Lower oil prices mean it’s time to get serious about improving asset utilization

We know history repeats itself, especially when it comes to current events. During this time of uncertainty in the marketplace, here is another look at a very relevant blog we originally posted on December 12, 2014.

If there’s one thing that’s sure in life (besides death and taxes), it’s that crude oil prices will change, sometimes dramatically, over time. Those of us with enough experience have seen this show before: ACT I: Lots of plans – and capital budgets – are made based on oil at one price (say $100 per barrel). Marginal opportunities, maybe even a pet project or two, look profitable. After all, operational efficiency is not as important as getting the next well completed. ACT II: Market influences make the industry face the reality of lower prices (say $50 per barrel). Suddenly, capital spending must be curtailed, and operational efficiency is no longer a luxury, it’s a means of survival in many cases. Every dollar is more important. ACT III: Just as in any great play, the hero (in this case the oil and gas industry) defeats the forces aligned against him and saves the day for everyone. Clearly, our industry must get to Act Three as quickly as possible. This is particularly true for those with operations in deep water, unconventional and mature fields – where lifting costs alone sometimes push $70 per barrel.

At Geoforce, we view today’s lower oil price environment as having a long term silver lining for the industry. We know that pricing pressure forces companies to take a hard look at both their capital budgets and operating expenses. Of course this is best practice anyway, but managers often neglect it when high margins don’t require discipline. Geoforce’s GPS-powered Track and Trace solutions are the enabling technology that allows an oil and gas firm to implement the asset management best practices necessary for operational efficiency. GPS track and trace and asset management initiatives can make a significant, positive impact on capital budgets and operating margins, something that CFO’s like me certainly appreciate.

The application of GPS tracking improves utilization because it ends several things normally at odds with optimal asset management: (1.) Hoarding, especially of high value equipment, is a pervasive problem in the oilfield. But it is also a luxury that $65 oil does not allow. The prevailing attitude is often:

• Why share a piece of equipment with another district? The only way to make sure we have what we need for the next job is to hold on to everything at our yard.
• Who cares if high value equipment spends more time sitting around idle than in use if it ensures we never miss a job?
• If we need one, buy three. Why do I care about the capital budget anyway?

Of course, the person(s) managing the bottom line cares a lot, but often doesn’t have the tools to reign in the bad behavior or even know the degree to which it exists. That is, until GPS tracking best practices are implemented.

(2.) Compliance related mistakes impact utilization rates as well:

• Neglected maintenance results in high value assets being unavailable when an important job requirement arrives. GPS best practices include maintenance records management and automated alerting systems that can minimize out of service issues.
• Sloppy compliance regimens make it impossible to keep necessary certifications and records available to the field professionals that may need them at all hours of the day or night to fill the next requirement.

Implementation of GPS tracking will bring about significant improvements in utilization rates, reduce capital spending and lower operating expenses. Location visibility drives collaboration between bases and operating units. It shines a bright light on hoarding and other systemic inefficiencies that must be eliminated in the world of $65 oil.

Tracking solution investments pay off almost immediately for assets like sand separators and mug logging units, which are high dollar and have long lifespans. Our solutions provide a tremendous uptick in utilization, and we’ve seen rapid payback even with just tiny increases in utilization. And here’s the best part. Deploying the asset management best practices that GPS tracking brings to a company also delivers competitive advantages that last regardless of what the mercantile exchanges say today. Doing things the right way works in good and bad markets. Oil prices will eventually rise again, and when they do, companies who employ tracking best practices will make more money in that market as well. The time for Act Three is now!