Lean Production Control – Bakken Well Factory

[00:00:00] Roberto J. Arbulu: Before I properly introduce Dougie, I want to really provide some suggestions to our audience. Although we are talking about a very specific application on how an oil development has been actually conducted through the concept of a factory type system, a production system, a lot of the messages that Dougie from Hess brings to us apply to multiple production systems, right?

[00:00:35] Roberto J. Arbulu: So I encourage everyone to really listen to Dougie, his story and what he brings to all of us from the perspective of what you do and really have an open mind about how this could apply to other types of production systems. That being said, let me, Dougie, properly introduce you, so bear with me one second.

[00:01:01] Roberto J. Arbulu: Dougie is actually the Vice President of Hess’s global onshore production business. In this role, he is responsible for upstream activity related to Hess’ North Dakota Asset and the company’s business operations in Libya. Immediately prior to this role, Dougie led the Hess Bakken Well Factory team in North Dakota, which was accountable for reservoir development of Hess’ acreage.

[00:01:24] Roberto J. Arbulu: Dougie has 28 years of exploration and production industry experience in technical, planning and leadership roles. He has worked in the United Kingdom, Denmark, Malaysia, and the United States. Dougie also led Hess’ business activities in West Africa. He began his professional career as a reservoir engineer with Chevron in the United Kingdom and following roles with Edinburgh controlling services and Exxon Mobile as well. He joined Hess in 2006.

[00:01:55] Roberto J. Arbulu: Finally, Dougie holds a bachelor degree in Chemical Engineering from the University of Strathclyde in Glasgow, and he’s also a member of the Society of Petroleum Engineers and an associate member of the Institution of Chemical Engineers. So Dougie, on behalf of PPI, I really want to welcome you and thank you for joining us and also for your ongoing, not only your personal, but also Hess’ involvement in the work the Institute does and for several years. So with this, it will be over to you. Let me stop sharing my screen. So you can please proceed to share your screen.

[00:02:41] Dougie McMichael: Yeah, let’s see if I can, let’s see if I can work the technology here. Hopefully we are going to see a screen come up soon and if we go, yes, into full screen mode.

[00:02:55] Dougie McMichael: We potentially have success, so that’s a good thing.

[00:02:59] Roberto J. Arbulu: We, we are. Okay, so one thing before you get going, sorry, Dougie, I just want to encourage our audience to use a question and answer feature, the Q&A feature, at the bottom of your screen. If you have a question for Dougie, we will dedicate a few minutes after he finishes to go through some questions.

[00:03:18] Roberto J. Arbulu: Over to you, Dougie. Thank you.

[00:03:19] Dougie McMichael: Yeah, thanks very much, Roberto. Thanks for the kind introduction and hello everyone. It, you know, it’s a real pleasure to get to come and share some of our experience, some of Hess’s experience in terms of well delivery with the symposium today. You know, I guess usually you would do acknowledgements at the end, but before I, before I get into anything at all, I really do want to acknowledge Dave McKay, who’s, who’s very humble about his role in setting up really what we’re going to be talking about today.

[00:03:47] Dougie McMichael: And also, you know, I thought it was fantastic to see the recognition for James at the beginning of the meeting because James has been a real partner for us as we’ve worked through this. And I think the words I wrote down were, “ever patient mentoring.” And I think that describes James to a T frankly, as he’s helped us in this journey we’ve progressed what we are doing. Roberto shared with you the job that I have now.

[00:04:11] Dougie McMichael: Previously I was managing what we call our well factory. So I’m fairly intimate with what we’re doing for the session. And there’s a couple of things I noted down during the earlier remarks as well. I’ll try and touch on those as we go, eh, just if I get the technology working here. Let me see if I can do this.

[00:04:31] Dougie McMichael: Come over here. So you’ve all seen one of these before. Don’t buy or sell stock based on anything I say today, and this is what we’re going to be covering. So we’re going to try and take a little walk around, we’ll take a little look at Hess’s backing asset. I think it’s important to set context.

[00:04:47] Dougie McMichael: We’ve talked about production, we’ve talked about production systems. What are we actually trying to produce from our well factory? And that feeds into what Dave talked about in terms of wanting to produce oil. And we’re going to see, we’re going to see a bit about that as we go through the presentation.

