Falling oil and natural gas prices have hit the energy industry pretty hard this year. Fortunately, relief is on the horizon. Experts predict prices will gradually start to rise in 2016, though it will take some time before they reach the heights of the past decade.
Several high-profile industry executives have pointed out that low prices actually have a positive effect: motivating companies to innovate and optimize in their efforts to cut costs. GE Oil & Gas’s Ron Holsey told the New York Times, “Our industry is very slow to adapt to change, so these shake-ups can be good for challenging operators to find better ways to do things.”
Here are five ways energy companies can save money in 2016.
Be more selective about which wells to drill
John Spears of market research firm Spears and Associates noted at the 2015 VMA Market Outlook Workshops that operators are focusing on drilling only the best wells and improving how those wells are drilled. As a result, the break-even price has declined from $60/barrel to $40/barrel, which leads to a healthier industry as a whole.
Increase efficiency with new drilling tools and techniques
In May, the New York Times profiled some of the innovative drilling tools and techniques companies are using to increase efficiency. For example, one company was able to increase shale production by one-third, while also decreasing the number of rigs by one-third, by using different grades of sand, varying the depths of the wells, and installing new remote-operated chokes. Other companies are realizing economies of scale by adopting manufacturing techniques in their drilling operations.
Adopt more standardization
The materials and equipment used in the energy industry aren’t currently standardized. As an example, Shell VP Ian Silk notes that 28 different shades of yellow paint are used for subsea equipment. This lack of standardization extends to valve assemblies and other equipment.
Customization is expensive, and industry leaders are advocating for more standardization and common specifications, which will bring costs down for everyone.
Eliminate downtime through proper equipment maintenance
Energy companies can get significantly more life out of their equipment by performing proper maintenance. For example, valves that are serviced regularly as part of a preventative maintenance program can last 10 years or more longer than those that aren’t maintained. You can also save money by inspecting and repairing all of your valves at once, which eliminates costly downtime.
Focus on the future
Cost-cutting measures are often short-term fixes, but the companies that succeed are those that keep their eye on the long-term. McKinsey & Company recommends that rather than cutting costs across the board, companies focus on cost-reduction efforts aligned with their strategic needs. For energy companies, that might include changing workers’ shift patterns and decreasing transport costs.
The advantage of all of these approaches is that when the market recovers, these practices will still be in place, putting companies in a position to realize even higher revenues. IHS analysts have suggested that companies that put efficiencies in place now could be more profitable when oil once again hits $80/barrel than they were several years ago when it was at $110.
Allied Valve can help you save money by extending the life of your valves and lowering your mobilization costs. Contact us for more information about how we can serve you.