M R O : M A I N T E N A N C E A N D U P K E E P : : D E C E M B E R 2 0 14
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LOW-HANGING FRUIT
Shell Canada looks to take a large chunk out of MRO costs through more efficient materials management
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FACILITIES POSSIBILITIES
How better operations planning could mitigate the high cost of labour in the oilsands
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M R O : M AT E R I A L S M A N A G E M E N T
LOW-HANGING
FRUIT
Shell Canada looks to take a large chunk out of MRO costs through more efficient materials management
PHOTO: JOEY PODLUBNY
By Deborah Jaremko
K
erry Margetts is fairly new to the oilsands, but he is no
bit in the last year; we’re focused much more on making sure we can be
stranger to industrial maintenance, repair and operations
cost competitive,” says Margetts, Shell’s general manager of contracts
(MRO). And after years spent managing MRO in the com-
and procurement, Canada heavy oil and onshore gas.
pany’s downstream business, Margetts is transferring
“The downstream, including refining and chemical plants, for many years has been under a lot of cost pressures. I come from a background [that is] extremely focused on cost and reliability and delivering production.” Margetts says that in taking on his new role in the oilsands business, he saw a tremendous opportunity for cost savings in better materials management. The approach covers three main areas: inventory
lessons in hard-learned low costing to Shell Canada’s
bitumen production and upgrading facilities. He calls it low-hanging fruit, but the savings are expected to be in the millions. “Previously in the oilsands business our focus has been on safety and reliability of production but less so on cost. That has changed quite a
DECEMBER 2014 | OILSANDSREVIEW.COM
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I had an experience in my previous role where a single gasket that was probably worth about $1,000 held up a shutdown for six hours. Those things stay very vivid in your memory. — Kerry Margetts, general manager of contracts and procurement, Canada heavy oil and onshore gas, Shell Canada
accuracy, technology and processes—particularly, the implementation of kitting.
INVENTORY ACCURACY Shell’s oilsands operations do not have a stellar history of inventory accuracy, or knowing what parts, equipment and tools are available or where they are, Margetts admits. One out of five times a maintenance worker comes to the warehouse looking for a part, he says that part will not be there. This quickly leads to lost productivity. “The first thing that we’re focusing on is really building and improving that inventory accuracy to get it up into the 94 and 95 per cent. Productivity will improve significantly.”
TECHNOLOGY: THE REWARDS OF RFID At Shell’s Albian Sands oilsands mining operation, the company has deployed radio frequency identification (RFID) tagging to keep better tabs on its equipment, and Margetts says it is seeing meaningful results. Specifically, RFID technology is being applied to tracking of the pipe spools that are used to replace worn tailings lines—there are about 1,500 of these pipe spools on site at any given time. “Two years ago when I started here there was a very poor tracking system of where these pipe spools actually were set,” Margetts says, adding that the spools were in various laydown yards at the site. The first step, he says, was to get all of the pipe spools into one location and get an accurate inventory. Next was how to deal with snow.
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M R O : M AT E R I A L S M A N A G E M E N T
“When it would snow, we couldn’t find them. Imagine [an area] the size of a football field filled with these pipe spools, and you are looking for one particular spool and you have to look at painted numbers on the side of the spools,” he explains. “We attached RFID tags, which allows you then to go in with a little handheld GPS-type tool walking through the field and within minutes you can walk right up to that pipe spool.” He says the RFID tags have cut the time down from up to two days to searching for pipe spools down to 30 minutes.
or so before the job is scheduled the warehouse is sent the full list of parts, some of which may have to be ordered. “Once we pull all that material together we actually put it in big plastic bins on skids with every piece of material ready, we send a note back to planning saying that it is ready go and then planning schedules the work. [When it is time] we pick it all up and deliver it out to the location where the work is going to happen.” Margetts says that using the kitting approach, within minutes a job can begin.
KITTING
THE IMPORTANCE OF SMALL THINGS
Margetts says that Shell is particularly proud of the “kitting” system that has been implemented at the Scotford Upgrader. Like the efforts toward inventory accuracy and technology application, it is all about making sure MRO operators have the right tools at the right time. “Our very skilled maintenance people that should be applying their skills to repairing a piece of equipment were spending a lot of time wandering around a warehouse looking for parts,” Margetts says. Now, after a work order is put in for a particular job, the planning department identifies all of the parts that are required. A week
Margetts says that he is driven to improve MRO processes because he has seen first-hand how big the problems can become, and how easily some can be fixed. “Spending most of my career on the operations side and on the receiving end of seeing these things costing us a lot of money, I have a passion around just trying to fix these things for the business,” he says. “I had an experience in my previous role where a single gasket that was probably worth about $1,000 held up a shutdown for six hours. Those things stay very vivid in your memory.”
