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The CEO Perspective | Thrive in the New Oil and Gas Market Reality
Top Priorities to Thrive During Economic Adversity
Due to a dramatic drop in commodity prices, oil and gas companies have
seen their revenues cut significantly. Therefore, they are keenly focused on
cash flow and cutting costs. They are deferring investment decisions and
looking for ways to reduce recurring costs. They also know that the market
will eventually come back, creating the need to ramp up operations and
production quickly.
The recent fall in commodity prices has hit upstream oil and gas companies the hardest, impacting their cash
flow and their ability to continue investing in high-risk projects. There is a pronounced shift from volume to value
as operators focus on making existing wells more efficient instead of drilling new wells.
It is difficult for oil and gas companies to stay competitive given today’s market conditions. Not only must they
meet or exceed all regulatory standards of operational performance, they also have to keep cost performance a
top priority and focus on generating a healthy cash flow. Massive shifts in global demographics, wealth, and
consumer engagement, fueled by technology adoption, will create new growth markets and reward agile companies
that turn rising market complexity and variability into an opportunity for growth. Consider these top priorities for
thriving in these trying economic times.
More-Efficient Operations
With margins under significant pressure, oil and gas companies are
focused on getting more out of existing assets as opposed to building
new ones. Optimizing their existing production infrastructure will
help manage deferments to continue to deliver the dividend levels
that investors have come to expect.2
Best Practices in Inventory Management
© 2015 SAP SE or an SAP affiliate company. All rights reserved.
Stop cost leakage using best practices in inventory management.
Improve visibility during and after receipt with mobile, user-friendly,
real-time analytics and easy-to-use planning tools.4
“‘With SAP HANA, we can now
do transactions and analytics in
the same environment,’ says
Coy Wright, vice president of
information technology for
Pacific Drilling, a company that
provides ultra-deepwater
drilling services. ‘With landscape
simplification, our costs are
greatly reduced, with the
added benefit of reducing
our database size.’”1
1.Automation World, “Oil and Gas Industry
Looks At Operational Efficiencies,”
Aaron Hand, February 15, 2015,
www.automationworld.com/oil-and-gas
-industry-looks-operational-efficiencies.
Sustainable Cost Reductions
Oil and gas companies can reduce their total cost of ownership
(TCO) with sustainable cost reductions to transform into a leaner,
more efficient business that will minimize the impact of future
market dips.3
Resilient and Agile Operations
History shows that the oil and gas industry is resilient, but companies
must be agile to quickly adapt and thrive as business cycles change.
Enlightened oil and gas companies will use the downturn as an
opportunity to enhance operating efficiency and performance, and
will carry these enhancements forward when the market inevitably
recovers.5
2. Accenture blog by Dean Forrester, “Falling Oil Prices – Is Production Management the Need of
the Hour?” January 15, 2015, www.accenture.com/us-en/blogs/Energy/archive/2015/01/15
/falling-oil-prices-production-management.aspx.
3. PwC publication, “Opportunities in Adversity – A New Dawn for Oil and Gas,” February 2015,
www.pwc.co.uk/en_UK/uk/oil-gas/publications/opportunities-in-adversity.jhtml.
4. SAP Business Networks Workshop, February 18, 2015, Houston, Texas.
5. Deloitte publication, “Oil Prices in Crisis – Considerations and Implications for the Oil and Gas
Industry,” February 4, 2015, www2.deloitte.com/us/en/pages/energy-and-resources/articles
/oil-prices-in-crisis.html.
Value View
www.sap.com/contactsap
The CEO Perspective | Thrive in the New Oil and Gas Market Reality
Top Priorities to Thrive During Economic Adversity
Sustain the Discipline of the Downturn
The new reality in the oil and gas market is forcing companies to focus on cash flow optimization
and cost cutting. With the proper infrastructure, steps can be taken to capture these efficiencies
for the long haul so that best practices are instilled in the culture of the company while lowering
overall TCO.
Sustainable Cost Reductions for Oil and Gas
Operate More Simply
••
••
••
••
••
Use Best Practices
Increase well production–to-cost ratio
Reduce capital project costs
Rationalize large application portfolios
Reduce equipment maintenance costs
Reduce document management costs
•• Reduce hydrocarbon inventories through
supply chain accuracy
•• Simplify data and analytics infrastructure
•• Reduce work in progress (WIP) input and
maintenance, repair, and overhaul (MRO)
inventory and stockpiles
•• Accelerate cost and profitability analysis
Low-value-added “shadow” support
functions, like using local warehouses instead
of central facilities for spare parts, can cost
over
$1 million per year.
6
6. BCG white paper, “Managing the Barrel – The Role of
Support Functions in Upstream Value Creation,” Paul
Goydan and Henning Streubel, November 2013.
Implement High-ROI Solutions
•• Improve SAP® software landscape and
operational efficiency
•• Increase visibility across procurement
input centers
•• Use preassembly in SAP Cloud powered
by SAP HANA® to stand up a solution
foundation from day one
•• Automate and centralize invoicing
•• Accelerate implementation and
delivery cycles
With better visibility and management
capabilities, operators can increase
production rates by
Based on a survey of respondents from 40 oil and
gas companies, IDC reported the following:9
$1 billion
3%–5%
can result in up to
in incremental annual revenue.8
.7
7. Ovum white paper, “SAP and Accenture Are
Knocking Down Upstream Data Silos,” Warren Wilson,
December 11, 2014.
