This document discusses strategies for oil and gas companies in Indonesia to adopt in response to low oil prices being the new normal. It recommends designing operations for value by focusing on reducing lifting costs through lean processes, standardization, and challenging current practices. The document also suggests embracing innovative collaboration between companies, suppliers, and regulators using industrial internet and sharing economy models. This new paradigm of collaborative lean operations is presented as a strategy for companies to survive and thrive in the long term with low oil prices.

1. Are We Ready For
The New Normal?
By Gede Manggala
Independent Consultant
Finding The Best Strategy
during Low Oil Price Regime
for Oil & Gas Companies in Indonesia

2. Jun’14 ($104)
The Rapid Decline: From $104/Barrel
https://www.dailyfx.com/crude-oil The use of WTI chart is only for making a statement. Indonesia is using ICP for price reference

3. Jun’14 ($104)
Mar’16 ($38)
Going To $38/Barrel, As Of March 2016

4. Jun’14 Mar’16
30
38
Lifting Cost ($/bbl)Oil Price ($/bbl)
30
104
Oil Price ($/bbl) Lifting Cost ($/bbl)
High Profit Margin Is Quickly Gone Away
The range of lifting cost for oil and gas companies in Indonesia is estimated between $20-40/bbl, so I use the simple average $30/bbl
} High
Margin
}
Low
Margin

5. Current Common Strategy?
•Review big capital projects: hold, reschedule or “kill”
•Reduction of operating expense (including review of structure
organisation, headcount, facilities )
•Renegotiation with suppliers and contractors
…And Waiting Oil Price to Increase?

6. NO!We cannotjustwaitfortheincreasing oil price
Oil price
can’tbecontrolled
byIndonesian
government
norcompaniesToomany factors;
Allareexternals
Ourfocusshouldbeon the otherpartof theequation…

7. Jun’14 Mar’16
30
104
Oil Price ($/bbl) Lifting Cost ($/bbl)
…We Should Focus On Reducing The Lifting Cost
30
38
Lifting Cost ($/bbl)Oil Price ($/bbl)

8. Remember…
Majority of existing oil & gas fields in Indonesia
is “brown field”:
old age,
declining production,
increasing operation/maintenance cost

9. While the new fields,
Most probably located in
more remote spots or deep water
(which might not be economics in the current low oil price regime)

10. A new strategy and operating model
to ensure oil and gas industry in Indonesia
survive and thrive in the future
Anewway of thinkingisneeded.

11. Design
for value
Lean
Operating Model
Whatstrategy?
All require higher TRUST among all stakeholders:
government, O&G companies, suppliers, contractors
Innovative
Collaboration

12. Design and plan the business using the low oil price
as the new normal; for long term
Design for value

13. Push The Current Cost Reduction Initiative Further
30
38
Lifting Cost ($/bbl)Oil Price ($/bbl)
} Low Profit Margin
“Fit for purpose”
design/engineering
equipment/technology
facilities
Redesign the business:

14. But There Are Room For Improvements
By Challenging The Current Practices
Technical: e.g. Does the current design fit the low oil price?
Standardisation: e.g. Can we reduce the variation in design, equipment,
process, technology?
Organisation: e.g. Do we need that many layers and approval level?
Safety Is Still No 1 Priority

15. Key Focus: Procurement, Supply Chain Management and
Core Processes (e.g. POP or Well Down Response process)
Lean Operating Model

16. DISCOVERING “FACTORY” IN OIL & GAS COMPANIES
With the low profit margin, we need to run critical and repetitive processes like a factory.
The good news?
The Information Technology can enable this operating model.
Many oil & gas companies have been embracing Lean key principles
to make people, process, and products FLOW seamlessly.

17. Currently, Many (Repetitive) Process Are Disintegrated
Process is planned & managed in departmental centric organisation that Is based
on specialisation, such as Sub Surface, Surface, Drilling, Maintenance, Production
Company
Dept
A
Dept
B
Dept
C

18. To Make A Seamless Process, A New Operating Model Is Needed
Manage the core and repetitive processes through the real value stream. The advance
of IT such as existing collaboration tools ENABLE end-to-end process seamlessly
Company
Dept
A
Dept
B
Dept
C

19. Example#1: Lean Contract Development Process
Contract process is highly repetitive and involving cross functional team.
This kind of process could be designed to be faster and less rework process
through a a single dashboard view and tracking.
Company
Engineering SCM Production
This graph is an oversimplified illustration

20. Drilling
Company
Surface
Facilities
Production
Example#2: Lean Put On Production (P O P) Process
POP is another example of process that is repetitive and involving cross functional team.
We can design POP faster with less rework by integrating the end-to-end process and
make them transparent through a a single dashboard scheduling.
This graph is an oversimplified illustration

21. Embracing the industrial internet, holistic-system thinking
and the sharing economy as the new paradigm
Innovative Collaboration

22. +
OIL & GAS COMPANIES SHOULD MOVE
TOWARDS INDUSTRIAL INTERNET

23. Collaboration Within A Company: Machines Connectivity + Big Data
Connecting critical machines equipments from upstream to downstream could improve efficiency, reliability and
response time of the entire value stream.
For the exploration and development segment alone it is estimated could reduce 1% of capital expenditure, an
estimated $90 Billion over 15 years lifetime.*
oil
Source: Saving estimation number from GE Software

24. Collaboration Among Companies-Suppliers-Regulators
Regulations, Policies, and Business Process Procedure should be revisited with a new
mindset: system thinking. It requires TRUST to collaborate among the stakeholders
Company
Suppliers/
Contractors
Customers
Regulators
Stakeholders

25. Adopting the platform/sharing economy
(like eBay, Tokopedia or even Uber, Gojek)
to improve efficiency of logistics and
inventories across ALL oil & gas
companies in Indonesia?
Fund innovators/startups to work on this
(old) idea with better technology and
system/process/procedure?
FutureCollaboration?

26. Design
for value
Lean
Operating Model
Strategytothenew normal
A new paradigm is needed
Innovative
Collaboration

27. By Gede Manggala
This is a personal observation for triggering discussions among stakeholders in Indonesia
Solution Leader at Senior Associate at
www.ipqi.org www.variancereduction.com www.gedemanggala.com
Independent Consultant

28. References & Credits (In Random Order)
• Lubiantara, Benny. Indonesian Oil and Gas Industry:The Challenges Ahead. IATMI Luncheon Talk, 13 Jan 2016
• Graham, Pat, et al. State of the Oil & Gas Industry: Never let a good crisis go to waste. McKinsey & company, Dec 2014.
• Simadiputra,William. Indonesia Industry Focus: Oil & Gas. DBS Group Research, 15 Dec 2015.
• The Big Picture. Simplified. Data sheet from GE Digital. Accessed from GE.com/digital
• Annunziata, Marco. Oil Prices got you down? GE, 23 Mar 2016. Accessed from https://www.ge.com/digital/blog/oil-prices-got-you-down
• Hartmann, Berhnard and Saji Sam. What Low Oil Price Really Mean. HBR, 28 Mar 2016. Accessed from https://hbr.org/2016/03/what-
low-oil-prices-really-mean?utm_campaign=HBR&utm_source=facebook&utm_medium=social
• Thanks to all my colleagues for providing insights through discussions using multiple platforms (WhatsApp group, Facebook,
Linkedin): Raymond Petrus, Lucky Hadinata, Vendy Hendrawan, Emir Syahrir, Isham Sudrajat, Agung, Mukti, Muchlis
Ridho, Freddy Simanjuntak, Dwi Marwandono and many others who add their thoughts and experiences during the discussion.
• THANK YOU, ALL!