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DECEMBER 2014 | OILSANDSREVIEW.COM
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M R O : C O S T C O N TA I N M E N T
Alberta’s skilled MRO workforce
High-priced maintenance
unds
naro ta tur
lber
A Other
unds
naro ds tur
Oilsan It is estimated there are 40,000 skilled workers involved in MRO in Alberta at any one time, and that number is growing.
AP-Canada says that oilsands turnaround costs are more than 50% greater than those of equivalent turnarounds in the rest of Alberta.
Facilities possibilities How better operations planning could mitigate the high cost of maintenance labour
Average hourly cost of tradespeople in Alberta NORTHERN ALTA.
SOUTHERN ALTA.
$200/hr $80–$85/hr All-in costs per hour for a tradesperson in southern Alberta and other parts of southern Canada average about $80–$85 an hour. In the northern Alberta oilsands sector that rises to $200 an hour.
By Jim Bentein
I
n the oilsands, capital cost figures get a lot of attention. And they should. The industry is epitomized by large upfront project investment followed by decades of steady production—the coveted “wall of cash flow.” However, as the sector matures and expands operators are increasingly recognizing that bigger-than-necessary pieces of those walls are being eaten by maintenance, repair and operations (MRO) spending. There is a substantial prize on the table for those who can rein costs in, but it is a formidable challenge. “I’ve seen quite a change in Fort McMurray,” says Robert Stevenson, president of Whitecrest Consulting Inc., which specializes in MRO analysis. He says that in the past, oilsands producers made money almost in spite of themselves because of steadily rising oil prices. “Now they’re not only concentrating on controlling capital costs, but they’re concerned about [MRO] costs…. Doing maintenance in the oilsands is expensive.” Stevenson says that oilsands giant Suncor Energy Inc. typifies this shift. Under former chief executive officer Rick George, the company largely concentrated on growing production volumes. Under his successor, Steve Williams, the focus has shifted to cost containment and shareholder returns. A recent edition of Suncor’s employee publication, 360, outlines the change in an article titled “Looking at growth through a new
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OILSANDS REVIEW | DECEMBER 2014
lens: Around Suncor nowadays, the notion of growth ain’t what it used to be.” Mike Agnew, the company’s new vice-president of operational excellence and technical services, describes the modified approach. “It’s natural to equate ‘growth’ with expanding our footprint and our inventory of assets, but when you look at it through the lens of operational excellence, growth looks different. If we improve performance to increase production from our existing assets, that’s growth…if we boost our bottom line by controlling and reducing costs, that’s growth.” Stevenson says the elevated focus on operational performance has the industry considering the same approaches to MRO that have been adopted in the downstream sector for decades. “The oilsands sector is becoming a more mature industry,” he says. And growth continues, representing both an increasing opportunity and challenge for MRO players. “Note that over the period from 2004 to 2013, annual operating costs for in situ, mining and upgraders climbed from $4.3 billion to $24.1 billion. And this number is expected to grow as the installed base gets bigger,” wrote analysts with Dundee Capital Markets in their sixth annual oilsands survey this fall. “The margins are not spectacular in this business; however this is steady work, which is something that other parts of the oil and gas chain cannot boast of.”
M R O : C O S T C O N TA I N M E N T
Controllable?
MRO costs by 2030 60
THE COST GAP
50
AP-Canada says that more than 40% of the identified cost gap in executing oilsands turnarounds compared to other Alberta locations is due to controllable factors.
$Billion
40 30 20 10 0
2015
2020
2025
2030
MRO costs (sustaining capital and operating costs) are expected to reach $50 billion annually around 2030.
Growth in operating costs
$4.3 BILLION IN 2004
Time savings = cost savings
$24.1 BILLION IN 2013
CERI says that between 2004 and 2013, annual operating costs for in situ, mining and upgraders climbed from $4.3 billion to $24.1 billion.
