Breakthrough 60% Reduction in Sustaining Capital
The Situation
An energy major was seeing deteriorating economics in one of their upstream oil & gas developments. The cost per well pair of their sustaining pad program, which was required to bring new reserves online, was steadily rising as oil prices kept falling. The company’s joint venture partners began to apply pressure.
If pad cost wasn’t reduced significantly, the entire development risked being cancelled.
The organization had just finished a value engineering exercise to healthily challenge the legacy pad design, performance requirements and technical standards. They were seeking to produce a better, simpler and cheaper design. However, this was becoming much harder than the organization had first thought. Earlier attempts at value engineering like this had barely slowed the rate of cost increases. This time around several external contractors were engaged to “re-imagine” the pad design by “producing the absolute ‘bare-bones’ version with no bells and whistles - just the essentials.”
At face value, the results appeared promising: on the order of a 10%-20% cost reduction. However, by mercilessly cutting scope in this design, several of the company’s technical safety and operational standards had been violated.
They now had a “good” design that was too expensive, and a “cheap” design that wasn’t suitable.
But they were no closer to solving their challenge. The team partnered with Stroud to explore what kind of a breakthrough could be made.
The Solution
Employing Zero-Based Analysis, the team rigorously broke down the cost of a sustaining pad into its comprehensive value drivers. The team then systematically challenged each one and identified all of the potential opportunities to reduce cost, going well beyond what benchmarking and brainstorming to date had considered.
The team discovered and revitalized a number of large opportunities to save cost that had been obscured by five factors.
Well-intentioned design assumptions inadvertently biased several trade-off decisions and drove an over-engineering of assets
Competing priorities across functional groups prevented alignment on opportunities, leading many to be dismissed
The lack of a rigorous and systematic process to bring opportunities to rapid resolution led to them often being relegated to an idea parking lot while the design progressed
Focusing on benchmarks only reinforced known opportunities, which had already been implemented or weren’t considered feasible here
Ineffective mindsets and incentives were stopping people from acknowledging new opportunities in their area
During the transformation exercise, the project team:
Identified 300+ distinct opportunities to reduce the cost of a pad
Determined a perfect-world, theoretical-minimum pad cost that was 87% less than the last pad built
Drove decisions to implement a subset of these opportunities resulting in a 60% cost reduction
Surpassed the competitor best-in-class pad design while maintaining all required safety and operational requirements.
Armed with a new high-performing design that was even lower cost than the previous “cheap” one, the team immediately applied it to the next pad.
The new design was successfully completed with the 60% reduction in cost and safely brought online at the required rates, validating the results of the transformation exercise. On top of that the execution timeline was significantly shortened with the new design. The results enabled them to confidently move forward with the development amidst the oil price decline.
“There are a lot of things I’m worried about. This project is no longer one of them.” - VP Development and Subsurface
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