Top-Ranked Attributes of Production Data
Reducing deferments from 10% to 5%
8. IDC Energy Insights white paper, “The Production
Mandate,” Jill Feblowitz, February 2015.
Trustworthiness and credibility
Timeliness (available at the right time
for various decision-making processes)
Completeness (includes all the needed
data from multiple sources and of
various types)
High quality (clean)
9. IDC Energy Insights white paper, “The Production
Mandate,” Jill Feblowitz, February 2015.
Granularity (available at the lowestneeded level of granularity)
0
10
20
30
40
50
% of respondents
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Value View
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The CEO Perspective | Thrive in the New Oil and Gas Market Reality
Top Priorities to Thrive During Economic Adversity
Think Process Excellence
Enable operations, logistics, maintenance, and finance teams to gain key insights for
refinery, terminal, and field adjustments based on inventory cost and distribution
models. Standardize tools and processes for production and well management, and
integrate processes including costing, production planning, and resource allocation.
Think Agility
Operations managers are besieged with all kinds of data and information. Without
adequate tools to provide accurate, timely, contextual information, these managers
must take extra time to evaluate all this data in order to make business decisions.
Accurate planning requires visibility into all activities that have an impact on
production and delivery at the sales meter, including physical constraints, logistics,
maintenance issues, and work-overs. Agile oil and gas companies use in-memory
technology to ensure that results from complex analysis and transactions on
data from multiple sources are available at the user’s fingertips, whether in the
office or on the go.
Operational Integrity
Enabled by Technology
Global energy company Statoil
used SAP technology to both
improve safety and increase
operations efficiency and performance. Most of the company’s
operations involve large production
assets in remote locations that
are often exposed to rough weather
conditions and have limited bed
and storage capacities.
Enterprise-Wide Visibility
Think Landscape Simplification
Shrink your data footprint – and IT costs – with a simplified data model that no
longer requires indexes, aggregates, or data redundancies. Reduce hardware and
software required for applications, as well as reduce the efforts of administration
and development resources.
Enterprise-Wide Visibility
“The SAP HANA platform changes the cost equation through
simplification. Based on a composite cost model, the SAP HANA
platform can save an organization 37% across hardware, software,
and labor costs, depending on various factors.”11
10.
11.
“As a unified, preintegrated
solution with advanced analytics
capabilities, SAP Upstream
Operations Management can
enable owner-operators to focus
on their core competencies by
integrating the data from production,
maintenance, engineering, and
planning. Operations staff are
empowered, and provided
advanced analytics tools to all
appropriate individuals with a
better awareness of the producing
assets. This can help operating
companies improve their operational
efficiency, maximize asset utilization,
reduce production losses, and
improve reservoir recovery.”10
ARC Advisory Group white paper, “SAP Solution Integrates Upstream Oil and Gas Operations
to Improve Visibility into Assets and Operations,” Peter Reynolds, January 10, 2013.
Forrester Consulting white paper, “Projected Cost Analysis of the SAP HANA Platform,”
Shaheen Parks, April 2014, http://bit.ly/1BQcBLR.
© 2015 SAP SE or an SAP affiliate company. All rights reserved.
Value View
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The CEO Perspective | Thrive in the New Oil and Gas Market Reality
Top Priorities to Thrive During Economic Adversity
Process Excellence
When margins are tight, oil and gas companies must enable operations, logistics,
maintenance, and finance teams to gain “action-enabling insight” for adjustments
based on inventory cost and distribution model. A simple, pragmatic, innovative
approach is required to support strategic goals and solid benefits.
Resilience and Agility
Limited business agility arising from an inflexible IT landscape is a common problem
with many oil and gas companies. But to quickly respond to market dynamics,
they must perform complete, near-real-time analysis on costs, requiring operations
and finance data from multiple business sources. Agile oil and gas companies will
need 360-degree visibility of their business operations to look for the opportunity
to optimize the cost per barrel.
Landscape Simplification
Oil and gas companies will have to simplify their management systems
and governance to maintain the discipline of the downturn after the market
recovers. They must create one integrated platform across the organization
and standardize their processes using simpler approaches to reduce TCO
and the complexity of IT infrastructure.
SAP for Oil & Gas solutions support cash flow optimization and
enhanced operating efficiencies.
This portfolio includes solutions
powered by the SAP HANA
platform, advanced analytics, and
best-in-class software to help
optimize business processes.
SAP S/4HANA simplifies all oil
and gas business processes,
enabling better decisions through
business insight gained from
having processes integrated with
holistic information, from forecast
to revenue. SAP software bridges
silos of data across physical and
digital channels to establish a
real-time enterprise. It enables
highly efficient and predictable
operations, greater utilization and
lower cost of equipment and
assets, and the creation of new
business opportunities.
Benefits of a simplified landscape include simpler data processing and
operation; simpler data footprint; simpler backup, recovery, and system copy;
simpler code and application development; increased development efficiency;
reduced time and effort for report development and publishing; and ultimately,
a simpler user experience.
Are you ready to transform your business?
Start optimizing cash flow and enhance your operations today with oil and gas solutions from SAP.
Learn more at www.sap.com/oil-gas, or contact your local SAP representative.
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