Comment: Upstream benchmarking – The path to future success

Some firms use benchmarking in order to demonstrate to stakeholders such as customers, shareholders, and lenders that the company is performing to an acceptable level. Benchmarking can also provide an effective input to the company’s strategic planning process by defining projects for improvement based on realistic analysis. This is why companies should use benchmarking not only to demonstrate good performance, but also to identify which best practices will  most effectively and significantly improve their performance on a continual basis.

Objectives of benchmarking

The objectives of benchmarking are to establish a company’s actual performance levels, determine superior performance levels and reasons for such performance, and quantify and understand any performance gaps in key business areas. The process also enables the sharing of knowledge about best working practices, which will in turn enable superior performance. Through effective benchmarking, learning becomes the foundation for long-term performance improvement.

The upstream sector

Within the upstream sector, various types of facilities can be benchmarked, from production and processing facilities to marine terminals, storage, loading and unloading facilities, as well as gas and oil pipeline systems, liquefied natural gas (LNG)  handling facilities, and underground gas storage.

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In these uncertain times, the upstream oil and gas industry faces many challenges that should be addressed for ongoing and future operations. Last year, we observed that companies were moving from high-risk exploratory drilling to exploration in mature fields and processing, in order to reduce costs, improve margins, and adapt to market fluctuations.  

While using benchmarking for assessing the current state of upstream business, one has to answer essential questions, such as which kep performance indicator (KPI) can realistically show the highs and lows of this segment, and of each asset separately, and to what fields can – and should – yours be compared. How to best form a portfolio of assets in order to examine them as a whole, and how to achieve a high level of productivity, closing the gap between the current reality and the desired benchmark goal, are also important considerations.

For process plants like refineries or gas and petrochemicals production, a certain number of process schemes are used, making them more or less typical and, thus, comparable. The most well-known benchmarking analysis in the downstream sector is done by Solomon Associates. When it comes to the upstream sector, however, and trying to benchmark well and field productivity, no two fields are very similar, even though they might be located in one territory or belong to one basin. 

Depending on the geographic data, climate, resource features, technology used, pressure, and other parameters that can vary by order of magnitude, each field is unique in its own way. In addition, operating conditions change over the lifecycle of the field, and can only be estimated with a limited degree of accuracy. This is not to mention that, onshore and offshore, newly discovered and mature fields, different types of beds, contents, and characteristics of reservoirs cannot be aligned. 

If we were to take well productivity per day as a criterion, we would need to know the type of well, the condition of other, nearby wells, as well as watercut, turnaround period, oil reserves to production ratio, and so on. It becomes challenging to form a base for benchmarking, let alone to create a final report. 

Nevertheless, companies providing evaluations of upstream activities, such as Juran Global, have managed to set up metrics that allow for the vital elements of the business. Some programmes have been designed with input from companies’ participants and are aimed to provide management teams with the information needed to support strategic and operational improvement decisions. 

Being part of a peer group can be useful in terms of insight into their competitive position in the market, reasons to allocate capital in certain assets, and to capitalise on the historical data of the asset. 

If we take as an example the production and processing facilities of an oil and gas company, the scope of a benchmarking programme should focus on the operational efficiency and effectiveness of facilities. To measure efficiency, we need to calculate costs and manpower time expended for operations, maintenance, business overheads, technical support, energy, and utilities, as well as health, safety, and environment (HSE), and quality. To measure the quality of performance, the KPIs may include availability and reliability, utilisation, downtime, maintenance management, emissions, waste, safety, and training.

In conclusion, benchmarking of upstream facilities can provide companies with a clear vision of how to improve over the coming years. When budgets are tighter, it is important for firms to maximise the benefits of their existing assets.