Sunday, March 9, 2014

Lean in Oil & Gas - Part One

After several years of working with lean in the oil and gas industry, I've seen people go from open resistance, to active and, in some cases, enthusiastic support.  I've worked with different companies during this journey but I haven’t figured out yet if the shift is due to specific organizational culture or the awakening of an industry to the need for a new approach to drive sustained improvement in the areas of safety, environmental performance, production, and cost.  And following several years of failed attempts to achieve the improvements through a tools focus like 6-sigma, leaders are starting to realize that transformation can help assure success for companies regardless of price of oil.


Applying lean to the oil and gas industry, as with any industry, requires a fundamental understanding of the philosophy rather than attempting to copy how Toyota – or anyone else – does it.  Copying tends to drive a tools-focused approach that, in the end, fails to achieve the type of gains leaders expect.  For years, though, Toyota provided the only real example of lean, so those wanting similar results approached the deployment by rolling out tools like kanban, 5S, or quality function deployment.  The problem with this is, without a clear understanding of lean and a system where the tools are used to address clearly defined problems, the best one can expect is random improvements that are difficult to sustain.

When people begin to truly understand lean, and particularly the Plan-Do-Study-Act (PDSA) cycle, they begin to see it as a system of improvement, and the approach becomes much more focused on identifying and sticking with what's important to the organization.  The way people think about performance and problems shifts and the organization starts to replace a traditionally overly complex, gut-feel, boss-knows-everything approach with a simpler, more scientific way of operating.

At the highest level, a fundamental understanding of lean means adopting a mindset that consistently approaches work in the following manner:
  • Understanding the value the organization or process provides;
  • Clarifying the target/ideal condition for the business, system, or process;
  • Determining the current condition of the business, system, or process to understand the gaps to be closed;
  • Identifying the causes of the gaps;
  • Developing a plan to address the gaps, including testing of the potential countermeasures;
  • Continuing to update the target/ideal and current condition to continually identify and close the gaps
In an oil and gas operation, this approach can apply to an individual process, an asset, or the organization as-a-whole.  To continue to improve and sustain the gains, however, it is critical to keep in mind that the ultimate objective is absolute perfection (including perfect safety, no spills, no delays, etc.).  Whether or not achieving absolute perfection is possible does not matter.  Everybody in the organization needs to feel responsible for making problems – or examples of non-perfection – visible, and working to continually close the gaps.  When looked at in this way, it becomes clear that lean involves looking at everything a business does as a continual experiment in the pursuit of perfection.  Whenever a problem occurs, the experiment has failed and change is needed, and the result is a tighter, more predictable, and more robust process.  By fundamentally understanding lean in this way, people will start to see that practices like 5S or kanban are merely countermeasures to address specific problems, rather than critical elements of lean thinking.


Viewing lean as described above helps guide the application of lean in the oil and gas industry.  It requires constantly understanding: (1) what needs/is planned to happen; (2) what actually happens; and (3) how the gaps between (1) and (2) are going to be closed.

One of the main objectives of the transformation to a lean mindset is to simplify the way the company operates.  Although, given the complexities of an exploration and production company, this is not easy to do, lean provides the framework to continually remind the team that streamlining and simplifying is the way to improve in the areas of safety, production, and costs.

Some of the simple and more common applications of lean in the world of oil and gas includes the following:

Shale Oil/Gas Development

One of the main objectives of a shale oil/gas development is to drill and complete a specific number of wells throughout the year safely and within budget.  Once the number of wells is known, the takt time can be calculated to determine the desired pace of putting a well into operation.  If, for example, we want to put 105 wells into production during the year, then our takt time is approximately 1.5 (calculated as 365/105), or a well every day and a half.  Combined with objectives for cost, safety, and loss of primary containment (which, for the latter two, should be zero), the takt time comprises the target condition.  Performance to target can now be tracked to determine the gaps to be closed or problems to be addressed.

The gaps can show up in late well deliveries, cost overruns, safety issues, or a number of other areas.  If there are no gaps, the operation probably has too many resources, inventory is building, people are waiting, etc. (all examples of waste).  The point is that there are always problems – and unless we see them, we have no chance of addressing them.  Comparing actual performance to takt time (the target condition), for example, will make the problems visible and force us to address them.  To assure that the operation improves requires that the problems are identified and addressed as quickly as possible after they happen.  This requires continual and effective communication around actual performance versus the objectives (takt time, costs, safety, spills, etc.).

Problems are also quickly prioritized in this example because everybody understands the target condition, and how well the operation is currently doing with respect to meeting the target.  For the overall operation to meet takt time, each individual process needs to operate at takt time so when a delay occurs, everyone will know that a problem exists and needs to be addressed.  Continually improving in this situation will only occur, however, when people feel comfortable about making their problems visible.  When excessive pressure is applied or people are beat up for missing deliveries, there will be a natural tendency to cover up problems and point fingers at other areas.  When leaders need to step in, however, is when it is obvious that an area is not addressing its problems.  If the completions team is consistently experiencing cost overruns, for example, and there is no apparent improvement activity occurring to address the issues, it will most likely be necessary to take action to get something going – including understanding why those leading the completions team are not addressing their problems.

When approached in this manner, some of the elements of lean, including standardized work, dashboards, and visual indicators start to make sense because they all work to identify or close the gaps between the targets and actual performance.


The PDSA cycle drives learning through conscious testing, proving or disproving, and adjusting of hypotheses.  An exploration campaign, for example, is driven by a hypothesis that a certain amount of recoverable oil resides in a specific area.  Although a failed exploration can be very costly, it is even more costly when the team doesn't use the information to learn and improve the process for future projects.  

In the simplest sense, within exploration the PLAN phase in the PDSA cycle is a hypotheses about recoverable oil in place.  The DO is the drilling of exploration wells; STUDY is the review of samples and data from the exploration wells to determine whether or not to proceed with the project; and ACT is the action taken as a result of the study, including adjusting the exploration process to improve performance in the future.  When the decision is to not proceed, it is critical to understand why the team thought it was worth pursuing exploration wells and what proved to be incorrect about the projection.

Dashboards that are updated as information is received is critical to the process.  The team needs to see how the project is progressing so adjustments can be made quickly.  The dashboards also tell the story of exploration projects that keeps leaders apprised on the progress and probability of success.  Also, since the success of an exploration process for an energy company cannot be determined through a single project, the dashboards can provide a consistent and clear picture of the overall process by showing how things have gone over a given period of time.

Applying lean thinking to exploration requires a clearly stated hypothesis early in the process identifying what the team expects from the project.  As the project moves forward through each phase, the information collected will often require adjustment to the hypothesis, which is perfectly acceptable – and expected – as long as learning takes place.  The key here is to make learning a conscious activity and to standardize it as part of the process.

Further examples of lean in oil and gas to be provided in the next blog post

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