Oil Sands Turnaround Cost Performance: Phase II 2016 Turnaround Cost Efficiency: The Oil Sands Challenge Since their peak in 2014, Western Canada Select (WCS) prices have fallen dramatically, and revenues along with them (Figure 1). Given this economic climate, oil producers are looking for ways to reduce costs in order to remain competitive. Turnarounds are difficult to execute successfully even under the best of circumstances, but Oil Sands turnarounds are in a class of their own. Contributing factors include: Figure 1 – Crude Oil Prices (WTI & WCS) 2014-­‐2016 Size: Oil Sands “Mega Complexity” turnarounds are among the largest in the world in terms of manpower and peak labor. Worker productivity is significantly reduced on large turnarounds, and larger workforces are difficult to manage efficiently. Oil Sands SAGD turnarounds also face unique cost challenges, as they are impacted by these same factors, but are typically smaller than upgrading or extraction turnarounds. The extensive Asset Performance Canada (AP-­‐Canada) Turnaround Database confirms that Oil Sands turnarounds are among the most expensive in the world (Figure 2). Organizations that are able to achieve turnaround cost efficiencies will experience competitive advantages that will flow through to the bottom line. Figure 2 – Turnaround Costs for Oil Sands Greatly Exceed Industry Norms Source: AP-­‐Networks Turnaround Data During 2013-­‐14, AP-­‐Canada conducted Phase 1 of our Oil Sands consortium benchmarking study to learn more about the cost discrepancy between Oil Sands and the rest of Industry. We collected data on several Oil Sands Upgrader and SAGD (steam assisted gravity drainage) turnarounds executed by CNRL, Shell Albian Sands, Shell Scotford, Suncor, and Syncrude. Our findings established that Oil Sands turnarounds are characterized by reduced labour productivity, increased logistical costs, and high pre-­‐
turnaround costs. Logistics: Locations are remote, adding to the cost of temporary facilities, accommodations, materials, and transportation. Skilled Labor: Attracting and retaining a quality workforce is difficult due to competing opportunities for workers across the industry. Oil Sands turnarounds must differentiate between controllable and uncontrollable factors: Preparation and execution practices can be controlled and improved, while uncontrollable factors inherent to Oil Sands turnarounds must be quantified so that they may be understood and addressed using the most cost effective practices available. Page 2 Oil Sands Turnaround Cost Performance: Phase II 2016 The Phase I study shined a spotlight on just how high Oil Sands turnaround costs truly are. We found that, due to a mix of controllable and uncontrollable factors, a cost gap of more than 50 percent exists between Oil Sands and the rest of Industry in Alberta (Figure 3). Furthermore, we found that an average cost gap of 80 percent exists between Oil Sands and the US Gulf Coast. Most importantly, much of this gap is controllable and can be reduced by improving various aspects of turnaround preparation and execution. Figure 3 – Cost Comparison of Oil Sands vs. Other Locations With the rapid decline in the price of oil in late 2014, Oil Sands facilities have focused their efforts on tightly managing all expenditures. Turnarounds represent the most resource intensive challenge that Oil Sands facilities face today—in terms of both financial resources and human resources. Previously, the high cost and critical business impact of turnarounds had not received much attention. But as Oil Sands operators turn their focus to reducing expenditures, turnaround costs have come to the forefront as a major competitive factor contributing to maintenance expenses and lost revenue opportunities. Source: AP-­‐Networks Turnaround Data
In order to identify and quantify the unique cost drivers associated with Oil Sands turnarounds, AP-­‐Canada is conducting its second Oil Sands Cost Performance Study. The second iteration of the consortium-­‐sponsored Industry benchmarking study will look at the evolution of performance trends since the original study and the unique cost challenges associated with Oil Sands turnarounds. To achieve this, AP-­‐Canada will quantify turnaround performance and identify the practices that are associated with driving cost efficiencies and achieving superior turnaround cost outcomes. Deferred Turnarounds Increased Complexity and Due to the continued low price of oil, many Oil Sands operators have chosen to defer turnarounds in order to maintain revenue streams and postpone large outlays. As a result of deferment, many upcoming turnarounds will become larger and more complex. This increased complexity drives a number of logistical and manpower challenges. Additional craft workers are required, overtaxing the labour supply. This extra labour requires additional supervision, adding more personnel to the work plan and schedule. Deferred turnarounds challenge Oil Sands operators to accommodate more complex events. With many of these turnarounds coming up in the years ahead, Oil Sands operators will soon be forced to confront this challenge head-­‐on. Through participation in this consortium study, Oil Sands operators have an opportunity to understand and optimize organizational capabilities, allowing for better understanding of site capability and improved preparation for future turnarounds. This benchmarking study will allow producers to assess whether cost performance is improving and the efficiency of their sites’ turnaround outcomes in comparison to Industry as a whole. This will provide valuable insight into areas of concern and highlight inefficiencies and suboptimal outcomes that can then be addressed. Page 3 Oil Sands Turnaround Cost Performance: Phase II 2016 Study Objectives and Scope Invited study sponsors include owner-­‐operator organizations in the Oil Sands region. The study is being conducted by AP-­‐Canada, Canada’s premier independent turnaround benchmarking and assessment firm. AP-­‐Canada will facilitate the study, conduct analysis, and serve as the custodian of study data. Confidentiality agreements will protect sponsor data, and collected data will be evaluated and benchmarked using the AP-­‐Canada Turnaround