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Leveraging Lean to Get the Oil Out

10/7/2012

Lean Management Case Study Series

Aera Energy LLC at a Glance

  • Headquarter: Bakersfield, CA

  • Responsible for about 25% of California's oil and gas production

  • Produces 150,000 barrels of oil and 40 million cubic feet of natural gas daily, roughly one fourth of the daily production of Alaska's North Slope

  • Formed in June 1997

  • Jointly owned by affiliates of Shell and ExxonMobil; operated as a stand-alone company

     

By Doug Bartholomew

Lean has enabled American workers to be more productive, increased America's competitiveness in world markets, and helped keep jobs in the U.S. Now -- get ready for this-- lean is helping America reduce its dependence on foreign oil.

Aera Energy LLC, an oil company in Bakersfield, Calif., is using lean principles to improve several key processes, including drilling new wells and repairing existing ones. In fact, the company depends on its enterprise-wide lean effort to help maximize the number of barrels of crude pumped each day at its sprawling Belridge oil field a few miles northeast of Bakersfield.

Aera pumps about 150,000 barrels of oil daily—roughly one fourth of the daily production of Alaska's North Slope. All the crude produced here is sent by pipeline to refineries in the San Francisco Bay Area or Los Angeles. While not exactly the size of a Chevron, Aera's revenues were more than $5.6 billion in 2011.

Created in 1997 as a joint venture of oil giants Exxon and Shell, Aera's largest asset is the Belridge field, which has been operating since 1911. The company today manages the 66-square mile oilfield with 300 employees and 2,500 contractor workers on site. The contractors handle most of the actual drilling and well maintenance, while Aera employees manage this site as well as other Aera operations in Southern California.

"Because we are a commodity business, the only thing we control is our cost structure," says Andy Anderson, vice president of operations at Belridge. Adds Belridge Operations Manager Corey Wolf, "We take the view that we need to keep constantly making improvements."

The company employs lean techniques to improve numerous processes, the most prominent being the drilling of new wells and the meticulous management of operating wells to ensure maximum uptime and output. Belridge has 7,000 producing wells, with more than 1,000 new wells being drilled each year and another 1,200 being retired annually. With so much drilling and well maintenance work going on all the time, it's no wonder Aera management is eager to reap the benefits enabled by an ongoing commitment to process improvement.

Process-Based Organization

"Many companies organize by function or geography," says Anderson. "We decided to organize by process, which allows us to develop very deep expertise around those processes."

In the eyes of President and CEO Guardie Banister Jr., that process orientation has proven essential to Aera's success. "Our people have learned how to map out the steps in a process and improve them," he says. "We've developed a culture of people who are committed to continuous improvement, and our folks get excited about getting a little bit better every day."

Although Aera is not a manufacturing company, Bannister points out that the company has a "manufacturing mindset." Aera workers perform thousands of repetitive tasks each day. "There was a time when people in the oil industry believed these tasks weren't repetitive, but we've proven that they are. There is no question that this is an innovative application of lean in our business."

Over the years, as Aera has labored to improve various processes, the company's lean leaders have encountered resistance from skeptical employees and contractors. "There's a lot of pushback you get," Wolf says. "You hear things like, 'we don't make cars or parts.'"

"Our people have learned how to map out the steps in a process and improve them," – Aera President and CEO Guardie Banister Jr.

But through value-stream mapping and advance after advance in the way the work gets done, both employees and contractors have come around to adopt lean methods. "What's been easiest to translate from the manufacturing world to our operations are such things as single-piece flow, process improvements through kaizen, and simply getting out a lot of waste," Wolf adds.

Some lean ideas and practices, though, weren't so easy to adapt to the energy environment. "We had to work really hard to make some of the lean concepts work," says Greg Williams, Continuous Improvement Program director.

Well Maintenance and Repair

Oil well maintenance and repair is one of Aera's most important processes. The more wells operating each day, the more money the company makes. With more than 200 wells repaired each month, the company has focused a great deal of time and attention on refining the maintenance process, and getting very good at the repetitive steps that comprise the well repair processes.

