Add up all the other functions of an oil company, a consultant says, and you get output factors just as vital as the oil well itself.
For oil firms, company culture is as important as drilling holes
The conventional wisdom is that success in the energy business hinges on how quickly and efficiently a firm sucks oil and gas from the ground. But David Smith, an oil consultant at Celerant, has a proposal that he hopes state firms in the Gulf will listen to: add up all the less glamorous factors - challenges such as poor planning or a bad management climate at headquarters - and you get a roadblock just as formidable as unskilled drillers or outdated technology. "How people tend to view an oilfield is the percentage of time that equipment is online," he says. "But there are other factors. For example if you take shutdowns, every oilfield has shutdowns. If the planning is not absolutely meticulous, these shutdowns will tend to stretch out, and you could lose a lot of oil."
The scale of the oil industry is one of its most impressive aspects. Firms mobilise armies of workers and tens of millions of dollars for every hole they drill in the ground. They also spend millions of dollars each year trying to figure out how to become more efficient. Mr Smith's contention is that a large part of those improvements can be had without leaving the office. A firm that produces oil offshore, for example, will never do it well if excessive bureaucracy or poor planning leads to supply-chain delays. "If you don't have an efficient onshore operation, you'll never optimise your production," he says. "We see a great opportunity to improve the drilling rate, which can help make sure that costs are kept under control." Occidental Petroleum hired Celerant a decade ago to help the company boost the number of locals at its Omani subsidiary.
The proportion of Omanis at the firm was 85 per cent, and Oxy was looking for ways to increase it to 95 per cent. Mr Smith found that the firm was held back by a management structure that discouraged Omanis from taking on jobs with a high degree of responsibility and accountability. "The local people were perfectly capable and well-educated, but had become accustomed to taking a certain position," he says. "A lot of it was around confidence, and a culture where people were quite happy to do what other people told them rather than be accountable themselves." An intensive employee training programme that spelt out goals for each individual, offered evaluations and defined job functions in generic terms, yielded impressive results: 98 per cent of Oxy's Oman division is now local.
Serious improvements to management inefficiencies and excessive bureaucracy could be extended across the region, where national oil companies were initially created by governments to emphasise large-scale employment over cultivating a competitive climate. "In the past their main role was to create jobs," Mr Smith says. "When you're in a situation where you've got significant skills shortages in a number of areas, I wonder if that's entirely relevant." A key factor is training middle and lower level management well enough so that they can make decisions on their own, he says. Mr Smith declined to specify which firms needed the most improvement, but experts say every state oil firm in the region could tolerate changes to management culture.
Contractors and experts privately complain that the Abu Dhabi National Oil Company (ADNOC), for example, maintains an overly centralised decision-making structure that slows down projects and leaves low-level managers unaccountable. Critics frequently charge that Kuwait Oil Company is tainted by political meddling and nepotism. Celerant's first clients were the international oil companies, known as IOCs, including BP and Shell. Driven by limited access to new oil and gas reserves and encouraged by shareholders, the oil giants sought to slim down their workforces and increase efficiency. "The IOCs have been spending a lot of time making sure that their workforce was not defensive, and it's not a blame culture," Mr Smith says. "I think the NOCs [national oil companies] still have a way to go with that." In oil-producing states, the efficiency improvements tend to become a priority when the oil price falls, as it did at the beginning of the year.
"If the oil price was US$147, nobody would be listening, and if it's $70, nobody would probably be listening either," he says with a laugh, in reference to today's price. But with prices at that medium level, firms should look to start making difficult decisions today, he says. "Now's an ideal time to start looking at organisations and looking at ways of reallocating people." email@example.com