Database. This database is the most comprehensive in Industry, containing data on more than 1,500 turnarounds worldwide, with a substantial number of these originating from Alberta and the Oil Sands region. Study Objectives • Measure turnaround performance trends for Oil Sands: Is the industry becoming more cost efficient? • Provide comparison for Oil Sands turnarounds with other regions. • Establish baseline turnaround cost performance for the Oil Sands region. The study will provide sponsor organizations with a set of holistic turnaround benchmarks for their type of operation and provide insights into turnaround cost performance trade-­‐offs. The study will evaluate detailed cost components, as well as scope, duration, interval, mechanical availability, and other performance measures. • Define a set of key performance drivers and best practices. • Develop a list of practice-­‐specific recommendations to improve cost performance. The study will compare turnarounds in the Oil Sands region with those executed in other regions, quantifying the cost component differences between regions and identifying associated performance drivers. Similar to the Phase I study, AP-­‐Canada will benchmark Oil Sands turnarounds versus the rest of Alberta and the US Gulf Coast. The US Gulf Coast is a useful marker, as it is the lowest cost region for turnarounds. The rest of Alberta provides more comparable benchmarks in terms of what is feasible in regards to cost performance for the Oil Sands. • Provide confidential, tailored reports for each sponsor. AP-­‐Canada will employ a standardized Oil Sands benchmarking data collection tool to collect sponsor data. Study sponsors will independently provide turnaround performance data from their respective organizations, with key turnaround representatives participating in data and practices validation. With this input, AP-­‐
Canada’s benchmarking and analysis team will identify the effective cost-­‐related practices utilized by turnaround teams. AP-­‐Canada will facilitate the study design, ensure alignment with Industry standard definitions, collect the data, and interface with each turnaround organization. AP-­‐Canada will then prepare and deliver a custom report to each study sponsor that will detail the sponsor company's competitive position relative to Oil Sands industry cost performance, identify specific differences in individual cost components and practices, and provide observations and actionable recommendations to drive improved performance. Study Scope • AP-­‐Canada facilitates individual sponsor review of the study components. • AP-­‐Canada will utilize our custom data collection instrument and study plan. • Each study sponsor provides their own set of data. • AP-­‐Canada analyzes compiled data using statistical tools. • AP-­‐Canada prepares and delivers custom reports for each study sponsor. Page 4 Oil Sands Turnaround Cost Performance: Phase II 2016 The AP-­‐‑Canada Database and Study Design Measuring and tracking turnaround performance is essential for long-­‐term operational success. AP-­‐Canada’s database of more than 1,500 turnarounds from the refining and petrochemical industries contains information on planned and actual turnaround outcomes, key characteristics, and planning and execution practices that are correlated with outcomes. Data analysis facilitates the insights into causal factors behind success and failure, and allows individual turnarounds to be benchmarked against Industry average and top quartile performance. It also allows for the identification of demonstrated practices that lead to successful outcomes. Taking things one step further, the study will separate uncontrollable and controllable factors. AP-­‐Canada will weigh the individual criticality of each by applying statistical analysis tools to the compiled data, and focusing on critical factors, leading indicators, and best practices specific to the Oil Sands region and its challenges. The Study will investigate turnaround costs associated with uncontrollable factors such as: • Location and infrastructure. • Availability of qualified labor and supervision. • Production process, equipment size, and type of service. …and controllable factors such as: • Turnaround interval and size. • Scope characteristics and key ratios. • Turnaround organization and staffing. • Turnaround process. • Planning practices and standards. • Budgeting and estimating practices and standards. • Contracting and contractor management practices. • Continuous improvement, performance management, and learning. Page 5 Oil Sands Turnaround Cost Performance: Phase II 2016 What is Involved? Sponsor organizations will be required to provide turnaround performance data to AP-­‐Canada for analysis. AP-­‐Canada will validate this data to ensure compliance with the study’s standardized definitions. Required sponsor steps include: Study Deliverables • Review the benchmarking code of conduct and complete an agreement that ensures confidentiality of all study data. • To participate, each sponsor must complete the standardized data collection survey for each turnaround in the study. All sponsors must contribute data to ensure equitable participation in the study. • Make key turnaround representatives available for the submission and validation of turnaround performance and practice data. Confidential study reports will be customized for each sponsor. Each study report will provide an “apples-­‐to-­‐apples” comparison of component cost performance for the sponsor group and the Oil Sands region. All individual sponsor data is blinded and cannot be viewed by any other sponsor organizations. • Complete list of study sponsors and turnarounds included in the study and the statistical sample. • Customized benchmarking data collection tool designed for the study. • Industry mean, average, and standard deviation values for each benchmark for the sponsor group sample of turnarounds (blinded for confidentiality). • Detailed cost gap analysis: Your turnaround’s detailed cost performance compared to Oil Sands and the rest of Industry. • Identified best practices and any observed association between practices and turnaround performance outcomes. • Individualized conclusions, observations, and actionable recommendations.