Because something as simple as an electrical malfunction or outage in the field can shut down one or more wells, managers take stock every morning of exactly what work needs to be done, and at the end of each day of what work was completed. Accordingly, suppliers (contractors) receive a daily pitch sheet of the work they are expected to perform. Aera staff monitor their efforts during the day to make sure the work is progressing on schedule.

"Our well service teams used to be rewarded for doing a 2 a.m. repair on a pump. Now they are rewarded for doing the PM on a pump."  - Stanley Gomes, process manager, Aera Academy

The most frequent tasks performed have a specified takt time. When a well fails, managers are notified via a signal from an electronic controller on site at each well that reports its condition. "Every time a well fails, we do a root cause failure analysis, and that information goes into our database on wells," Anderson explains.

For example, the well repair technicians know exactly which tools, equipment, and materials are needed to fix the vast majority of well outages. Each well repair rig is readied and outfitted in advance, so that repair crews don't have to hunt around for materials or tools to load up on their trucks—instead they are ready to go as soon as they receive notification of which well to work on. This move to a single-piece flow for drilling repair enabled Aera's repair teams to complete the average subsurface well repair in hours versus what once took an average of days.

Preventive maintenance also is a hot button at Aera. Early in its history, the company suffered from a host of inefficiencies in operations. For instance, there was a huge backlog of down equipment, especially oil well pumps that were broken. That translated directly to less oil being pumped out of the ground each day.

Company engineers -- problem solvers by nature -- found that pump vibrations increased as the pump wore out and neared failure. By attaching a vibration measuring device to each well pump, managers in Aera's Crude Lifting and Measurement (CLAM) group, which is responsible for pumping the oil from the ground, now are able to detect when a pump is vibrating out of spec and likely to fail, so that preventive maintenance can be done. "Our well service teams used to be rewarded for doing a 2 a.m. repair on a pump," says Stanley Gomes, process manager. "Now they are rewarded for doing the PM on a pump."

Drilling New Wells

In the past, Aera drilled new wells in a batch, with some 30 or 40 wells set to be drilled together. But the company found that by moving to a single-piece flow with well drilling, it could drill more wells per day. Standard operating procedures and balanced work went a long way toward reducing the time it takes to drill each well.

Aera has gotten so adept at drilling new wells that oil industry people from all over the world come to Belridge to observe the company's process. "We are manufacturing wells," says Ted Witt, manager of operations for the well development group, which spends $300 million annually to drill new wells.

The process includes the early stage of design, in which Witt and his team select the location and secure the budget for the drilling activity. Next comes pre-drilling, in which the location is carefully staked out, especially with consideration for other producing wells nearby. Then there is surface construction and well completion, and finally the installation of subsurface equipment such as an electric submersible pump to operate the well. All this is followed by final construction of any necessary controllers or other electrical devices needed to operate and monitor the well. The last step is transfer of custody to the CLAM group, which will operate the new well.

Witt points out that although Aera moved away from large-batch, volume drilling of 30 or so wells at a time, which was both unwieldy and inefficient, even today the company may drill up to 10 wells or so at a time in the same area. "In 2012 we expect to drill and bring in 1,200 wells," he says. "As oil prices have gone up, at the same time Inflation has been dramatic, and the challenge is how to do all this work and not have it cost three times as much. "

One way to accomplish this has been to ensure that all suppliers—in this case the oil drilling contractors—have fully bought into the continuous improvement mantra. "In order to work for Aera, you have to have a very strong continuous improvement mindset," Witt says.

Another is through the adoption of a host of lean principles. For example, the well development group has shifted from a large batch process to small batch sizes. The group has implemented:

  • waste elimination
  • small batch sizes
  • standard processes
  • level loading of work
  • visual systems
  • process mapping

Aera's successive kaizens over the last decade have enabled the company to keep drilling costs steady over that time, despite inflation. "We've managed to keep our $100 per foot cost of developing new wells flat for 10 years, absorbing the continuing cost of inflation over that time," says Stanley Gomes, process manager for the Aera Academy, the company's in-house training organization. "All those little kaizens add up."

As you might imagine, drilling oil wells—even when you know there is oil beneath the ground—isn't cheap. "We may spend several million dollars to drill 10 wells," says Witt. "In 2012, we expect to drill and bring in 1,200 wells."

