Improving Well Delivery Return on Capital Employed (ROCE) and maximizing capital efficiency

After an unprecedented industry downtown and the impact of the pandemic, E&P operators are being evaluated not by how quickly they can grow their operations, but instead on how efficiently they use their capital to drive profitability. Whether an operator can produce a lot of hydrocarbons rapidly isn’t what matters these days; instead, whether those hydrocarbons are produced in a way that returns profits to investors is critical to the assessment of the organization’s health.

One of the commonly-used measures of this new economic environment is Return on Capital Employed (ROCE). ROCE measures both profitability and how efficiently an operator uses capital, and also aids in understanding the degree of effectiveness inherent in the operators drilling programs.

In this post

• A new economic reality: ROCE and today’s focus on profitability
• Well delivery scheduling software that drives high ROCE
• Actenum software: benefits that impact ROCE
• The way forward to improved ROCE

A new economic reality: ROCE and today’s focus on profitability

Until early in 2020, investors were focused on growing their E&P portfolios as rapidly as possible. Investment capital was readily available as long as it led to more land under lease, more rigs drilling, and more oil produced.

That is no longer the environment in which we operate.

E&P operators are now being evaluated on how efficiently they use their capital to drive profitability. And Return on Capital Employed (ROCE) is one measure that’s being used for this evaluation. It’s calculated by dividing a company’s EBIT by Capital Employed, where:

• EBIT = Earnings Before Interest and Tax, and
• Capital Employed = Total assets – Current liabilities.

A higher ROCE value shows stronger profitability, and how ROCE trends over time is important since it provides insight into stability of performance.

Operators have multiple options to improve their ROCE ratio. They include a focus on cost-cutting measures, suspending or selling underperforming operations and projects, and a razor-sharp focus on internal efficiency, productivity, costs, and project management.

Well delivery scheduling software that drives high ROCE

Since 2003, Actenum has led the way in developing Oil & Gas scheduling software that drives high ROCE by increasing operational efficiency, reducing non-productive time, and improving project team collaboration. Using the latest technology advances for intelligent scheduling, our software ensures that the right resources are in the right place at the right time, enabling operators to do more with less, and to increase capital efficiency through the effective use of resources.

Actenum software drives improved ROCE with multiple features that enable operations efficiencies:

• AI-driven schedule optimization: Actenum’s DSO scheduling and optimization software tames the complexity of integrated scheduling with powerful decision support technology and advanced analytics that rapidly identifies optimal schedules to meet business goals. It enables any type of resource to be scheduled against any type of activity, subject to any type of constraint, and it rapidly aligns the sequence of resources and activities with key objectives. As a result, it simplifies scheduling and eliminates guesswork to significantly improve the efficient use of equipment, personnel, and other resources.
• “What-If?” Scenario evaluation: Using Actenum software, operators always know what to do in any situation. It enables multiple “What if?” scheduling scenarios to be rapidly created and analyzed to show how decisions will impact costs, production, equipment use, and financial goals. It’s easy to create scenarios that answer questions such as “How productive will we be if we reduce spending by 15% this year?” Key Performance Indicators may be monitored as a schedule is updated, providing instant insight into how well asset ROI is being maximized, risk reduced, and predictable and reliable production being achieved.
• All information in one place, available to everyone: With Actenum software, everyone in the organization benefits from a complete, single-source view of well delivery operations. It transforms what used to be a laborious manual task into a strategic advantage. Operations team members can share, view, and report on consistent, up-to-date schedules at all times. This enables operators to efficiently meet production targets, rapidly align spend with budgets, and accurately forecast materials in less time.
• Collaboration: Actenum provides software for every team member, and incorporates comprehensive schedule visualization and reporting capabilities—including GIS mapping—so that any authorized user can view an optimized schedule tailored to their job function. Accessible from a desktop, tablet, or smartphone, Actenum’s collaboration software significantly improves efficiency, and mobility, providing up-to-the-minute schedule information anywhere, any time.
• Resource contracts and Blackouts: Resource contract information captured in Actenum software provides accurate details on costs and efficient use. Blackout periods (such as expected weather delays or environmental stipulations) may be automatically imposed on Activities, Resources, Pads and individual Wells, preventing or slowing down activities during the period. Reports can easily be generated showing how these Blackouts influence the schedule.
• Lease Obligations: Actenum software captures lease terms and obligations, ensuring that any schedule adheres to important lease timing considerations.
• Well interference and shut-ins: Actenum software provides capabilities for detecting and alerting users for Offset Well issues. As well, automatic resolution of violations is provided by the optimization engine.
• Material Utilization: Actenum software can compute and display material utilization and forecast, based on the schedule, material needs by period. This enables users to forecast consumables and provide that information to the supply chain organization for optimized purchasing.
• Flow Network Management: Actenum software maps flow networks, including capacity constraints. This enable users to identify when wells need to be strategically choked. As well, it provides the ability to confirm that infrastructure issues are always taken into account, so wells can flow production to prevent delayed POPs, yielding accurate production forecasts.

