Bakken Facilites Cost Reduction Project
For shale play development, reduction in initial cost expenditure increases the NPV of un-drilled wells and the overall NPV for an asset. Cost reduction typically also increases the rate of development due to increased quantities of economic wells, and drives increases in shareholder returns and share values.
After 3 years as project lead over the facility development (engineering, design, construction), Tyler was contracted through a third party firm as Project Manager to lead an effort to provide a breakthrough opportunity for reduction in facility development costs.
Management objectives for the cost reduction effort specified a goal of 50% facility cost reduction within a year and a half of project commencement. This stretch goal came after initial plans for a 30% cost reduction in less than 2 years.
Tyler was contracted as Project Manager for the project. He requested and assembled a team of key players from all stakeholders, with a goal to design a new facility starting with fundamental process requirements. Using standard project phases preferred by Tyler (Development, Setup, Definition, Execution), but with a compressed schedule to expedite delivery, a new production scheme, equipment needs, and final process design were developed in 5 months. Stakeholder reviews were held throughout the project phases, ensuring delivery of a quality product. Prefabrication, modularization, and lean construction planning methodologies were used to ensure delivery consistent with forecasted results. Focus areas included the base project management system/methodology, process constraints/requirements, quality management, utilization of standards effectively, and implementation of lean manufacturing methods within a construction program.
Initial targets were for a 30% reduction in facility cost. Stretch goals were created for a 50% reduction. Current forecasted costs are for cost reductions of 30%-50% for the Facilities capital budget, playing a major part in the company goals as noted in the 10/24/17 press release:
"Starting in 2020, cash unit costs are expected to be reduced by approximately 30 percent from 2017 levels. This reduction results from investment in higher return growth assets, the sale of higher cost assets and a cost reduction program that is expected to deliver annual cost savings of more than $150 million starting in 2019."
A large part (majority) of these savings will come from the results of the cost reduction project in the Bakken Facilities group. Further action items developed for later analysis throughout the project for the project team and the facilities development group are expected to reduce costs by 5%-10% more over the next couple years.
The stretch goal was nearly achieved, and the project team developed a successful product.