[00:05:00] Dougie McMichael: Show some results. Nate, we’ll talk about what we call lean production control, which is really our production system. And you know, we use some— the lean ideas and methodologies to underpin that. We’ll look at variability and volatility. There was some discussion around variability earlier on in the conversation.

[00:05:17] Dougie McMichael: Some of that happens to us, and some of that we choose. So we’ll talk about that a little bit as we go and then we’ll look at some specific areas to hopefully give you some insights. Hopefully things that, even if you’re not in the upstream oil and gas business, as Roberto said, will be relevant to you as we work through and of course

[00:05:35] Dougie McMichael: we are very receptive to learning as well. So if people are hearing this discussion and they think about things that would be useful to us, we are very receptive to that. I’m not sure I’ll be able to track the questions as they come in, but we’ll certainly take a look at those as we go.

[00:05:52] Dougie McMichael: Okay, so let me see if we can do this and take my mouse away. So what, what have we got here? What I want to do is just really set up the context for what we’re trying to do. I think that’s quite important when you think about a production system, what we’re actually trying to do. And so on the map on the left, what I’m showing is, I’m showing

[00:06:10] Dougie McMichael: Hess’s acreage position in North Dakota. So North Dakota, our Hess backing asset. It’s an onshore for me. I’m going to be talking about the upstream part of our business. Onshore, upstream oil and gas development and production activity. That’s what we have. The dark green rectangles are what we call drill spacing units.

[00:06:29] Dougie McMichael: So they’re the [unintelligible] of each block of development, we drill wells in our drill spacing units. Light green is areas where Hess is an interest, but we don’t operate. And so we’re going to focus on our operating business today. And then, the blue call outs that you see are some of our infrastructure.

[00:06:48] Dougie McMichael: And of course our infrastructure is really important too, because that’s what we need to get our production to market. Hey, I’ll talk about industry volatility a little bit later, but just, you know, just to really highlight how it can affect us right up front. At the bottom right of this chart, you can see Hess’s capital investment into our backing asset.

[00:07:08] Dougie McMichael: And you can see our production profile. So investment, millions of dollars in production, thousands of oil equivalent barrels, eh, per day. And you can see we were able to grow rapidly from a production perspective. 2017 through 2020, we actually doubled production. Which from a base of a hundred thousand barrels a day is not a trivial accomplishment.

[00:07:28] Dougie McMichael: Of course, we were able to do that because we invested, and you can see that on the chart right beside that with an upstream capital investment. And you can see the dramatic change as we went from 2019 through 2020 into 2021, and of course, that was driven by the macro conditions that affected the oil and gas business.

[00:07:45] Dougie McMichael: Through that period where we had a precipitous collapse in oil price. And one of the things that I’ll try and convey today is that we think that our production system keeps us resilient to those changes. Those changes happen, they’ll happen again. We’re actually in the business of trying to ramp up right now, and we need to be able to manage that as we go because we don’t control those macro conditions.

[00:08:07] Dougie McMichael: In terms of what our well factory has delivered so far, we’ve got around about 1700 wells that are online today, and they get handed from our well factory to our CU customer, which is our operations team, and we’ve got several thousand more wells to drill. And that number will depend on oil price and how we choose to develop and what our objectives are at any given point in time.

[00:08:27] Dougie McMichael: But you know, if you think. What we talked about early in the meeting around construction, driving capital efficient investment. We certainly want that, too. And so that’s, you know, along with Lean systems, that’s the tools and systems that we’ve chosen to focus on. We’re going to keep investing in this asset.

[00:08:44] Dougie McMichael: So although we have some of the volatility that I’ve described, we’re going to keep investing and therefore we’ve got an absolute passion for scalable, repeatable, standardized processes. There were some words used earlier: automation, digitization, standardization, you know, and the, the little roadmap.

[00:09:02] Dougie McMichael: I think most of us here recognize that we’ve either been on that or we are on that, but all of those are important, too. They are definitely going to be what’s happening as we go forward. And I thought it was quite interesting that in Todd’s remarks, he used the little picture that we have at the bottom here of this presentation and what do I really want to say about that?

[00:09:22] Dougie McMichael: Well, we think about it this way. You know, we think about it this way in the sense that we’ve got our product design, which for the well factory is wells in the facilities that we want to build. We’ve got a process design. We’re going to talk about that today. Capacity we can think of in the context of drilling rigs or frac crew.

