Key Issues for Process Excellence in the Energy Industry

Waste and mistakes in the oil and gas industry have serious costs and consequences - both monetary and sometimes human. That's why operational excellence is essential if companies want to continue to grow and meet the new challenges facing the energy sector.

Arguably there has never been a time when it has been more important for the energy industry to achieve process excellence.

So far this year, announced tax increases in the North Sea are squeezing margins and unrest in the Middle East and the Fukushima nuclear disaster in Japan have caused major upheaval across the sector.

Exploration is becoming more costly as companies search for more remote reserves in deeper water, and this is bringing with it more challenging environmental regulations which must be met, with increased time and cost pressures.

With waste and mistakes in the oil and gas industry leading to serious costs, both monetary and sometimes human, operational excellence is essential if companies are to continue to grow and meet the new challenges facing the energy sector.

Using Lean Six Sigma to Meet Challenges

A number of energy companies already have established Lean Six Sigma practices in place and are now looking into how they can use these to address the new challenges they face.

Hess Corporation last year announced its intention to add five more drilling rigs to its Bakken oil shale play in North Dakota.

Nine dual lateral wells had already been drilled at the time of the announcement, four of which had been completed.

Greg Hill, president of Worldwide Exploration, said: "The cost advantage of this approach is clear. You get one less vertical wellbore, you have fewer downhole equipment, and you have fewer surface facility".

"We really believe that there is dual lateral approach combined with the application of lean manufacturing techniques and pad drilling is going to result in superior returns for us on the Bakken, which is why we're going with that approach," he added.

And Hess is by no means the only company which prides itself on its use of Lean Six Sigma within its operations. Halliburton has made efforts to become an industry leader in the practice, while Shell has its own brand of Shell Six Sigma used to ensure the smooth operation of its Shell Business Service Centre in Chennai.

Reaping the Rewards of Lean Six Sigma

Chevron is one of the industry's Lean Six Sigma success stories, and recently built on its internal efforts by expanding the initiative out to its supply chain.

The company last year won the award for Lean Six Sigma Implementation in Oil & Gas Operations from Boston Strategies International (BSI) for its efforts, which built on the experience it has garnered since implementing its first lean six sigma project in 1999.

This first project slashed operating costs by 30 percent at a water treatment plant in California and the lessons learnt have since been extended out to projects in US, UK, Angola, and Indonesia.

In 2008, the programme brought with it a validated financial benefit of $250 million (£153 million). This increased to $400 million in 2009 and was expected to rise to more than $500 million in 2010.

Chevron is now actively working with its suppliers and contractors to implement similar lean six sigma programmes, with achievements made so far including the streamlined trucking routing of pipeline installer KS Industries and standardising the fleet of Braun Electric Co, which installs the electrical system for oilfield pumps.

"The initiative has reduced average drilling time, reduced workover rig cycle time, and reduced the lead time for engineering drawings," BSI noted.

Chevron's success in the field shows the potential Lean Six Sigma practices hold for the oil and gas industries, but these achievements were not made overnight.

Oil and gas companies looking to cushion themselves against the new barriers they are facing must look to boosting their Lean Six Sigma operations as soon as possible, to ensure they reach their full potential as the energy industry faces its future challenges head on.