Oil & Gas

Oil & Gas represents global commerce on a massive scale. World energy markets are continually expanding. Companies spend billions of dollars annually to maintain and increase their oil and gas production, continually wrestling with questions of how best to develop their resources and attain long-term sustainable benefits for their people. At the same time, consuming countries are always considering how to reduce their dependence on imported oil, either by imposing higher energy taxes to spur conservation, tapping into domestic resources or developing alternative energy sources.

 

 

These issues have major long-term impact both on individual countries and on the world at large, even affecting such fundamental issues as war and peace. In light of the economic downturn in 2007, we have seen a major push by consuming countries to become energy self sufficient. This is creating a major structural change in the oil markets. The development of fracking in the US, in China and the tar sands in Canada means that the oil industry is undergoing a major structural change.

However, in the past, a key differentiator of this industry was that virtually all costs were either sunk or fixed costs while variable costs were nominal. Under this cost structure, if prices fall, it still makes economic sense to keep producing oil as long as revenues covered the variable costs. Therefore, falling prices did not lead to a decrease in production.

Today, the marginal supply of oil is from tar sands or fracking where variable costs are very high. Moreover, the marginal costs of producing oil in North America are in the $77 to $105 range. As such, when prices fall, at the margin some producers will withdraw from the market and output will fall. This means that Oil Rich nations need to have the capability to optimize their income to accommodate this sudden demand.  This also creates a floor in the price per barrel, at about $80 and it is rarely bottoming out.

Very few people in the oil market are incorporating this structural change into their production and analysis.

Moving forward, 2013 trends indicate that oil will be between $80 and $120 per barrel and natural gas will be under $4 per MMBtu.

 

Questions for you:

1. Did You Know your Oil & Gas company system constraint is its in-ground proven and probable reserves? 

2. Did you know that the market demand pulls and dictates your production rate and that this demand depends on Oil & Gas prices? 

3. How fast is your demand variation response time?

4. Is your non-constraint processes fully subordinated to the speed of the production faucet?

5. Is replenishment, any feeding processes or distribution slowing down or delaying your end client receipts?

7. Are you using T-put metrics through-out your system? 

8. Did you know that if you are producing at capacity, any delays in production will mean a terminal sales and cash profit loss?

9. Do you simulate system changes for any project that makes changes to your system?

10. Did you know that with increasing Oil & Gas competition, your optimization of cash profit require that you implement Lean Six Sigma coupled with the Theory of Constraints and Deming's TPK tools?

 

At CGR MENA, we can help you in finding the optimal solutions to all of the questions above. We apply a hybrid of scientific management tools that will align your organization for Optimal Cash levels and help you continue your transformation into a world class lean fast systemic organization.

 

 

 

CGR MENA APPROACH

We start by reviewing and defining your local organization, your units of measurement and conversion factors with T-put accounting. We will introduce the concept of the Oil and Gas T-Put Value Critical Chain via CGR Systems, and examine its structure and functional relationships. We will look at your system holistically and drill down to specific processes such as the exploration processes and other sources of system delays or under optimized process dragging the system.

We will review or create the deployment flow charts to ensure the processes have embedded Critical chain process management with statistical monitoring controls, we will review your supply chain process, JIT, major areas of demand, pricing fundamentals, drivers of demand and future trends, we will train your management and give you our tools.

Finally, we will transform your system resulting in a  10-30% NET CASH GROWTH.

You will note that our experience sows any investment with our CGR Systems in the Oil & Gas Industry.

We will YIELD A RETURN BETWEEN 40x and 120x investment in the first year.