[00:09:41] Dougie McMichael: We’ll not talk too much about inventory today, but it’s something we keep a real eye on. And then we will spend quite a bit of time talking about variability and how we manage that. And of course, as I described before I hit the button there, you know, the cash that we’re willing to put in is one of the major things that affects us here.

[00:09:57] Dougie McMichael: So this is, I think, quite appropriate. It’s quite good that we had this diagram in here to help us with our conversation. On the next slide, what I want to do is I want to talk a little bit more about the strategies that underpin our asset, and I’ll get in, start to get into our well factory, what we call our well factory approach to development.

[00:10:16] Dougie McMichael: So what have we got? What have we got here? Well, what I want, you know, again, just setting things up. What I want to start is, you know, what are we actually trying to do? And we, we want to deliver value. So that might not be too abstract a concept, but it’s quite a broad statement. Of course, what does that really mean?

[00:10:33] Dougie McMichael: Everyone, I’m sure, thinks we’re delivering value. Well, for us, we are trying to operate for the long term. We think about NPV, we’re not trying to develop our asset and sell it. We think about a development in the context of operating it for 10, 20, 30, perhaps 40 years into the future. So that’s really, I—

[00:10:52] Dougie McMichael: You know, having decided what we want, we’ve then got to decide how we’re going to get there. And so if I look at the diagram on the left here, and we think about development philosophy, we want to understand the subsurface. That’s critical for upstream oil and gas development. The geology is very, very important.

[00:11:09] Dougie McMichael: It’s a source of variability and it’s an area where we want to, and we need to, learn. We then move down here, operational performance. So we want to execute efficiently. You know, we want to reduce costs, we want to reduce variability, which is actually quite important to us because it gives us predictability of outcomes, and that helps our company represent high confidence delivery to our stakeholders in the market.

[00:11:33] Dougie McMichael: You notice the comment on reducing emissions. I’ll say a little bit about that as we go. And improving ESG performance has been mentioned. It’s clearly a priority across all industries. When you’re an export strategy, we have to get our product to sales, and that’s important. And of course, we try and manage our acreage position.

[00:11:49] Dougie McMichael: I’m not going to say too much about the left hand side of this chart as we go through our presentation. If we now turn to our well factory on the right hand side, here we do, we do think about this as a manufacturing approach to delivering wells and pads all the way through to handover to the customer, which is our operations team.

[00:12:06] Dougie McMichael: So our handover point sits right around here, and we have to go through all of these parts of the process. We use a last planner system, which was described, and we’ve got that, I think, at the appropriate level in the field. So for example, the drilling supervisor who’s on the drilling rig is accepting the production plan for the next shift, understanding what’s happened in the previous shift.

[00:12:27] Dougie McMichael: We’ve worked hard to cultivate a lean mindset, making problems visible, using structured problem solving to fix them, trying to standardize what we’re doing and then improve upon the standard of course. And you know, it’s a really, you know, one thing that’s interesting for us, we’ve tried to ramp up our technology application over the last several years, and we’ve done that because we think it’ll drive improvement, but of course it’s a source of variability.

[00:12:51] Dougie McMichael: So we need to be able to do that in a very managed way. And when you’ve got a stable production, and you’ve got consistent results, you’ve actually got quite a good platform for trying things and understanding the results that you’re getting and understanding if you like what you’ve tried and you then want to repeat.

[00:13:08] Dougie McMichael: Eh, leadership approach is really, really important. We try and, you know, come on, I’m saying what we want to do. I’m not saying we always manage to do this, but we want to cultivate an approach of servant leadership where the most important people are the people in the field who are actually executing the work.

[00:13:24] Dougie McMichael: And it’s been mentioned a few times, integrated relationships between operator and suppliers are where we are spending a lot of time. We’ve, in many areas, absolutely moved away from three bids in aby. We’re wanting to really cultivate those relationships. Relational contractings, not precisely the term that we’re using, but I can absolutely understand what was being mentioned there.

[00:13:46] Dougie McMichael: And before, you know, moving off this slide, I do want to call, it’s actually a call out of an important point, a call out for the project production. But there was work that was done in 2019, looking at the upstream business, and this is the call out at the top of this slide. And what the work identified was that there were $20 [billion] at the time, $26 billion of capital that was tied up in drilled but uncompleted wells.

