Improved operations through manpower management in the oil sector

Abstract

The need for improved operations was never higher than today in the oil industry. The world's demand for energy, especially for oil and natural gas, is rising rapidly and for many years to come. In order to meet this rising demand and to keep price volatility to a minimum; oil companies worldwide are looking for ways to improve operations in order to achieve increased production with decreased costs. This paper describes data from Southern Area Oil Operations (SAOO); an organization within the Saudi Arabian Oil Company (ARAMCO), to show how manpower management can be used to achieve improved operations. For the years 1983 to 2004, manpower management in SAOO focused on addressing both the quantity and quality dimensions of manpower. First, the level of manpower gradually declined by 35% for both the Saudi Arab and Expatriate categories for the entire period. Expatriate labor is defined as labor in three main categories: US/Canadian, UK, and Asians and Other Arabs. Second, the level of training slowly increased to align manpower to better fit organizational functions and work responsibilities. Not only a number of new training and development programs were initiated but also the percentage of employees involved in such programs doubled from 4.5% in 1990 to 8.9% in 2004. Third, technology based initiatives such as the use of computers, Internet, and intranet were heavily introduced to employees in the last 10 yrs. Due to these three changes reduced costs and increased manpower efficiency were achieved. In the period 1983 to 2004 the total labor bill declined by 35% and Net Direct Expenditures NDE by 24% after adjusting for inflation and using 2004 dollars. Net Direct Expenditure NDE is defined by SAOO to be the summation of labor cost, material cost, invoices cost, and net service income. In addition two signs of improved efficiency of manpower were apparent in the same period. First, SAOO manpower, despite its smaller size, could actually sustain an increased workload without relying more on contractor services. There was more than a 100% increase in the number of wells requiring operational support within SAOO's territory increasing the index measuring the number of wells per employee from 0.37 in 1983 to 1.17 in 2004. The same period witnessed more than 200% increase in the number of service jobs completed within SAOO area increasing the index measuring the number of service jobs completed per employee from 4.14 completed jobs in 1983 to 14.33 completed jobs in 2004. Second, SAOO overall oil production increased by more than 100% for the period 1983 to 2004 despite the reduction in manpower. The index measuring the output–input ratio or average product of manpower steadily increased from 0.58 in 1983 to 1.85 MBCD (Thousand Barrells per Calendar Day) per employee in 2004. The combined effect of reduced costs and increased manpower efficiency resulted in improved operations in the period 1983 to 2004. Hence, the cost in cents per barrel produced dropped sharply by 64% (when cost was measured as NDE) and 39% (when only the cost of manpower is used).