The underlying economics of the upstream Exploration and Production (E&P) industry have fundamentally altered. It has become a margin business, with relentless pressure on unit cost performance and global competition for capital.
To adapt, companies have to go further than recent tactical responses to the downturn. KPMG believes for those players prepared to challenge conventional perceptions of 'best-in-class' and look outside of the sector for inspiration, exciting opportunities exist to deliver a step change - including bringing new technologies to the fore. There are five key sources of long-term value:
- Zero-based asset costs. Engineering excellence is no longer an end in itself – standards and processes need to be stripped right back to what is affordable for individual assets, to take out up to 25 percent of operating costs
- Value-based prioritization. With reduced staff and budgets, a far deeper level of commercial thinking needs to inform the prioritization of activities, only performing work that adds value and constantly assessing costs versus benefits
- Using machines to make decisions. By starting with performance rather than 'big data', there is an opportunity to use new technology to improve performance outcomes in high-value day-to-day operational decisions
- Agile supply chains. The industry needs to move beyond traditional 'zero-sum game' behaviors by thinking more like a manufacturing business – with far deeper integration and collaboration through the supply chain, to reduce third-party costs by more than 10 percent.
- Intelligent process automation. New automation technologies are helping to reduce transactional back-office support costs by up to 30 percent, while simultaneously reducing error rates
Delivering the prize in E&P calls for targeted execution of high-value opportunities to complement continuous improvement efforts, along with a new entrepreneurial approach of 'start small, fail fast, scale fast.'