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Lean in Oil & Gas – Part Two

This is part 2 in a series of posts related to applying lean to the oil and gas industry.  To read part 1, click here.

The previous post presented examples of applying lean to the development of oil and gas wells in shale plays and in the exploration process.  As further examples are presented, keep in mind that far better and sustainable results are achieved with lean when people gain a fundamental understanding of the philosophy, rather than copying the way others have done it or by focusing only on the tools.  This requires continually working to develop a mindset that, whether you are a completions engineer, financial analyst, or CEO, everything you do can be improved when you approach work with a kaizen mindset, as follows:

  • What do want to happen (what is the target condition)?
  • What actually happened (what is the gap between actual and target)?
  • What is causing the gap?
  • What will you do to close/reduce the gap – and how will you test it to be certain what you plan to do will work?
  • What is the new gap and/or target condition as you continually strive for the ideal condition?

In many ways, lean is as simple as approaching business in terms of the questions above.  As written in several previous posts, however, just because something is simple does not mean that it is easy.  There are a host of cultural, personal, and organizational barriers that need to be addressed to transform an organization from traditional thinking to lean thinking.  To further complicate the process, as the organization moves toward a lean mindset, there will always be a pull back to the old way of working that will continually need to be recognized and addressed.  It’s as if the lean journey is like climbing a mountain that has no peak.

Further Examples

Commissioning of Offshore Platforms

The target condition for commissioning an offshore platform includes handing a perfect facility to the operations team on-time and within budget.  The definition of a perfect facility should be clear from the start of the project and, in addition to technical specifications (gas/oil/water flow rates, tubing pressures, number of wells, etc.), should include quality expectations (e.g., efficient layout, equipment and instrumentation is in full working order, drawings are up-to-date, crew trained to operate/maintain equipment, etc.). 

Actual performance for commissioning and handover involves understanding how well the target condition was met, which includes among other things, delays, rework, equipment failure, cost overruns, and punch lists.  Each of these identifies a gap that needs to be closed – or an opportunity for kaizen.  Even if commissioning a new platform is a fairly rare occurrence for the company, countermeasures to close the gaps can improve processes in other areas, like maintenance and turnarounds.

One thing that becomes clearly evident during the commissioning process is that many problems that surface during handover actually result from work done – or not done – earlier in the development process.  An appreciation for systems thinking starts to take hold and people begin to focus on improving the upstream engineering, design, and construction processes.  When this happens, it becomes clear where some of the lean tools and countermeasures fit in the process, including things like establishing and managing buffers, creating pull, implementing kanban, and maintaining dashboards.  Although these types of tools can help the operation improve toward the target condition, they can also make things worse if the objectives and context are not clear.

Establishing Annual Plans

Every organization can benefit from utilizing kaizen – or the A3 process – to establish its annual plan.  At the organizational level, the target conditions are specific objectives for key areas like safety, production, reserves, and costs.  It is vital that the target conditions be clearly aligned with the company’s strategy and represent the journey toward the ideal.  As an example, suppose the total recordable incidence rate (TRIR) is running at 0.50 (one incident per 200 employees per year).  If the company wants to become one of the industry leaders in safety, it will recognize the need to significantly improve its performance in this area.  Its leaders may determine that, within three years, TRIR needs to be down to 0.22, and that for the current year, the company needs to improve to 0.40 (a 20% improvement).  The framework for business kaizen – has now been established as:

  • Ideal Condition: TRIR < 0.22 (it is actually 0.00 – but the company has recognized that 0.22 within three years means they are on their way to a perfect operation);
  • Target Condition: For the current year, the target condition is 0.40;
  • Actual Condition: 0.50 (it also needs to be determined how stable TRIR performance is – if there is significant variation, the 0.50 does not mean much);

The next step in the annual planning process is to reflect on the operation to begin to understand the root causes of safety incidents.  Since a 20% improvement in TRIR is a stretch, some type of breakthrough is needed to move the organization to a new level of safety.  Following the kaizen process, the next step is to determine countermeasures targeted at removing or reducing the root causes to safety incidents.  This could include such practices as standardizing the processes across assets that are causing the most injuries and near misses, increasing site visits by leaders and operations experts, improving training of team members on-site in kaizen and safety, or a host of other activities.  Just as with improvement of a local process, it is important to test countermeasures before rolling them out across the organization to assure they achieve desired results.  This is the STUDY step in the PDSA cycle, and allows adjustments when things are not working as planned.

Detailed plans are not developed beyond a one-year timeframe in that it allows for adjustment to keep moving toward the target condition.  It is difficult to know what will interfere with performance beyond the current quarter, much less the current year, and we want to make sure we don’t lose sight that the objective is ultimately to achieve results.  People can get so focused on implementing a plan that a “check the box” mentality takes over and achieving a target becomes secondary.  Within a lean culture, leaders don’t expect people to develop perfect plans.  They do, however expect people to continually study the effects of a plan and make adjustments, when necessary to close the gap between target and actual performance – all within the framework of scientific method.

Leaders also need to follow the PDSA cycle on a regular basis throughout the year to assure the gaps are closing and that improvement in one area does not negatively affect another.  For example, an organization can increase production while negatively affecting cost and safety.  To prevent this from happening, the organization’s leaders need to review performance at least quarterly to keep an eye on the business.  This represents kaizen at the business level, as the annual plan itself will require adjustment to assure organizational results are achieved.

Never-Ending Improvement

As people begin to understand the effect lean has on the way the organization operates, they begin to see how the process never ends.  As in the safety example above, although a TRIR of 0.22 within three years is thought to be world class in today’s world, it may not be three years from now.  Besides the fact that the industry will improve, the team will begin to understand that perfection means that no accident is acceptable and the only acceptable target is zero.

Further examples of lean in oil and gas will be provided in Part 3 of Lean in Oil & Gas.

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About Gregg Stocker

Gregg Stocker is a lean advisor for Hess Corporation. He possesses over 20 years experience in a variety of disciplines including operations, manufacturing, human resources, quality, and strategic planning, and has worked in manufacturing, service, and oil & gas industries. He has extensive international experience, including successfully leading an $65 million business in The Netherlands. He authored the book, “Avoiding the Corporate Death Spiral: Recognizing & Eliminating the Signs of Decline,” (Quality Press, 2006) and was a contributing author to "The Lean Handbook," (Quality Press, 2012). Gregg is a frequent speaker and recognized expert in business and performance improvement having been interviewed on television, radio, and in a number of newspaper and magazine articles including The New York Times, Washington Post, BusinessWeek, and InformationWeek. Gregg has implemented change in organizations ranging in size from $10 million to more than $100 billion. He is a team-oriented leader who achieves results by improving teamwork, focus, and communication throughout the organization.

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