Cost Performance
Oil Sands Turnarounds
Examples of how information is presented in a report for individual study sponsors. Cost Performance Index: Oil Sands Turnarounds
Top Quartile
North America Avg
Cost Component Analysis Oil Sands Avg
• Oil Sands Turnarounds
100%
Your Facility
Logistics & Equip Rent
90%
0.6
0.7
0.8
0.9
1.0
Cost Performance Index
Proprietary & Confidential
70%
60%
Proprietary & Confidential
80%
1.1
1.2
Materials
1.3
1
50%
Directs
40%
30%
Pre-­‐TA
20%
Plan& Prep
10%
Indirects
0%
Your Facility
Oil Sands Average
Proprietary & Confidential
Proprietary & Confidential
2
Page 6 Oil Sands Turnaround Cost Performance: Phase II 2016 Report Structure and Table of Contents The final report will provide benchmarks for both outcomes and practices relative to Oil Sands. The report is proposed to consist of the following sections:
Executive Summary • • • • Key Findings Data Sample and Project Overview AP-­‐Canada Turnaround Database Benchmarking Results: Performance Outcomes Cost Performance Relative to Oil Sands and US Gulf Coast Averages • • • • • • • • Cost Competitiveness Cost Components Cost Efficiency Cost per Labour Hour Cost Per Piece of Equipment Worked Cost Predictability Cost Predictability and Complexity Contingency and Discovery Allowances Benchmarking Results: Practices and Leading Indicators • • • • • • • • • • • • • Practices and Leading Indicators Issuance of Engineering Packages Scope Freeze Changes to Scope Planned Versus Actual Equipment Count Scope Control Process Field Productivity Pre-­‐Turnaround Work Slippage Adequate Resource Selection Timing of Awarded Contracts Contractor Capabilities Risk Management Turnaround Readiness (as available) Summary of Findings: Identified Best Practices and Recommendation
Schedule • • • • Schedule Performance Schedule Competitiveness Schedule Components Schedule Predictability Labour Hours • Labour Hour Growth by Turnaround • Labour Hours Per Piece of Equipment Worked Safety, Environmental, and Operability • Safety Performance • Environmental Performance • Operability Page 7 Oil Sands Turnaround Cost Performance: Phase II 2016 Benefits to Study Participants The study will provide the following benefits to participating sponsors: Benchmarking Case Study: The North Sea Experience • Each study sponsor will receive a customized performance benchmarking report comparing the sponsor’s turnaround performance to that of the aggregate sponsor group. In addition, the study report will: ž Identify specific practices that operators can employ to reduce turnaround costs. ž Provide norms and ratios for Oil Sands turnaround cost performance. ž Identify levers that drive cost efficiencies and performance improvements, based on empirical data. • Sponsors will be invited to attend the study kickoff and the presentation of findings, both held in Calgary, together with the rest of the sponsor group. Study Pricing1 The study sponsorship cost is established on a per-­‐turnaround basis for each operating site in the study. Single Site Sponsorship – One Turnaround $29,000 Includes a customized site report Each additional turnaround at a sponsoring site $16,000 Each additional turnaround at a sponsoring site that has previously submitted data to AP-­‐Canada $13,000 Site sponsorship requires the signing of a study terms, conditions, and confidentiality agreement in order to confirm participation. Study Schedule Study Kickoff Conclusion and Report Delivery October 2016 Early 2017 In the late 1990s, oil prices fell dramatically. This drop called into question the economic feasibility of future North Sea oil developments. The North Sea had long been a high cost region for offshore developments. This was due in part to the location and the environmental conditions faced by offshore facilities. However, many in the industry felt that there were also inherent design and project practices within the North Sea operator and contractor community that were driving costs higher. Without some changes, many proposed projects would be cancelled or were at the mercy of oil prices. Hard data were needed to support the case for change. Several companies launched benchmarking initiatives to review cost efficiency and practices in other parts of the world—including West Africa, Australia, Asia, and the Gulf of Mexico—in order to understand what best-­‐in-­‐class performance looked like and whether there were practices that could be adopted in the North Sea. These efforts resulted in significant changes in engineering, contracting, and project management (e.g., lighter weight designs) that reduced turnaround costs by more than 30 percent. 1
