SPE-26412-MS-Syahrilyan.pdf

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Society of Petroleum ngineers

SPE 26412

Total Quality Management for the Oil and Gas Industry Kessler, Center for Effective Leadership

SP Member

rCopyright 1993, Society of Petroleum Engineers, Inc.

This paper was prepared for presentation at the 68th Annual Technical Conference and Exhibition of the Society of Petroleum Engineers held n Houston, Texas, 6 October 1993.

This paper was selected for presentation by n SPE Program Committee following review of information contained in n abstract submitted by the author s . Contents of the paper,as presented, have not been reviewed by the Society of Petroleum Engineers and are subject to correction by the author s . The material, as presented, does not necessarily reflectany position of the Society of Petroleum Engineers, its officers, or members. Papers presented at SPE meetings are subject to publication review by Editorial Committees of the Societyof Petroleum Engineers. Permission to copy s restricted to n abstract of not more than300 words. Illustrations may notbe copied. The abstract should contain conspicuous acknowledgmentof where and by whom the paper s presented. Write Librarian, SPE, P.O. Box 833836, Richardson, TX 75083-3836, U.S.A. Telex, 163245 SPEUT.

Abstract

Total Ouality Management TOM) is applicable to all oiland gas companies, including majors, independents, andservice companies. Presented here are an overview ofTOM, a brief history of TO M in Japan and in our industry,a report on Japan s oil and gas industry plans andprogress, a discussion of the benefits of adopting thisnew management system, and a description of what isrequired to implement it. Examples of productivity andprofitability improvements, as well as additionalopportunities for improvement, are used to demonstratethe applicability of TOM to our industry. Calculation ofpotential profit improvements averaging three timescurrent profit levels are used to illustrate the potentialfinancial impact of this new management system to ourindustry.

What Is Total Quality Management?

Total Ouality Management TOM) is a managementsystem made up of four basic components. These are 1) leadership, 2) teamwork, 3) a scientific approach toproblem-solving, and 4) satisfying the needs ofcustomers who are both internal and external to theorganization. The system is as applicable to the oil andgas industry as it is to any other.

References at end of paper.

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TOM leadership provides the organization with direction,so that everyone knows where the organization is headedand how they can contribute. This type of leadershipsupports the experts, those who perform the work, idoing the work the way it should be done. TOM leadersremove barriers to working productively, and they do shonestly and fairly.

Almost all the work each of us does has an impact on thwork of someone else, and, likewise, the work of othersimpacts our work efforts. y working together in teams,we can determine the best way to meet each other sneeds and can get the work done the best way.

The TOM scientific approach to problem-solving includesconcepts that we, as engineers and geoscientists, are afamiliar with. These are 1) data-based decision-making, 2) the use of statistical tools, and 3) a structuredapproach to solving problems. Aspects of problemsolving that may be different from our conventionalapproach include 1) viewing our work as a system ofprocesses, 2) recognizing that recurring problems arsymptoms of processes needing improvement, and 3improving the process to fix the problems.

We all have customers--anyone who receives theproducts and services we produce. Our organizations ar


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TOM FOR THE OIL & GAS INDUSTRY SPE 2

Table

TOM within the Oil and Gas Industry

O&G E&P Companies Adopting TOM

TOM is influencing ou r ind ustry despite the factJapan is no t ye t a major competi tor within it. Mindependents, and service companies are adopting thisne w management system. The table below presents apartial listing of TOM companies. Many downstrecompanies were forced i nt o TOM by requirementtheir customers. Most of the exploration and produc(E&P) companies began integra ting this managemensystem into their business in t he late 1980s and1990s.

Service Co.s

Baker HugheBaroid

HalliburtonNalco Chem

SEDCOSmith Int'ISchlumberge

HP PetroDeminexLagovenLL&EMaraven SAMaxxusOryxPetroCanadaTotal

Other E&Pajors

AmocoChevronConocoExxon/EssoMobilPhillipsShellTexaco

W. Edwards Deming is often credited with thedevelopment of Total Ouali ty Management. ' This is themanagement philosophy that evolved from his work withthe Japanese. In the early 1950s, Dr. Deming beganworking with the Japanese to rebuild their industries andimprove the products they produced. Over the next fe wdecades, Japan's reputation went from being makers ofonly dime store junk to that of producers of hightechnology, high-quality goods. They have becomestrong competitors and have had a tremendous impact onthe automobile, steel, and shipping industries. With theirunderstanding of TOM as an effective managementsystem, the Japanese could be a fierce competitor in theoil and gas industry if they had the proper resources.