[00:14:08] Dougie McMichael: Now that’s— Hess has never been one of the companies that has looked to build up backlogs of drilled but uncompleted wells on ducks. But it was that work estimated about $26 billion tied up, and for the North American upstream business, it suggested around about $12 billion of that could be unlocked simply by optimizing the well production system, reducing variability, and getting to more consistent results of what was coming off the production line.

[00:14:33] Dougie McMichael: So I think that’s quite important. Next up, you know, if a picture tells a thousand words, I kind of wanted to give a little visual because I think it’s nice to have the pretty graphs and so forth, but I think it’s even nicer to visualize what we’re actually talking about.

[00:14:50] Dougie McMichael: And you know, from that point of view, we’ve got quite a lot of activity. In this example that I’m showing, you know, what we’ve got here is we’ve got a well. In the background, you can see the trucks and equipment associated with frac activities. So there’s fracturing going on on this well pad.

[00:15:06] Dougie McMichael: There’s some wells that have just recently been drilled in the foreground. You can see our well pad process facilities, so you can see small facilities and tanks for storage. Other equipment, I’m going to guess that there’s some construction ongoing. You can’t quite pick that out in the visual. If some of you think this is how every day is in North Dakota, it’s not always quite as nice as this.

[00:15:27] Dougie McMichael: This is perhaps one of the nicer days that we could have picked. And, you know, you think then about the confidence that a well managed production system can give you, and Dave McKay actually referenced this as far as executing on a well pad. We, we would, I don’t want to reach too far, but we’re definitely trying to stay away from chaos.

[00:15:45] Dougie McMichael: Because as we get closer and closer and closer to the chaos that Dave provided, you get closer and closer to, eh, incidents, people getting hurt and things happening in your business that you don’t want, lack of predictability, et cetera. We think what we do helps us manage this. And one of the things, if you look at this, and if you’re in the upstream business, you might be saying, “Oh, that’s a big pardon.”

[00:16:06] Dougie McMichael: And it is. And we look at this type of a display and we think, how can we do it better? How can we get the same amount of wells with smaller facilities? How can we get the same amount of production with less wells? And how can we do what we do in less time and so forth, and how can we make that something that’s advantageous, not just for Hess, but also for our suppliers, because those are sort of

[00:16:28] Dougie McMichael: dilemma there for our suppliers, the faster and better they do work, they could be working themselves out of jobs and so forth. That’s a tricky one for us to manage. Next I want to talk about, you know, the processes that underpin our well factory execution. So I’ll just change to that slide now and we’re, we’re kind of back to the PowerPoint, probably prefer the previous one.

[00:16:49] Dougie McMichael: But what we’re showing here is we’re showing that value stream at the start again, we’re showing that point of handover to our customer and operations. And we’re showing, and in particular, I want to draw your attention to the drilling rig because we’ve chosen to manage our value stream around the drilling rig and around that initial production commitment of wells coming off the production line or wells online.

[00:17:11] Dougie McMichael: We do that because we don’t want the drilling rig to be idle. It’s costly and it’s a very visible element of the process, and that means we need to have appropriate buffers in our system upstream of the drill. We also need to have wells coming off the production line at the rate that we are required to deliver our production commitments.

[00:17:27] Dougie McMichael: And we’ve heard some comments on that earlier in the panel discussion as well. I want to show a little bit more about wells online later, because that’s an important measure for us. If you think about, you know, what might be appropriate buffers for us, you might be thinking about things like, you know, we heard the discussion of doing business in Kazakhstan.

[00:17:47] Dougie McMichael: In the winter, well, you know, the winters in North Dakota can be pretty harsh as well, so we’ve absolutely got to manage, you know, how we do things and we choose not to build well pads in the depth of winter. We don’t want to do that. Then you think about some other uncertainties that we might face, political uncertainty, for example, and to manage the uncertainty associated with the U.S. election in 2020, we built up a buffer of permits

[00:18:12] Dougie McMichael: ahead of the drilling rig to make sure that we could keep working until we understood what was going to change. If anything, at each handoff in this process, we’ve got to find conditions of satisfaction. So one of the more obvious ones would be as we hand over to operations, there’s a certain amount of sand in the production stream that’s acceptable to us.

