File Name: oil and gas value chain .zip
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Upstream — Exploration and Production. Midstream — Transportation and Storage. Downstream — Refining and Retail Markets. Companies in the midstream sector are typically involved in transportation of hydrocarbon.
Over the past 24 months , companies in the oil and gas supply chain have gone from boom to bust. Operators faced with crumbling crude prices have cut back sharply on supply-chain spending. As a result, oil-field service and equipment OFSE companies are seeing business evaporate. They have cut costs and, in some cases, changed business models in response.
However, in pursuit of sustainable cost reductions and near- and long-term profitability, both operators and OFSE companies have begun to work together. Right now, OFSE companies in particular are exploring five strategies to accommodate this changed environment: cost cutting, vertical integration, new revenue models, consolidation, and new equipment and service models.
The cost cutting required to address falling revenues has come as a shock to an industry that over the years had grown fat and happy on high prices. The good times resulted in multiple years of cost inflation, with expenditure per barrel rising between 5 and 15 percent each year since , depending on the service and the geography. Offshore fields in particular saw costs rise significantly, resulting in high break-even levels. Operators are now rediscovering the spirit of efficiency.
For example, independent operators in US onshore have been able to raise production per well while lowering cost per barrel by using improved horizontal drilling techniques, and longer wells with more frac stages, along with super fracking, where drillers pump a lot more proppant sand into their wells.
In the North Sea, too, saw a long-overdue cost improvement. Operators focused at first on tactical initiatives such as project postponements, expenditure cuts, and staff reductions, and OFSE firms responded by cutting back on their own service and manufacturing footprint to cope with less activity, lowering their costs for solutions delivered by 20 to 30 percent.
However, now that operators are taking more strategic steps—including optimizing operations, exploring supply-chain collaborations, finding new revenue models, and adopting new technologies—OFSE players are following suit.
Collaboration is a particularly effective way to lower costs and simplify contractor management. Combining equipment, software and engineering, or other combinations of service offerings can unlock significant value for customers.
Many services and equipment purchases currently are outsourced to a variety of providers, which results in complexity and a fragmented supplier base. Multiple OFSE companies are now bringing these services in-house, with integrated offerings reducing coordination costs. This can lead to savings of up to 30 percent. This allows an operator to develop a view of the potential for oil and gas in a reservoir, model the field, plan the wells, and complete the design.
While companies are developing integrated offers in-house, many also are partnering or merging with others to provide a wider range of services. Schlumberger acquired Cameron in Another recent and major convergence was FMC Technology with Technip, announced May 19, , aimed at redefining the way subsea fields are designed, delivered, and maintained.
New revenue models have emerged across the OFSE sector, including performance-based contracts that combine equipment and services, and participation in project financing equity in exchange for equipment and service. In this way, OFSE companies are able to give operators more flexibility by reducing their cost base and need for investment in difficult times.
This loads more capital expense on the shoulders of OFSE providers, but it also can create a more stable income flow. This model shifts capital expenditure up front, with the service company in this case GE taking on more of the burden.
This model, however, requires sophisticated financial modeling and intense cooperation—sometimes, more than companies can achieve. McKinsey believes that there will be much more consolidation across segments of the OFSE sector as oil prices stabilize. Many companies today are a fraction of their former scale; they could benefit from the savings in costs provided by a merger with a direct peer. The drilling sector, in our view, is ripe for consolidation.
Sustained investment in new technologies is allowing some companies to capture new growth. Advanced services—such as Logging While Drilling, which allows for the generation of well data during the drilling phase, Rotary Steerable drilling, and smart offshore completions—are being sought by upstream operators.
OFSE companies should consider investing in such capabilities and increasing the use of digital technologies in general as a way to achieve efficiencies, win business, and help develop new business and revenue models. The sector has been slow to adopt digital techniques that are widely in use elsewhere, representing a clear area of potential opportunity.
For example, a lot of investment is being made in automating the drilling and completions work flow, leading to less people required and better information from the various processes in the work flow. Many OFSEs now are redesigning equipment with more modular designs in order to drive out inefficiencies. In the past, many products were not designed with cost, or total cost of ownership TCO , in mind. Taking a hard-nosed look at design from a cost standpoint can result in 15 to 30 percent savings.
In the absence of modular design, procurement and manufacturing cannot benefit from economies of scale. Today, there is little leeway for inefficiencies in the OFSE sector. Although eliminating those inefficiencies comes with a cost, companies that delay taking their medicine will suffer for it. For some, survival may require nothing less than shock therapy.
Going forward, OFSE companies should ask themselves whether they are well positioned to face a volatile and uncertain future.
To test whether they are pursuing the right strategies, they should ask themselves a few critical questions, such as the following:. Never miss an insight. We'll email you when new articles are published on this topic. Accept Use minimal essential cookies. Five strategies to transform the oil and gas supply chain. By Giorgio Bresciani and Marcel Brinkman. Related Articles. Article Tough first quarter ends with signs of finding a bottom.
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Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. Menhat Published Business. This study examines performance measurement in the oil and gas industry. The aim is to identify the prevalence of performance measures and to provide evidence of the potential impact in the usage of performance measures on organisational performance. The study investigates the links between organisational strategies, choice of performance measures, and organisational performance.
The terms upstream, midstream and downstream are often used to refer to the major sectors or operational components of the petroleum industry. The upstream sector involves the exploration for and extraction of petroleum crude oil and natural gas. Midstream operations are sometimes included in the downstream category. The downstream sector involves the refining of petroleum crude oil and the processing of raw natural gas. It includes the selling and distribution of processed natural gas and the products derived from petroleum crude oil such as liquified petroleum gas LPG , gasoline or petrol , jet fuel, diesel oil, other fuel oils, petroleum asphalt and petroleum coke. The downstream sector includes petroleum refineries, petroleum product distribution, retail outlets and natural gas distribution companies. Skip to main content.
Meeting energy demands and generating profit to shareholders is a continuous quest for oil and gas companies. Production and business planning in integrated oil and gas operating companies is a complex process involving numerous organizations, historic data collection, modeling, prediction, and forecasting. Integrated business planning complexity intensifies due to the uncertain nature of past facts and future conditions. We propose a framework for integrating upstream and downstream production planning processes using data-driven models representing the upstream capacities, downstream processes, and a countrywide profit model. The upstream production model forecasts optimum capacity scenarios of the reservoir fluids with their compositional characteristics and hydraulic performance of the surface facilities while honoring business rules, and based on the various long-term expenditure scenarios, downtime requirements, and downstream demand schedules.
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За углом показалась смотровая площадка. Лестница, ведущая наверх, была пуста. Его жертва не приготовилась к отпору.
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