Minimum fee for study sponsorship is $29,000. Payment terms: 50 percent of total cost will be invoiced at sponsorship commitment and 50 percent at study conclusion. Any related travel costs are additional and will be billed at actual cost. Page 8 Oil Sands Turnaround Cost Performance: Phase II 2016 About AP-­‐‑Canada Asset Performance Canada, ULC is the Calgary-­‐based affiliate of Asset Performance Networks, LLC, the trusted leader for improving asset and operational performance in petroleum, chemical, and energy companies worldwide. We work with our client's most critical assets: their people, processes, and production facilities. Our solutions are a powerful hybrid of consulting expertise and Software as a Service (SaaS) that generate measurable results. Since our founding, we have focused on bringing predictability and competitiveness to high-­‐risk events—namely, capital projects and turnarounds. Industry leaders not only recognize our brand, they insist on our involvement in their most critical improvement initiatives. AP-­‐Canada is the pre-­‐eminent solutions leader and provider of best project and turnaround management practices – i.e., if it is about an operating plant physical turnaround or capital project and the client wants to be assured of implementing best practices, then it is unquestionably our firm they will call upon. Our clients include over 50 leading companies including Suncor, Cenovus, BP, Shell, Bayer, Celanese, Chevron, ConocoPhillips, Dyno Nobel, Statoil, Tesoro, and Valero. For a more comprehensive list of our current clients, please see the ‘Our Clients’ section of our website. AP-­‐Networks and AP-­‐Canada have built a database of more 1,500 turnarounds from Industry. The database contains: • Estimated/Planned and actual turnaround outcomes. • Characteristics of turnarounds (e.g., total field labour hours, types and numbers of modifications, new procedures, etc.), correlated with outcomes. • Turnaround practices (e.g., scope freeze, logistics planning, team alignment, etc.), quantified and correlated with outcomes. The AP-­‐Canada Turnaround Database is used to facilitate better understanding of the causal factors behind success and failure and the practices that drive superior outcomes. For more information Asset Performance Canada 407 2 St S W, Suite 1100 Calgary, AB T2P 2Y3 ( +1.403.457.2737; 6 +1.403.457.2767 Web Sites: www.ap-­‐canada.ca www.ap-­‐networks.com www.turnaround-­‐network.com Page 9 Benchmarking Code of Conduct AP-­‐Canada benchmarking studies are governed by a strict code of conduct. Principles that our studies adhere to include the following: • Legality – Adhere to all laws and regulations. • Exchange – Provide fellow sponsors with the same level of information that you request. • Confidentiality – Information exchanged is confidential to individuals and organizations. • Use – Benchmarking information is used only for its intended purpose. • Contact – Follow study procedures and respect corporate cultures. • Preparation – Commit to the study objectives and timelines by being prepared and providing information in a timely manner. • Completion – Follow through with study commitments. • Understanding and Action – Treat fellow sponsors with respect and meet expectations. The Benchmarking Code of Conduct document may be downloaded at: http://www.apqc.org/knowledge-­‐base/documents/benchmarking-­‐code-­‐conduct Asset Performance Canada 407 2 St SW, SW, Suite 1100 Calgary, AB T2P 2Y3 ( +1.403.457.2737 6 +1.403.457.2767 Houston Office 455 E. Medical Center Blvd., Suite 200 Webster, TX 77598, USA ( +1.281.554.8181 6 +1.281.554.8585 Corporate H eadquarters 3 Bethesda Metro Center, Suite 925 Bethesda, MD 20814, USA ( +1.240.683.1001 6 +1.240.683.1009 EMEA Office th
Crystal Tower – 24 Floor 1043 DP, Amsterdam, NL ( +31.20.486.1185 6 +31.20.486.9830