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TRANSCRIPT
Operating In Lower-For-LongerRoger Bhalla
Manager, Supply Chain Services & Technology
February 22, 2017
Cautionary Statement
• The following presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations, operating results or the industries or markets in which we operate or participate in general. Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that may prove to be incorrect and are difficult to predict such as oil and gas prices; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; unsuccessful exploratory activities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, as well as changes in tax, environmental and other laws applicable to ConocoPhillips’ business and other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC). We caution you not to place undue reliance on our forward-looking statements, which are only as of the date of this presentation or as otherwise indicated, and we expressly disclaim any responsibility for updating such information.
• Use of non-GAAP financial information – This presentation may include non-GAAP financial measures, which help facilitate comparison of company operating performance across periods and with peer companies. Any non-GAAP measures included herein will be accompanied by a reconciliation to the nearest corresponding GAAP measure on our website at www.conocophillips.com/nongaap.
• Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. References in this presentation to “resources” include estimates of quantities of oil, natural gas liquids, natural gas and bitumen that are not classified as “proved reserves”, as defined in SEC regulations, and therefore this term represents a broader description of potentially recoverable volumes than SEC definitions of “probable” or “possible” reserves. Estimates of such unproved resources may change significantly as development provides additional data, and actual quantities that are ultimately recovered may differ substantially from prior estimates. For more information regarding our reserves as calculated pursuant to SEC rules, please read the oil and gas disclosures in our Form 10-K and other reports we file with the SEC. Copies are available from the SEC website and from the ConocoPhillips website.
Adapting to Lower-For-Longer Pricing
February 22, 20173
Game Changes to ‘Optimize Resources’; Driving Down Cost of Supply Wins
1Historical prices are from BP Statistical Review of World Energy 2015 1965-1983 Arabian Light posted at Ras Tanura 1984-2014 Brent dated
Oil Price ($/bbl)
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$ money of the day $ 2015
Resource Grab:Barrel Growth Focus
Resource Grab:Barrel Growth Focus
Optimize Resource Base:Cost of Supply Focus
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Better Together Themes
• Performance-based contracting• Contracting for certainty in an uncertain environment: how do we design win-win, risk neutral
deals in today’s environment?
• Ensuring sustainable service quality through commodity price cycles
• Eliminate waste• Automation of transactions
• Attack Non-Productive Time
• Improve visibility of information• Digitize our interactions
• Leverage big data to better understand and action opportunities
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Performance Optimization Through Analytics
February 22, 20176 Resource Efficiency Reduced Capital Spend
Eagle Ford Drilling Spud to Spud Days L48 On-Shore Drilling Cost Reduction
>80% MORE WELLS DRILLED PER RIG
>40% REDUCED DRILLING COST PER WELL
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Implemented Drilling Analytics Solution Significant reductions in operational costs
through a number of sustainable efforts enabled through analytics:
• Drilling Process Optimization• Flat Time Optimization• Vendor High Grading• Multi Well Pad Efficiency• NPT Reduction
Facilities Design Improvements – L48
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Completions Design Improvements – Surmont Oil Sands
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Contract Strategies
Will utilize any or a combination of strategies depending on the situation
Leverage enterprise spend
Bundle product/services
Performance-based contracts
Short term Contracts
Long termContracts
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• Combined Shared Services delivered 50% more transactions in 2016 than 2015 average, exceeding 15%+ efficiency improvement target.
• Staffing reduced 29% by consolidation of Americas business unit transactional work into Shared Services
• Combined Shared Services capable of >50% more transactions per FTE than business unit peers due to expertise and focus.
Supply Chain Shared Services – Deliver Higher Performance Efficiency
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Industry Collaboration
to Reduce
Cost/Complexity
February 22, 201711
PIDX and its Role
• PIDX = Petroleum Industry Data eXchange
• Not-for-profit standards body formed in 1987 and spun off from API in 2010
• Mostly staffed by volunteers from Operators, Suppliers, and Technology/Service Partners (including many PESA members)
• PIDX Mission – “PIDX provides a global forum for delivering the process, information and technology standards that facilitates seamless, efficient electronic business within the oil and gas industry and its trading community.”
