How Continuous Improvement Contributes to the Bottom Line at European Energy Companies

Process improvement works best when it is aligned continuously with the company's strategic aims. That’s no less true for the energy industry. Firms that consistently focus on projects that can save their organisation millions and enhance productivity and safety immeasurably, as well as notably growing the company's top line, find themselves ahead of their competitors.

Two European energy leaders to have deployed a continuous improvement strategy to their advantage in 2011 are Anglo-Dutch oil giant Shell and international engineering firm AMEC.

At the end of April, Shell announced that it had turned in a 60 per cent net profit increase for the first quarter, thanks in part to resurgent oil prices and the sale of non-core assets. The company's earnings after tax exceeded $8.78 billion (£4.19 billion) in the three-month period to March 2011. This compared very favourably to the $5.48 billion figure recorded a year previously. Sales were shown to have increased by 28 per cent, approaching the $110 billion mark.

Chief Executive Peter Voser admitted that the firm's first-quarter success had largely been driven by higher industry margins, though Shell's own operating performance underpinned by a focus on continuous improvement had also played an integral role. "We continue to make good progress in implementing our strategy, improving near-term performance, delivering a new wave of production growth, and maturing the next generation of growth options for shareholders," Mr Voser added.

Adjusted net profits rallied to $6.92 billion in the first three months of 2011, compared with last year's $4.82 billion, beating analysts' predictions of a figure in the region of $6.11 billion. Mr Voser continued: "We have announced new asset sales and cost savings programmes, as part of Shell's focus on continuous improvement, to enhance our profitability and performance. Shell sold $3.2 billion of non-core positions, including tight gas assets in South Texas, in the quarter."

Interestingly, Shell's first-quarter results were released just 24 hours after rival company BP published its own data, which indicated a 17 per cent jump in profits, to $7.12 billion. However, it also upwardly revised the cost of last year's horrific Gulf oil spill disaster. Richard Hunter, Equities Head at Hargreaves Lansdown, said: "In the battle of the UK super majors, the first leg of 2011 belongs to Shell by a considerable margin."

He added: "Whereas BP has had to reorganise its business model and turn its attention to the ongoing fallout from the Gulf of Mexico spill, Shell has continued to power ahead unabated. The company's longer-term plans, including the disposal of non-core operations and additional focus on continuous improvement, give Shell a focus that should further underpin its position."

Another big name in the energy sector to have reaped the measurable rewards of a focus on continuous process improvement in 2011 is engineering and project management firm AMEC. At the end of January, the company was appointed by BG Group to provide engineering, procurement, construction, commissioning and project management for all of its North Sea facilities.

With an estimated value of around £140 million, the three-year contract will build upon AMEC's existing deal with BG Group for the support of its Armada asset, effectively tripling the volume of services being supplied. Managing Director of the project management firm's European and West African business, John Pearson, remarked: "I am proud of our proven performance, safety record and drive for continuous improvement, all of which I am sure have helped us secure this award. We look forward to another three years of excellent delivery for BG Group and for the North Sea."

Alan Johnstone, Operations Director for AMEC, added: "Recently, our BG Group contract team celebrated their latest achievement of reaching over four million man-hours without a Lost Time Incident. This new award is testament to their excellent performance and to the trust BG Group has placed in us to deliver for the future."