Fracking Industry Discovers Lean Manufacturing Principles

Manufacturing industry: Lean Manufacturing in the Bakken and Beyond

Shale oil plays in the Bakken, the worlds most expensive oil field, grew quickly when advances in hydrofracking and horizontal drilling and surging oil prices boosted oil production. Once considered a submarginal field due to gas and oil being locked into low-permeable rock formations, between 2005 and 2012 the number of active wells in the Bakken grew from 27 rigs to 218. Since that high point, the price of oil dropped from over $150 to below $30 a barrel. The region dropped 20,000 jobs and reduced the number of companies drilling to just a handful of players.

The oil and gas industry is known for maintaining custom requirements needing custom solutions that introduce inefficiencies and increase the cost to drill a new well. When the price for oil dropped, Hess looked to lean manufacturing principles for a solution. Hess introduced SmartDrill which focuses on drilling efficiently and requires continuous monitoring, analysis, and adjustment of the drillstring. Hess reduced new well cost by one-third and increased well production by 20%.

Hess applied lean principles to their onshore and offshore operation in Ghana. Greg Hill, COO of Hess Corporation explained, “We had 10 exploration and appraisal wells to drill offshore Ghana. Seven of those 10 wells were by far among the best wells drilled by the industry in West Africa.” Hess also applied lean principles to its operations in the North Malay Basin, their first time applying lean to an extended-reach drilling project.

Western manufacturing processes are typically top-down operations. Workers bring problems to leaders and leaders supply solutions. Lean principles turn that model on its head. Workers identify problems and supply solutions. Leaders focus on implementing solutions and maintaining a problem-solving culture. Hill noted about lean manufacturing, “If you don’t have the leadership culture behind that, it will fail. It’s only a question of when.”