• Why join:• Visibility to existing best/better practices
• Engagement across many industry partners to solve complex solutions
• Have a voice in the standards that will impact your company in the future
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Following in the Footsteps of other Industries
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High margin industries tend to have pricing premiums due to differentiation from brand & intellectual property, while lower margin industries tend to be commodities more driven by efficiency and scale.
Industry Name Net Margin
Bank (Money Center) 24.48%
Banks (Regional) 24.33%
Financial Svcs. (Non-bank & Insurance) 22.30%
Drugs (Pharmaceutical) 17.52%
Entertainment 14.97%
Information Services 14.00%
Software (Entertainment) 13.08%
Hotel/Gaming 12.62%
Software (System & Application) 11.84%
Heathcare Information and Technology 9.09%
Restaurant/Dining 8.99%
Insurance (Life) 7.70%
Food Processing 6.86%
Household Products 6.67%
Retail (Building Supply) 6.65%
Total Market 6.40%
Blue = commodity driven industries
Source: NYU Stern School (1/2016). Sample of 95 industries shown. http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html
Industry Name Net Margin
Apparel 6.27%
Insurance (General) 6.20%
Computer Services 5.95%
Office Equipment & Services 5.64%
Electronics (Consumer & Office) 5.49%
Auto Parts 5.36%
Oil/Gas (Integrated) 5.34%
Telecom. Services 5.18%
Construction Supplies 5.17%
Trucking 4.19%
Packaging & Container 3.91%
Retail (Distributors) 3.84%
Oil/Gas Distribution 3.53%
Retail (Automotive) 3.43%
Auto & Truck 3.36%
Farming/Agriculture 3.12%
Retail (Online) 3.01%
Oilfield Svcs/Equip. 2.76%
Publishing & Newspapers 2.52%
Retail (General) 2.44%
Food Wholesalers 1.13%
Chemical (Basic) -3.12%
Steel -4.63%
Coal & Related Energy -23.47%
Oil/Gas (Production and Exploration) -54.71%
What can we learn from what other industries done?
Some Potential Improvement Opportunities
• Auto Quote-to-Requisition Standard
• Internet of Things (IoT) enabled smart assets
• Operationalize “factory oil field”
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Auto Quote-to-Requisition Standard
Opportunity: Supplier sends a quote to a buyer that can be reviewed compared to other quotes, and converted to a requisition & PO seamlessly, regardless of systems.
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Seller Buyer
QuoteQuote Req.
PO
PO
Speed and accuracy of visibility to data, quote comparison, and award
Labor savings on data entry
Ease of deployment (no proprietary eCommerce solutions)
IoT Enabled Smart Assets
Opportunity: Sensor-enabled equipment in the field that assess what actions will be needed, and takes action to initiate service and confirm for payment.
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Allow resource optimization through pre-scheduling
Minimize downtime, labor waste, and material stock/obsolescence
Increase visibility to future spend requirements
Buyer Equipment Supplier
Predicts service need
Quote
Schedule Service. PO
Sends request
or
Buyer
Req
Perform service
Confirms service performed
Payment initiated (ERS)
Operationalize “Factory Oil Field” Standardization
Opportunity: High-volume, repetitive drilling programs enable leveraging of processes and standards such as MRP & scheduled services
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Optimize supplier capacity utilization for lower costs
Able to lock in “A-team” resources with better commitments
Able to optimize stock better than just min/max planning
Auto
Custom built Mass-produced, only in black Highly standardized, but millions of combinations
Oil Highly standardized well-designs,
but millions of combinations to
fit the needAnnual drilling &
maintenance plan
• Improved material planning• Buyer/supplier Integrated services
planning• Reduced maintenance risk• Improved learning curves
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