The last decade of higher oil prices have opened production in existing and new fields, and the industry continues to produce at record levels despite the downturn in crude oil prices. This has created an era of unprecedented growth in midstream demand, which has fueled tremendous growth in the industry. However, challenges come with growth and providing assurances that the operation generates the returns on the investments midstream operators have made in the last decade.
Based on North Highland’s experience, there are questions that executives should be asking of both their line management and themselves to probe known areas where challenges exist for companies.
1. Does our current safety management system meet the bar for future regulatory requirements?
The American Petroleum Institute (API) has issued Recommended Practice 1173 (Pipeline Safety Management System Requirements), which will create an impetus throughout the industry to begin efforts focused on improving safety and operation performance. However, if significant incidents continue to occur, API RP 1173 may become regulation.
- In our experience, a safe organization starts with a strong focus on systematic thinking and systems to ensure operations are carried out in a safe, consistent, and measured manner.
- Consider looking into developing a wider Operations Management System that integrates all component parts of your organization and the elements that drive it.
2. Have our new acquisitions increased operational risk?
Mergers and acquisitions have long been a method for growth in the midstream industry, and the past year has shown no signs of slowing down. One challenge seen across the industry is that little is done to integrate acquisitions from an operational perspective. This results in companies that are bolted on and are run similar to a smaller organization, creating inefficiencies across business units and functions.
- In our experience, the organizations that take a measured approach to incorporation of acquisitions into a common operating model show a greater return on investment.
- Organizations that continue to operate as separate entities will find their practices, procedures, and organizational constructs will diverge over time, creating inherent risk for the business.
3. Do my employees have the right information and knowledge at hand to make appropriate decisions to run the business?
Many pipeline and terminal networks are older assets, despite significant capital investment in the last decade. Compounding this, the aging workforce is creating challenges in knowledge and experience transfer to the next generation. This creates a situation where information about operational assets is scarce, and what knowledge does exist is generally in the heads of operators who are set to retire.
- Many organizations are building strong pipelines of talent from many sources, defining methods to ensure that young leaders have clear paths of growth, and establishing succession plans.
- Information is available in larger quantities than it ever has; however, organizations are increasingly running into information overload. Without the processes, people, and tools to deliver the right information at the right time, to the right people, they will continue to struggle.
4. Are my capital investments returning value as quickly as projected?
While there is a significant wave of M&A activity going on in the industry, there is also a significant amount of capital investment. The ability to get these new projects operating at full capacity directly correlates to achieving value; however, many companies are having significant problems in the handover from Engineering & Procurement Contractors (EPCs) to the operating entity.
- Midstream organizations doing well in this space are putting in the organizational capability, policies, processes, and tools to manage the EPCs from conceptual design through commissioning. A strong procurement organization is a good place to start.
5. What is my company’s image in the public realm?
The recent spills have not created a strong public image for midstream operators. In many cases, this has demonstrated challenges in understanding where the public is at with regard to the company. In addition, the capability of organizations to respond across multiple media have shown some difficulty.
- Leading organizations are using capabilities to monitor, in real time, how their brand is performing across multiple media in order to respond in times of opportunity and crisis. Organizations in the industry must begin to make connections to the public and wider stakeholder groups through the use of innovative social media strategies.
If these questions have made you think twice or inspired you to call someone in your line management, you’re not alone. Organizations throughout the industry are actively engaging in efforts to improve along these lines and in other areas. North Highland has the experience and expertise in helping midstream companies extract more value from their operations, and can help yours as well.