Actenum software: benefits that impact ROCE

Does Actenum really provide a software solution that can improve ROCE in your organization? Yes! Some of the benefits our customers are experiencing are:

$1.4M savings through reduction of schedule conflicts

A US operator was experiencing schedule conflicts because their pre-spud, drilling, and completion schedules were separate and could not be easily integrated. This was causing permits to be obtained at the wrong time, construction and completions to be out of synch with drilling, and major difficulties with long-range planning.

For a single schedule change involving an 8 well pad, the operator estimated that up to $450,000 in equipment, process, and labor costs ensued. Given the frequency of conflicts (at least 4 per year), the total unnecessary expenditure was $1.8 million. Using Actenum software the operator was able to reduce the number of schedule conflict situations to 1 per year, saving $1.4 million.

$1.5 M savings by optimizing people’s time

The VP Operations at an IOC called us to say that his organization had saved an estimated $1.5 million in the first 3 months of using Actenum software. Formerly his team used MS-Excel to schedule drilling operations, and this required a daily meeting of up to 3 hours with 20 people attending. He referred to it as “the 3-hour argument”. After a very short time using Actenum the meeting evolved to a 4 person 15-minute daily session. The schedule was viewable by all attendees, the impact of changes was immediately visible, and questions about moving wells resolved rapidly.

2-day Cycle Time Reduction

A global operator was able to reduce their cycle time (spud to first oil) for a 160 well drilling project by an average of 2 days, by using Actenum. Activity gaps in the schedule could not be traced using their old scheduling approach but were immediately evident in Actenum’s pad-based Gantt chart schedule view. Also, the operator was able not only to configure various reports that showed process inefficiencies but also ensure that this information was available to all stakeholders when needed.

Rapid operational reconfiguration through decision scenario evaluation

Actenum software’s scenario creation and evaluation capabilities are being used by a leading US operator to rapidly analyze multiple versions of a drilling and completion schedule, to determine the appropriate course of action to maximize project value. Unlike many other operators, the drilling project schedule is frozen for a 6 week period, and this enables them to rapidly reconfigure their approach to the project in response to operational and market conditions. In one situation the customer used an Actenum scenario to determine the impact of a decision to spend an additional $12 million in one area of an asset. They forecast a $45 million return within 60 days, and this proved to be the case in reality.

Time and manpower reduction through more effective production forecasting

A leading US operator reduced the time and manpower requirements for processing multiple production forecasts from 2 weeks with 5 engineers to 1 day with 2 engineers. The operator’s requirement is to evaluate up to 5 different test case schedules using monthly production forecasts and select the optimal for budgeting purposes. Each scenario is created using Actenum software, and the impact of each scenario on the total production forecast evaluated.

The way forward to improved ROCE

Leveraging Actenum’s sophisticated optimization technology enables operators to overcome the limitations of traditional manual scheduling, optimize their capital investments, and boost ROCE.

Instead of a process where important decisions are made about how to manage a well delivery schedule with little concrete insight into outcomes, operators equipped with Actenum software benefit from a much more agile schedule process that provides reliable input into decision-making at all levels of the organization. By ensuring that well delivery operations are always aligned with business objectives, Actenum software provides substantial economic benefits, maximizes asset ROI, reduces risk, and improves ROCE.

 

Owen Plowman
Vice President Business Development