The Canadian Energy Research Institute estimates that MRO (the combination of sustaining capital and operating costs) will reach $50 billion annually around 2030, exceeding expected capital spending. “If we can reduce that spending by 10 to 15 per cent, isn’t that the right thing to do?” asks Mike Croza, managing partner and founder of the Toronto, Ont.-based Supply Chain Alliance. The main issue appears to be around logistics and labour costs. “All-in costs per hour for a tradesperson in southern Alberta and other parts of southern Canada average about $80 to $85 an hour. In the northern Alberta oilsands sector that rises to $200 an hour,” Stevenson says. Those costs may not change, but there could be significant wins through better planning. Croza says that his recent involvement in oilsands supply chain studies has unearthed numerous areas where unnecessary expenditures on tools and equipment drive up both capital and MRO costs. “The capital build guys, the MRO and the supply chain need to be linked. The same thing happens in mining and other industries. They don’t talk to one another,” he says, adding that this can lead to inefficiencies that come back to haunt companies all along the cost curve. “The components don’t get set up properly upon the build, so MRO is harder to do. It’s all done after the fact, not up front.”
A recent turnaround analysis of a project involving 500,000 fieldwork hours produced a time savings of about
This led to a cost savings of
$1.25 million He says that the same holds true for MRO planners “who don’t understand the supply chain.” Stevenson’s firm uses work sampling to analyze operations performance based on direct physical work, such as operating a piece of equipment, indirect but necessary preparedness, such as getting work permits and filling in safety charts, and non-contributory tasks, such as waiting for permits or for parts. He says that simple solutions like reorganizing a site layout can reap big rewards. For instance, Stevenson conducted one work sampling analysis that revealed workers spent far too much time waiting at hand-wash and toilet facilities, holding up workflow. The solution was to provide portable hand-wash facilities. At another site, workers had to walk over a kilometre to a scaffolding yard. The solution was to establish a satellite scaffolding yard. “These [plants] are like living organisms,” he says. “Too often management is divorced from reality. You need real-life input from the workers.” Whitecrest’s work sampling studies have led to meaningful cost savings, he says, pointing to one recent turnaround analysis of a project involving 500,000 field work hours that produced a time savings of about one per cent, which led to a cost saving of $1.25 million.
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Reducing costs on maintenance turnarounds is a key piece of the puzzle for bringing down MRO requirements as a whole. AP-Canada, a division of Asset Performance Networks, a consulting firm focusing on project and turnaround performance, recently completed a benchmarking study comparing turnarounds in the oilsands in northern Alberta, U.S. Gulf Coast and the rest of Alberta. It found costs in the oilsands were as much as 50 per cent higher in the north than in the rest of Alberta, with costs being much higher than in the Gulf Coast. “As we suspected, logistics is a challenge,” says Mike O’Kane, managing director of AP-Canada, pointing to assessments his firm has done of turnarounds at refineries and chemical plants on the U.S. Gulf Coast as a contrast, where workers don’t have to be flown in and don’t live in costly camps. The same factor allows turnarounds in the Edmonton area to be completed for much lower costs than in the north. But it’s not just the distance from major centres, where craft workers can drive daily to plant sites, which drives up the cost of turnarounds in northern Alberta, he said. “These tend to be very large projects, involving as many as 3,000 to 4,000 workers. That’s a lot of people and it presents issues with camps and bussing. That’s a lot of people to keep productive.” There was one bit of good news from the benchmarking study. “We expected to see safety issues (more incidents) in the oilsands, but we didn’t see any statistical differentiation with the rest of Alberta,” O’Kane says. However, the bad news is the productivity of skilled workers in the oilsands is lower than in the rest of Alberta and much lower than on the Gulf Coast. AP-Canada’s analysis found that more than 40 per cent of the identified cost gap is due to controllable factors, and thus can be alleviated with better planning and execution. “We see better outcomes when there is better integration of capital projects and maintenance work,” says O’Kane. “I think we have good knowledge of the practices that drive good outcomes.” After nine years of conducting these assessments, he has reached one overriding conclusion. “There just aren’t enough tradespeople to do the work. Canada and the U.S. are not producing enough tradespeople.” Roger Keglowitsch couldn’t agree more – and he should know, since he’s a senior executive with Edmonton-based PCL Construction, one of North America’s largest commercial and industrial contractors. “There’s full employment for the trades in Alberta and, the costs are between $150 and $200 a day just to get workers to the sites,” says Keglowitsch, senior vice-president for heavy industrial with PCL’s Melroy Industrial Services division, which specializes in MRO. “To service the maintenance and turnaround work required at existing facilities in Alberta today it would take all the unionized tradespeople in the province.” Keglowitsch estimates there are 40,000 skilled workers involved in MRO in Alberta at any one time, and that number is growing— PCL is expecting to see annual increases in MRO spending of 10 to 15 per cent. “When we look at successful economies, it isn’t about being the low-cost producer,” says Rannie MacDonald, general manager, oilsands region for growing MRO supplier Acklands-Grainger. “It’s about being an efficient producer.”
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