History of TOM

According to Kiyoshi Takahasi, an executive vicepresident of Showa Shell Sekiyu, all ou r [oil and gas]projects are babies. They consume the ir paren ts' t imeand energy and make no contr ibut ion. But 15 years agothe Japanese car indus try was a baby. Of course, it'sno t exactly parallel, bu t we have similar goals .2

working at the ir bes t when we are meeting the needs ofall our customers, both those internal to the organizationand those outside the organization.

Japan's Oil and Gas Industry

Japan's major obstacle is that it has almost no oil, naturalgas, or coal resources. Yet the Japanese are the largestconsumer of oil is what used to be known as the freewor ld. Japan impor ts all of its oil. In 1989, 10 camefrom fields owned or leased by Japanese companies.The Japanese Ministry of International Trade and Industry(MITI) wants this to be 30 by 1995. 2 To accomplishthis, the Japanese are entering into friendly jointventures, such as the Japex and Amoco venture in theGulf of Mexic0 and the Asamera (Indonesia) and Japexjoint venture in Sumatra. 4 They may acquire and operateadditional properties.

Japanese goals are becoming a reality. In March, 1989,Mo Yabe, an execut ive vice president of Japex, wasquoted as saying, It is our wish, ou r goal, to become amajor oil company, integrated and international. It willtake some years, bu t we plan to do it . 2 Three yearslater, in 1992, the Oil & Gas Journal reported that tw olarge Japanese companies, Nippon Mining and Kyodo OilCo., were merging to become an integrated Japanesecompany s trong enough to deal with oil producingcountries and foreign private companies.

Despite the fac t tha t Total Ouality Management is a wdocumented management science, very fe w oil ancompanies have published anything about the resultstheir efforts. Of those wh o have shared the results:

Shell has stated that i ts use of TOM techniquesbenefits 5-to-10 t imes their cost. I; Ho w manyprojects do we perform that yield 500-to-1,OOO%

Oryx eliminated over 1,200 wasteful repor ts wthey first adopted this system. 6

Through the use of TOM techniques, Mobil

reported saving 3 million on the purchase ofgenerators, increasing production by 4,000 B/D iarea, and cutting accounts payable invoice time bmore than 50 without additional staffrequirements. 7

Potential Benefits of TOM

Experts wh o have been involved in TOM implementatfo r many years state that companies wh o have

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SPE 26412 F A. KESSLER

adopted this ne w management philosophy are wastingbetween 10 and 50 of their ne t sales. 8 10 Theseexperts include Philip Crosby, author of Quality Is Freeand Quality without Tears; Bill Conway, the firstAmerican EO to w or k w it h Dr. Deming; and Keki Bhote,Senior Corporate Consultant on Quality and ProductivityImprovement fo r Motorola and author of World ClassQuality. If we could eliminate just 10 of the waste , theprofits of the 1992 Oil & Gas Journal 30 0 would be threetimes greater (see Appendix).

TOM Implementation

Improving profits does not require an increase in oil o rgas prices but only adoption of this managementphilosophy. This includes:

Eliminating waste Increasing value-added work Working effec tive ly in teams Improving work processes Satisfying customer needs Working close ly with suppliers Understanding variation Leading the organization in putting this ne w

management system into place Promoting education and training Defining and communicating the purpose of all levels

of the organization Planning and acting fo r the long te rm

Committing the time, effort, and resources required toadopt this ne w philosophy.

Eliminating Waste

Examples of eliminating waste within our organizationsinclude Oryx's elimination o f 1 ,2 00 wasteful reports andMobil's 50 + reduction of effort to process invoices.

Increasing Value-Added Work

We must increase value-added work, such as finding andrecovering reserves. We must also decrease non-value

added work. This means reducing or eliminating:

* Rework, such as side-tracking wells, replacing aleaking production tubing string, re-writing businesscorrespondence, and adjusting accounting bookings.

* Unnecessary work, such as generating reports that areunused, producing unneeded back-up fo r apresentation, and attending meetings where you gainand contribute nothing.

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No t working, such as wai ting on weather, orders, o rpeople.

The Oil & Gas Journal 's 1991 annual geophysical reportnoted that only 22 of geophysicist/geologist time isspent performing value-added work. 11 This is typical fo rmost jobs and leaves tremendous room fo r improvement.