[00:18:30] Dougie McMichael: So that’s quite important. and on the bottom right, what I really want to highlight is we’ve got a, we’ve got a rigorous operating rhythm, and we do notice, and you know, we’re failed creatures, like everyone, so we sometimes don’t manage things as rigorously as we should, and then we reinstall the discipline because we do see that when we step away from that daily, weekly, monthly, quarterly, and also really annual

[00:18:52] Dougie McMichael: operating rhythm, we start to see that things drift if we don’t have those daily meetings, if we don’t have those weekly meetings, if we don’t talk about problems and how to fix them. So we’re pretty militant about trying to keep that in line. We manage our value stream. We aim to use SPS software.

[00:19:08] Dougie McMichael: We’ve worked very closely with James and the SPS team, and they’ve played a large part in establishing these systems, but it’s the system that’s really important for us here. And then if you look at the bottom left, you see, you know what, one of the things that we covered – improvement – we’re showing drilling cycle time here, but it’s not just the improvement.

[00:19:26] Dougie McMichael: And this is days and we’ve taken the scale off because it’s really the point of reducing cycle time. But very importantly on this plot that the extended bars that you see each year are representing variability. So we’re not only reducing cycle times, but we’re reducing variability and that’s really, really important for us.

[00:19:45] Dougie McMichael: Last point I want to make on this particular slide, I think it is important, and that is the supplier. They are fully integrated into this process. They have to work with us in this process and it can cause a point of stress because Hess is by no means the biggest client that the companies we work with are working with and we are saying we want to work in a certain way and we make it a condition of employment with this condition of working with us.

[00:20:09] Dougie McMichael: And our suppliers are actually happy to adopt that because I think they’re seeing some advantages for them that they can take to other customers and potentially get some wins on their own. And that’s a really important point. I’m just going to, I’m going to go relatively quickly because I know that we’ve got limited time.

[00:20:25] Dougie McMichael: We want to make sure there’s time for discussion. But next I want to touch on volatility. On the top left of this, what you can see is— the black line is oil price and the scale doesn’t really do the volatility justice, but you can see what’s occurred in our industry. You know, the sort of early part of the 2010s, it was relatively stable.

[00:20:46] Dougie McMichael: Then we had a big drop in 2014, further relative stability. And then 2020 was quite chaotic again. And you can see activity tracking that. But the reason is activity in general, as expressed by rig count, is dropping is because Hess, other companies, are getting more efficient. We are learning, we are getting better at how we execute our business, eh, if we go to the right hand side of this, this is really how Hess has responded to this.

[00:21:13] Dougie McMichael: So in the first quarter of 2020, we had six drilling rigs operating. Three fracs. And by the time we got to the end of 2020, we had really reduced activity. Everyone else had done the same thing, but there was an important point here for us at least, we hadn’t reduced it to zero. We had kept a drilling rig operating, we kept frac work operating.

[00:21:33] Dougie McMichael: That was really important in terms of retaining capability and retaining, you know, these processes. It might have been a little bit harder from a knowledge retention perspective. So that continuity we think is helpful to us. The point here about going to half a frac crew is quite interesting because what that means is that our supplier of frac crews has now got half a frac crew.

[00:21:53] Dougie McMichael: They have to manage. That gives us a further source of variability because they need to work with other customers if they can, because they can’t leave equipment lying idle so that we can get access to it. And that’s something that our processes help us take account of. And that’s where good relationships with your suppliers are an example of where it becomes very important because you start to get more confidence that you’re going to get the equipment that you want when you need it without having to pay for it being on standby.

[00:22:20] Dougie McMichael: I want to talk about variability through choice, and I think this is very important as well. I described some of the improvements that we’ve seen, and some of those improvements have come because of technology, application and other things that we’ve tried and that have worked. You know, try something that works, keep trying it, try something that doesn’t work, reject it, move on to something else, and

[00:22:40] Dougie McMichael: that variability, we’ve got to accommodate what we want to do. We’ve also got to think about that geology changing, and what I’m showing on the top left is we are moving into different parts of the play, the reservoir quality changes, and we’ve got to be able to account for that. Then when you think about well designed, what does that mean?

[00:22:58] Dougie McMichael: So I’ve got that with our optimizing value levers, try and maximize our DSU value through a combination of well spacing and completion design. And it’s not going to be the same for each DSU. We have to be resilient to those changes as well. We have to be able to accommodate those because we want to do it.

