Excess fast production from oil shales and slowing demand growth because of mobility transition from internal combustion engines to electric vehicles is leaving the oil and gas market in a difficult economic position.
Through a rigorous redesign, oil companies could cut existing supply chain operating costs by an estimated 20 to 30 percent.
Meanwhile, share prices of exploration and production oil companies are slipping as industry revenue declined 8.1 percent on an annualized basis over the past five years to
$3.3 trillion. Major international producers have seen their valuations drop an average of 35 percent per month over the past year.
The market has now shifted into using capital efficiency, as opposed to changes in production, as an indicator of value, making the focus on efficiency of upstream a more meaningful indicator of future success more than ever before.
Other industries that have gone through similar challenges moved to more sophisticated supply chain practices through the use of digitalization, dramatically reducing cost and improving service levels. Upstream operators that take on the challenge to transform their supply chain practices will be in a better competitive position going forward.
Oliver Wyman estimates that through a rigorous redesign, oil companies could cut existing supply chain operating costs by 20 to 30 percent.
In a recent supply chain transformation program in deep water Gulf of Mexico, the producer was able to reduce total spend by nearly 25 percent, while improving their on-time and in full-service levels.
How do producers achieve these kinds of reductions? This level of performance improvement is driven by multi-lever programs that bring latest practices from other industries to upstream oil and gas companies. Putting together a team that represents internal customers (drilling, projects, production and maintenance) and delivery support (planning, sourcing, procurement, logistics, and digital), along with practice experts to co-design, test, and roll out a new way of working to enable a competitive supply chain.