"We've managed to keep our $100 per foot cost of developing new wells flat for 10 years, absorbing the continuing cost of inflation over that time. All those little kaizens add up." - Stanley Gomes, process manager, Aera Academy

But even as oil prices rose, inflation also has kept pace. "The challenge for us," Witt says, "has been how to handle all this work and not have it cost three times as much." Keeping the cost per foot of drilling steady at $100 for the past decade, he says, has been accomplished "by going from a functional organization to a lean organization."

In just 2011 alone, Witt reports, the kaizen focus in the Development group yielded $5 million in savings, including $3.7 million in process improvement savings and $1.1 million in reuse of materials.

A good example of an area where the Development group's kaizen efforts had a big impact on the business was in reducing lost production due to well offsets. By meticulously tracking the exact location of each well and its related components and controls, Aera's Development team was able to dramatically reduce well down time resulting from well offsets—i.e., the need to adjust other producing wells in very close proximity to allow for drilling of the new well.

The company cut the number of offsets per new well drilled from five down to between one and two. This was accomplished by better understanding the layouts of each existing well, typically on a plot of ground measuring 100 by 200 feet. The company once lost 500 barrels of oil per day due to offsets of producing wells; today thatfigure is down to 120 barrels per day.

A producing well offset may only cost the company two barrels of oil per day for a low-producing well, but conversely, for a higher producer, it could mean the loss of 18 barrels per day.

Problem-Solving Culture

To build a problem-solving culture, Aera set about fielding an army of employee and contractor problem-solvers. Says Wolf, "We ask people, 'Do you have a continuous improvement idea?' We allow any idea, no matter how simple."

Another way to foster a problem-solving mentality among workers was to adopt leader standard work. "To be successful at lean, you need to have engaged leaders," says Anderson. Lean leaders coached other leaders in problem solving, with each leader required to do a set number of task validations per year.

CLAM, Aera's oil-pumping group, has been a big user of lean ideas to boost yield. For instance, team leader Jeff Joseph conducts a daily kaizen early each morning with team members who report on problems occurring in the field and share ideas on how to fix them. Teams are organized by process, such as Crude Lifting and Measurement; Development; Injection; and Treating. "That way, you know who your customers and suppliers are in your process," Wolf explains.

Managers are required to spend time performing leader standard work, coaching employees on problem-solving techniques and encouraging employees to contribute their ideas for continuous improvement. During the first six months of 2012, Aera managers at Belridge had held 1,062 problem-solving discussions with employees. "If we don't do this, we find leaders spending too much time at their desktop and not enough with employees."

As part of its efforts to reduce waste in operations, Aera operates its own recycling facility. When they wear out, well pumping units for both oil producing wells and injection wells are remanufactured on site. The latter type is used to pump water into the ground after the oil has been removed. The entire reconditioned "skids," as they are called, contain pumps, meters, and control valves and are ready to be moved to a new well site and plugged in.

Building and Sustaining Lean

Aera management recognizes the importance -- and the challenge-- of sustaining lean efforts over the long haul. Many companies have seen their efforts falter after making big strides early on. One way Aera helps ensure sustainability is through quarterly meetings the CEO holds with the various heads of different key processes. A key topic discussed at these sessions is an assessment of how the company is faring in:

  • number of kaizens completed,
  • dollar value of savings achieved through lean,
  • number of six sigma projects completed, and
  • number of lean leaders holding staff jobs.

Another requirement designed to ensure sustainability of lean is that all direct reports to the CEO must do at least two kaizens per year.

Aera faces a problem common to many companies today across all industries -- more than half of Aera employees are over age 50, and most of the remainder of the staff have less than two years with the company. "I think a lot of companies are facing the same dilemma," Gomes says. "We are anxious about all the knowledge that will be leaving Aera in the next few years as older employees retire.

"We want to maintain our culture and also ensure the transfer of knowledge to new folks," Gomes explains. "The Academy will teach people the Aera way."


Aera Energy: Some Key Performance Improvement Measures

Activity                           Before Kaizens           After Kaizens

Average subsurface well repair                                1-2 days                  under 24 hrs.

Drilling cost per foot over 10 years                          $100                            $100       

Offsets needed per new well drilled                              5                               1-2

Daily lost production due to offsets                       500 barrels              120 barrels


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