[00:23:15] Dougie McMichael: We choose to do that. On the bottom left, really just to whet the appetite of upstream folks in the audience. We want to experiment to understand how to do things better than this particular example. We took a DSU and we put a well in the ground that we don’t produce, but we’ve instrumented that well with fiber, with pressure gauges, with all kinds of other measurements.

[00:23:36] Dougie McMichael: We’ve tried different completion designs, got very tactile information now that’s going to manage and optimize going forward. But of course that means change. One of the biggest changes that we chose to make in recent years was a fairly big change in completion style. We went from a style called sliding sleeves to a style called plug-in pair.

[00:23:56] Dougie McMichael: We were able to accommodate that, and I’ll show you the results of that as we get to the end of the presentation. And so we have multiple changes. We’ve got one production line. We think we can accommodate that, and we can only really, because of, I think, how we operate, and again, I’ll call out this collaboration with fewer suppliers.

[00:24:13] Dougie McMichael: We’ve moved away from some of the other ideas you’ll hear about, like manage competition, one drilling sup, big supplier, one completions, eh supplier, and so forth. Trying to pick companies who are the best at what they do. Again, some further pictures of seeing this in action and just trying to illustrate if you’ve got some memory of the previous slide, you saw a very different production facility from what we’re showing here.

[00:24:37] Dougie McMichael: This is what we call our bulk contest facility that we’re now applying where we can apply that. And down here what you can see is a term, again, for those of you in the upstream business, sim frac or simultaneous fracturing operations, here we’re working on four wells at once. We’ve effectively got two frac crews on the site at once, and that’s different from what we showed in the earlier design.

[00:24:59] Dougie McMichael: And we can really do that because of the systems and processes that we’ve set up. They enable us to accommodate these changes, manage that variability, and help us go forward. I am going to say right now we’re absolutely not where we want to be. We know that there’s further improvements ahead of us, and this doesn’t all just happen seamlessly, but when we look at it in aggregate, it does come together quite well for us.

[00:25:22] Dougie McMichael: And just to hopefully not belabor that point, as I come towards the results that you’ll see, our project controls are really some of the traditional project controls that you think about in terms of annual business cycle, well, AFEs, et cetera. So we do have those controls in place.

[00:25:40] Dougie McMichael: We do have production scheduling in place, which again, we have to use SPS to help us, but it’s underpinned by operation science, helping us understand, you know, what buffers do we need, what’s the appropriate level of WIP that we should have and so forth to try and make sure that what comes off the back of the production line happens the way that we want it to.

[00:26:01] Dougie McMichael: Recognizing we’re a little bit tight for time, or maybe I’ll just call your attention to the bottom right here. You know, just to highlight one of the issues that we had is that we were changing what we were doing, our sand supplier, so, hydraulically fracture— these wells will pump anything between five and 15 million pounds of sand into each well.

[00:26:18] Dougie McMichael: And our sand supplier saying, “Look, we are struggling with your demand changing. How can you help us?” Well, we help them by integrating them directly into the process, and they can see what’s happening on a day-to-day basis, which helps us manage our business better, helps them manage, helps us manage some results.

[00:26:37] Dougie McMichael: Now, I want to go to wells online, so I’ve called that out a couple of times. What we have on the top left here, 2012, the green line is what was delivered – around 150 wells delivered in 2012. Eh? The yellow line is what was promised to the company, well in excess of 200 wells. This is some of the chaos that Dave was describing earlier.

[00:27:00] Dougie McMichael: So Dave and a number of other people that Dave called out, got to work on this, and 2018 is a pretty stable year. We’ve got a relatively nice, around 105 wells, targeted 105 wells delivered in reasonable conformity. 2020, a very disrupted year. You can see we had a portion here where we drifted.

[00:27:21] Dougie McMichael: We changed our business model that year. We had to reduce risks, but overall against our revised plan, we got to about the right place. So we got that sure of delivery. What about quality? What we’re showing here is the oil delivered by each, well over roundabout the first year of production, and it’s just a step through.

[00:27:39] Dougie McMichael: 2015 through to 2019, which is the last year we’re showing for one of our field areas. And you can see we were delivering improvement in well productivity and we were delivering the quality of well that we wanted. I’ll wrap up in just a moment, Roberto. (Great.) Repeat the cycle time improvements here. So this is, this is what we’ve seen.

