and pipeline and refining operations. But until recently, this data has not been adequately managed or leveraged by E&P companies of all sizes for business insights. In many cases, the data remained fragmented and underutilized on various paper spreadsheets.
While companies know how important cost data is to their business, they may not have had the means to accurately track their costs in real-time. As the oil and gas industry has become increasingly manufacturing oriented, dependence on timely data has increased as well. Companies must process the streaming data from remote drilling sites and make quick decisions about equipment, personnel, and safety. Additionally, with the current high cost of labour and demands on equipment, errors and delays are more and more costly. Accurate, timely information has never been more important.
Improved cellular and internet connectivity in rural areas offers a new way to gather, store and leverage information. Historically, cellular coverage was slow to deploy in remote areas because of lower density populations. This is great news for oil companies, as most now have access to wireless coverage in remote locations.
Because of improved availability of mobile access, companies can now track information via sophisticated software, rather than relying on paper spreadsheets. Advances in mobile technology make it much simpler for field workers to log pertinent data in real-time via smartphone or tablet.
Tracking lift costs
E&Ps know firsthand that monitoring and controlling lift costs is very important. According to the most recent data from the Energy Information Agency, the total upstream cost (finding and lifting) for producing oil averages $33.76 per BOE (operating costs + finding costs) in the U.S and $24.76 per BOE in Canada. Prices are expected to decline modestly due to non-OPEC supply growth and still tepid developed country demand.
Monitoring lift costs – including costs associated with transportation, labour, supplies, supervision, pump operation, electricity, and other expenses – is made much more efficient through the use of a Web-based time and expense tracking system with mobile capabilities. On-site workers can track time, expenses, and equipment usage on a per-project basis. The best systems will integrate with and feed this data into your accounting/ERP system.
This data allows companies to know their costs in real-time, tracked directly at the source. This makes it easier to spot potential problems and avert them before they slow production. But the real value lies in consolidating and leveraging this data over time.
Moving business forward
Better knowledge of costs gives companies a better understanding of where money is spent and which areas of production are most or least profitable. For example, real-time data tracking can uncover overlooked expenses, such as the cost of refurbishing transportation trucks between sites. These uncovered expenses can then be charged back to the appropriate parties, lowering overall costs.
Additionally, tracking employee time and equipment usage by project allows companies to reduce non-productive time and optimize employee allocations. According to the aforementioned Reuters article, oil, gas, and pipeline employees are some of the best-paid employees in the U.S. For example, Texas workers take home around $15,000 a month. According to a study by Canadian Business, even in Canada, oil & gas supervisors, petroleum engineers and chemical engineers earn a median annual salary of $75,000 and up. At this expense, it is imperative that companies allocate employees properly to maximize productivity and profits.
And perhaps most importantly, by tracking site data over time, companies can establish reliable key performance indicators (KPIs) against which current and future projects can be accurately assessed. Companies can more precisely predict how a new lease will perform by analyzing historical data from similar operations, improving cost estimates and lease evaluations. Integrated historical data also helps companies assess health, safety, and environmental impact, which are all increasingly important factors in the face of new, stricter regulations.
The oil and gas industry is facing a huge opportunity with improved mobile connectivity in the field. This improvement allows for the subsequent benefit of more accurate data collection at the source. If E&P companies pursue these new opportunities to automate the capture of real-time cost data at the source, they will be better positioned to compete effectively going forward.
Curt Finch is CEO of Journyx.