Working in Teams

Improving the value-added work ratio requires tha t wework in teams. Examples of productive work teamsinclude:

Interdisciplinary projec t teams, such as the team ofChevron engineers and geoscientists wh o doubledproduction in a mature field. 12

Functional teams, such as the Oryx dri ll ing team thatreduced the costs of location clean-up and restorationby systematically eliminating the sources of drillingwastes. 13

Management teams, in which participants lead theTOM implementation and process improvement efforts,remove productivity barriers, and improve theirprocesses.

Improving Work Processes

We must understand work processes and improve them.We have found that at least 85 of an organization'sfailures are due to faulty processes. When Apacheimproved the production process in fields they acquired,they were able to increase production by 2,000 B/D. 14

When the process fo r removing junked wellheads inKuwait was improved through the use of a hydrocutter,the time required to remove them was cu t from 5-to-10days to 4 hours. IS

Our industry has a history of process improvements.TOM enhances process improvements by providing astructure and methodology fo r continuous improvement.

According to AI Baker, Halliburton Energy Servicespresident, Because of the Ouality Improvement Process[Ha ll ibu rton 's name fo r TQM], that continuousimprovement is much more formalized now 16

Satisfying Customer Needs

To fully realize the benefits of TOM, w e m us t satisfy theneeds of all our customers. This requires determiningwh o they are and what they need and measuring to


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SPE 26412 F A. KESSLER 5

experience. More productive people and more productiveorganizations means more profit and--equally important-will maintain our competitive advantage against growingglobal competition.

References

1. Walton, M.: The Deming Management Method,Perigee Books, Ne w York (1986).

2. Rapoport, C.: N ow Japan Is Plunging into Oil,Fortune (Mar. 1989) 124-126.

3. Drilling Production Highlight, Offshore (Dec.1 99 0) 1 5.

4. Japan Petroleum Explorat ion Co. Ltd., Oil GasJournal (Sept. 23 1991) 24.

5. World Class Quality: The Challenge of the 19905,Fortune (supplement).

6. Mack, T.: Energizing a Bureaucracy, Forbes (Sept.1990) 76-80.

7. Engelhart, S.: Paper on TQM at Mobil presented atthe 1991 SPE Delta Section Meeting, Ne w Orleans,September 25 .

8. Crosby, P B.: Quality without Tears: The Art ofHassle-Free Management, Plume Books, Ne w York 1 984) 85-86.

9. Bhote, K R.: World Class Quality: Design ofExperiment Made Easier. Most Cost Effective Than American Management Association, New York(1988) 6.

10. Conway, W. E.: The Right Way to Manage,Quality Progress (Jan. 1988) 14-15.

11. Lawyer, L C.: Trends: Providing Value-AddedTechnology Oil Gas Journal (Nov. 4 1 99 1) 5 052.

12. Greene, J. F.: Work Teams Help IndependentsMake Best Use of Technology, Oil Gas Journal(Oct. 19 1992) 49-53.

13. Hall, C R., and Spell, R A. : Waste MinimizationProgram Can Reduce Dril ling Costs , Oil GasJournal (Jul. 1 1991) 43-46.

14. Teamwork, Ne w Technology, and MatureReservoirs, Journal of Petroleum Technology (Jan.1992) 38-40.

15. Kuwaiti Well Fire Battle Expected to End Soon, Oil Gas Journal (Oct. 21 1991) 34-35.

16. Erickson, R.: Total Quality Management inExploration and Production, Petroleum Management(Feb. 1991) 8-15.

17. Blueprints fo r Service Quality: The Federal ExpressApproach, American Management Association, NewYork (1991) 55.

18. Wright, T. R.: Operator/ Supplier Alliances MayBecome the Norm, World Oil (Apr. 1993) 25.

19. General Accounting Office: Management Practices:U.S. Companies Improve Performance throughQuali ty Effor ts G Ol NSIAD-90-190), Author,Washington, DC (1991) 4.

20. Kessler, F A. : Increase Profits without CuttingStaff, Oil & Gas J.ournal (in press).

21 . Beck, R J. , and Sanders, V.: Financial, OperatingResults Sag fo r OGJ300 Companies, Oil GasJournal (Sept. 28 1992) 49-79.

Appendix

Economic Incentive to Improve the Way We Work andManage Our Business

If the oil and gas indust ry could eliminate wastes andincrease profits by only 10 % of net revenues, profitswould triple. Using the most recent OGJ 30 0 financialdata available (1991 21, this would be the result:

OGJ300 Total Revenue = 50 7 billion

OGJ300 Net Income = 16.6 billion

10 % of Total Revenue = 33.5 billion after 34 %federal income tas ( 50.7 billion before federal incometax)

Improved Net Income would be 50.1 billion, or 302%of the original.

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