Last month, we looked at how the justification for capex investment for development programs resides in the way in which a project is designed, planned, and executed. The case for more rigorous project planning and execution can be seen in the difficulties companies are having in allocating the capital for projects now that would have been approved a couple of years ago. Ideally, if the project team has a firm grasp on how to shepherd a fully integrated development program from planning to execution to sustainability, dips in the price of oil or natural gas won’t create the internal havoc that has characterized the last year for some companies.

Operability and sustainability are the final steps in achieving Alpha performance in project design. (Images courtesy of MTG)



At its most fundamental, a development program should consist of four distinct phases that build on each other: proof of concept, scalability, operability, and sustainability. Proof of concept is the team’s justification for capex investment in the program or project. It is the starting point at which planning, design, integration, metrics, etc., are created with input from the entire team to illustrate how the program or project will be executed — as a concept. On the other hand, scalability is the phase in which design becomes action in moving from a one-well design to a multi-well program.

Operability and sustainability are the last two phases necessary to achieve Alpha performance in a development program. In both, the team has moved from planning and design to the actual execution. This is the point at which the gaps that will inevitably emerge are closed and the team can justify continued investment through performance. Moreover, and of critical importance, thoughtful execution with a commitment to sustainability will create a program in which success is not as dependent on the price of oil or gas.

Operability

As a program moves into an operations mode after the planning and design phases, deviations are inevitable. Delays to the program will take place due to
bad weather, equipment failures, manpower issues, vendor coordination, etc. Planning assumptions that served as the basis for timeline targets will likely be adjusted. Changes to the procedures that are used for both drilling and completions will also take place to ensure optimal performance. In some cases, teams will be faced with balancing activities and time to ensure base production needs are met while keeping with the development plan’s goals and objectives.

The interplay of basin, process, talent, and technology affects development program performance.



Vendors also play a critical role in the operability phase. Many of the activities that the team has planned are impacted by the ability of vendors to meet their agreed-upon dates and deadlines. The inability to get equipment to the site on time or poor performance in the carrying out of various responsibilities, from moving the rig to fracing the well, will affect the entirety of the project as production dates are pushed out. In addition, the availability of materials and services, while not the concern it was a year or two ago, can also have an adverse effect, especially with multiple projects competing for a limited set of material and service providers in a given basin.

Any adjustments that the team makes must be done in light of the program at large. It may not be enough to work the program’s progress in a Monday morning meeting. Additional attention may have to be given to costs and how they are tracking against plan as well as looking at how the operational phases are progressing and noting variances against plan. In doing so, the team can focus on where the adjustments need to be made and implement them quickly to keep cost and performance on schedule. Regular management updates at this juncture are also critical to ensure continued buy-in and accountability for performance, especially as budget decisions are made for additional years.

The team will also want to consider employing some kind of “look back” to assess how performance and cost are trending after a sufficient number of wells have been drilled and completed. Focusing on any learned lessons after completing a predetermined number of wells will enable the team to zero in on where the needed adjustments, if any, should be made. Closing gaps between well design and actual performance is key to program success. However, without mechanisms to allow discussion and resolution of performance gaps in the context of the entire program, operability will inevitably fall short of expectations.

Sustainability

One major challenge that teams face in executing their individual wells projects is the disruption that comes from the frequent personnel changes that companies go through. Promotions, reassignments, and reorganizations can create a dynamic in which the team is having to relearn its plans, processes, and integration while losing the progress made in the design, planning, and execution phases. Ideally, a multiyear wells development project should not miss a beat as new talent is brought on board. Unfortunately, just as the type of technology used in the field can impose limits on a well, talent can present limits as well.

A sustainable wells development program, designed for multiple years rather than one year or one well, should be able to weather moving individuals in and out of assignments during the course of the project. One key is the constant re-emphasis of the program’s goals. Just as integration was key to the proof-of-concept phase, it is critical to maintaining sustainability. Team members must be able to reexamine the program’s goals to ensure that preparation and execution are in line with the production and cost assurances made to secure funding.

Moreover, an insistence on accountability for individual components of the program, as well as the wells development program in its entirety, will help maintain a focus on aggressive follow-through during execution.

Lower oil prices have made it impossible for many companies to justify the investment for development in the Lower 48. This is one reason why a sustainable program must continue to monitor and work to drive down costs on an ongoing basis. Leaders of sustainable programs continually examine the costs of the various elements and seek to understand the assumptions behind spending decisions. Team members must be willing to challenge assumptions and relationships that do not provide the best value to the program. Management, in turn, must be willing to hold the team accountable for those decisions. Without rigorous monitoring of how and why money is spent and without the processes and controls to effectively track at corporate and in the field, a wells development program will be much more likely to be cut based on the fluctuation of oil and gas prices.

Whether or not the price of oil reaches the dizzying heights it reached recently or will surpass them (and when) remains a topic of debate. What is certain is that the drop in prices the industry experienced forced many organizations to slash or eliminate completely the capital available for development program investment.

Assuming the rising tide would keep the boats afloat, project management fundamentals were often ignored as US $140 oil hid inefficiency and waste and skewed how decisions were made with regard to wells development, especially in the Lower 48.

Successful wells development project planning and execution should be undertaken with an eye toward sustainable implementation that can justify the repeated capex investment for each year of the project. To do this, a team must prove the concept of the program — how the various functional groups are going to execute to meet production, cost, and other metrics necessary for success. Teams must also think about the scalability issue in moving from the design of one well to repeating the process of drilling, completions, and every other step from location construction and facilities to putting the well on production. Operability and sustainability contemplate closing gaps in performance versus the program plan and ensuring a lasting integrated process in which goals, timelines, and results are constantly revisited.

A fundamental approach to wells development excellence can help ensure that operators are better equipped to weather fluctuations in prices, people, or other variables that will affect whether or not a program moves forward. The alternative is to relearn the painful lessons the industry has experienced over the past few months — again.