DESPITE dramatic falls in the oil price, industry analyst IBISWorld predicts that coal seam gas extraction will be Australia’s biggest growth industry this year with a dramatic 148 per cent increase in revenues.
But it would be a mistake to take these statistics at face value. While a good year for Australian CSG with increasing production volumes, the fall in the oil price to which export contracts are linked puts the industry under enormous pressure to control costs, just like the rest of the energy industry.
Companies that have grown up in an environment of rising energy prices must now operate on low margins.
That means examining their business assumptions and investing for long-term sustainability.
The good news is that there is plenty of waste and mismanagement to address. The bad news is that changes are long overdue and there will undoubtedly be some cultural resistance.
For a start, there is significant room for efficiency improvements in ongoing projects with better information systems and coordination of activities.
Companies could also improve efficiencies in asset maintenance and reign in their compliance costs.
Such measures haven’t been a huge priority for the industry – at least not until recently.
Companies that are prepared to invest in the value chain – finding ways to work smarter and more cost efficiently – will be able to improve margins.
Others, many of them service companies that subcontract to the major producers, may not survive to see energy prices bounce back, however long that turns out to be.
Opportunity to take a fresh look
While these may be challenging times for the industry, it may also provide the impetus and the opportunity to take a fresh look at how things are done.
Maybe it is during a period of consolidation – as opposed to the frenetic growth of the past few years – that senior management and other key people can finally find the time to put into action some ideas they may have been keeping on the shelf.
One of the first things that should be looked at are the business systems that are used.
Information technology systems that provide real-time visibility into projects, maintenance and compliance are key to streamlining operations across the value chain.
In this respect, the CSG industry – even more so than other energy producers – is coming off a very low base with minimal investments in technology.
Part of the issue is structural – the industry typically operates in a “siloed” fashion with different business units and contracting firms operating independently.
As a result, the business systems used are not integrated and do not support a work breakdown structure that is integrated with other functional areas.
Companies are operating with many non-integrated systems and lots of Excel spreadsheets and there is no expectation that things should be different.
Another part of the issue is cultural. As a supplier that specialises in providing visibility and control over finance and operations for the oil and gas industry globally, one of IFS’s key value adds is integrating information across all aspects of the business.
When talking to CSG companies, however, we’re told “that is not how we run things”.
Breaking down information silos
That’s probably not too surprising. People used to working in departmental or contractor silos are often reluctant to change as they may fear that if their data becomes visible to others they can be held accountable.
The different functional areas all want to run their own systems because that is what they trust and that is what they can control.
The CSG industry and other less mature energy sectors may not have a great track record when it comes to information technology, but 2015 is the year that will have to start changing.
Those changes start with technology improvements to break down information silos that make it difficult to operate efficiently, such as:
Real-time visibility – It’s been said before but it bears repeating. You can’t improve what you can’t measure. Capturing and consolidating financial and operational information into a single system in real time has to be the first priority.
Once you have the numbers in front of you, it’s not hard to identify how processes could be made more efficient. Of course, if the information is not real-time, then what you are looking at has already happened, so it may be too late to do anything about it. That’s why capturing information at the source and communicating it as things happen is so important.
Instant communications – Stories about workers hanging around doing nothing while they wait for landholders to turn up are common in the CSG industry.
While hard to imagine why in a world of instant communications, data networks in rural and remote locations may not be available or as reliable as they are in urban areas.
Some investments may be needed to ensure that workers remain in constant communication. It’s not difficult to tap into a back-up satellite link, for example, and distribute it to mobile devices, something mining companies have been doing for years.
Supplier portals – Just because different companies do the work doesn’t mean they can’t share information and cooperate.
Producers can implement supplier portals so that services companies can see all the information they need to efficiently do the job and coordinate with other suppliers. Suppliers can also do job reporting on the spot via mobile apps so that the producer has real-time visibility of activities.
Mobile apps – Just because many workers don’t have computer experience doesn’t mean they can’t benefit from information technology.
With modern enterprise software, it’s now a simple matter to access information and report back through mobile apps running on a phone, tablet or phablet. Getting people to use them may be more of a challenge.
Companies may need to engage closely with their workforces to make apps consistent and easy to use – giving them the right information for each job, for example – to make sure that new systems are successfully adopted.
Executive dashboards – While producers and service suppliers are aware of inefficiencies in their operations, many would currently struggle to quantify them or pinpoint exactly when they are happening.
Establishing simple metrics and alerts around performance, cost and compliance, and monitoring them in real-time via graphical dashboards that responsible managers can see is a great way to get started.
Monitor compliance – This is a key area where information systems can contribute to the long-term sustainability of the CSG industry in particular. Creating a free flow of information between concerned parties like landholders and government is a valuable tool for establishing and maintaining trust.
That in turn lessens the likelihood that more restrictive or onerous compliance requirements will be imposed. Enterprise information systems can also automate the reporting process and manage communications with different groups to reduce compliance costs.
Despite the industry’s strong momentum, 2015 will still be a very challenging year for coal seam gas and the rest of the energy sector but also a great opportunity for companies that are willing to invest in their own and the industry’s future.
Energy prices won’t stay low for ever but any efficiency and sustainability improvements that are made now will have longstanding benefits.