Dear Colleagues,
During the Project Spring Phase 1 DRB meeting on February 4, I endorsed the project to move from Phase 1 to Phase 2.
The case for change is clear. The industry has experienced prolonged low oil and gas prices. We have also seen our development cost and operating cost per barrel grow over the last several years. This combination has significantly eroded our earnings margin and is not sustainable. We need to develop a lower cost operating model.
During the Phase 1 DRB, I endorsed an ambition to achieve $500 MM cost reduction (100% JV basis) to help improve our earnings. Two-thirds of these savings are expected to come from operational initiatives and one-third from labor related costs.
Phase 1 of Project Spring has identified cost saving initiatives in seven key areas (six in Operations and one related to the organization):
• Contracting – spend reduction through demand management and reducing technical specifications.
• Uneconomic Well Head Platforms – mothball WHPs which are uneconomic in the current low price environment and reduce overall Operations and Maintenance (O&M) costs.
• Logistics Decision Support Center - better planning of marine logistics and structuring decision rights at appropriate level in the organization for effective prioritization and reduce costs significantly.
• Maintenance – reduce costs by improving maintenance philosophy and practices, and designing organization to allow for effective prioritization, functional excellence and business focus.
• Inventory – reduce O&M inventory to historical levels to release significant working capital.
• Completions – streamlining completions activity by removing low-value requests and reducing the number of interventions for each well.
• Organization – focus on core work and removing low-value activities, and right- sizing for future reduced activity.
The Operations workstreams above are incremental to the opportunities that are already being executed to reduce our logistics costs – i.e. number of helicopters, supply and crew boats, and diesel fuel consumption. We are in the process of resourcing and initiating Phase 2 work for all the Operations workstreams, which will mature the concept and develop execution plan to capture value. The Organization workstream is expected to complete Phase 2 work by the end of February, and will deliver high level organization structure and targets by each function.
We will keep you informed as we make progress in each key area. The project team has established a SharePoint site that includes answers to some of the frequently asked questions, including information on the teams that are leading various Operations initiatives. You may also submit questions, comments or suggestions to the project team via Project Spring mailbox.
The low price environment we are witnessing today is not something new to our industry. We know how to manage through these downturns. Chevron Thailand has always been an innovative, strong business unit because of its workforce. Low price environments are where all of us can show how dynamic we can be by executing low cost, safe and reliable operations. I encourage everyone to think about ideas and actions on how we can further reduce costs so that we can continue to deliver sustainable, strong results for Chevron and the Kingdom of Thailand.
As always, I urge all of you to remain focused on safely carrying out your work and demonstrate the We Lead behaviors summarized here.