[00:28:01] Dougie McMichael: Other companies have done some of this as well, but we like the variability. This is the cost now. This is the change that you see as we moved from improving our sliding sleeve design. It was the comment earlier, nothing worse than getting really efficient with something that you shouldn’t be doing.

[00:28:18] Dougie McMichael: Recognizing a change was appropriate to deliver higher value and then going through and doing exactly the same thing again here, we were not competitive with the best in the industry for plug-in pair. Here we are. We’ve managed to do it in a relatively short period of time, so we’re pleased with that.

[00:28:33] Dougie McMichael: We’re not satisfied. And then this, I think, is  something that we don’t talk about an awful lot. This is Hess’s environmental performance expressed through one OPCs, loss of primary containments, barrels of liquid spelled per million barrels produced. And we’re sitting in a decent place, and again, decent repeatability between years.

[00:28:52] Dougie McMichael: So we like those results. We want more of that happening, and I think, just to reiterate, we like the reliability. The embedment is critical and it’s all stakeholders. We don’t perfectly manage variability and volatility.

[00:29:13] Dougie McMichael: It can be a bit of a nightmare at times. We definitely have issues. We definitely have problems. We definitely have improvement opportunities ahead of us and, you know, a huge number— there’s a number of people on this call, Dave in particular, James and others have helped to support us as we’ve gotten to where we’ve got to and we’re just so enthusiastic about what’s ahead of us.

[00:29:32] Dougie McMichael: Right. There’s more to come. This is just the start. There’s more to come. That was what I had today.

[00:29:39] Roberto J. Arbulu: Excellent. Dougie, thank you so much. Very honestly, very impressive results. And it’s also the journey you guys went through right over the years, right? What you just recently showed in 2012, that things were not necessarily going as you wanted it with less throughput than your target.

[00:30:01] Roberto J. Arbulu: Right? And so we have time for probably a couple of questions. And let me start with this question. So the journey that Hess has actually have gone through over the years, how much of that journey do you think has been driven by, by this relentless

[00:30:24] Dougie McMichael: focus on performance? Yeah, that’s a great question.

[00:30:29] Dougie McMichael: If we go back to, maybe go back, I’ve been with Hess since 2006 now. I think I’ve seen an acceleration in drive for performance over time, and so the relentless drive for performance, I think, has been critical. I think we talked about C-suite support and we’ll use Dave as the C-suite. Dave was the executive leader for the asset who was saying, “This is how we’re going to work.”

[00:30:52] Dougie McMichael: I think there was also recognition, Roberto, and, and not by everybody, I’m going to say this, not by everybody in the team, and perhaps still not by everybody in the team, but recognition within the team that there was a real learning opportunity here. I think the way that it was set up, it actually provided some enormous career development for people to develop new skills and show that they could adapt and adopt these new ideas to deliver better, you know, superior results.

[00:31:20] Dougie McMichael: It frustrates the devil out of me when I see, and the U.S. onshore business is incredibly transparent, so it frustrates the devil out of me when I see other companies delivering better results, which they do sometimes. But it just encourages us to redouble our efforts. We think we’re on the right path.

[00:31:37] Dougie McMichael: We think we’ve got sustainability as well. You know, we think we see other companies’ results sometimes fluctuate, but we’ve got that track record that I showed. So, you know, it is a pretty relentless drive. But I think there’s also a big people development component. I think the lean strength to this in terms of structure, problem solving, managing our value stream, managing our processes, is quite attractive for some people, but it’s not attractive for others.

[00:32:04] Dougie McMichael: Perhaps the challenge that we’ve had in recent years has been how we’ve successfully, and sometimes not successfully, implemented technology and innovation into what we’re doing. The idea of a standard process is the standup for improvement versus the standup forever is really important.

[00:32:22] Roberto J. Arbulu: Excellent. Thank you so much for your insights. We do have another question that comes from another oil and gas company. The comment is, “Thanks for a great success story. Congratulations to you,” and the question is, “By adopting operation science as an enabler, can you share a little bit of the relative size of the value from Hess’s perspective in terms of

[00:32:49] Roberto J. Arbulu: schedule and cash in relation to working capital?”

[00:32:53] Dougie McMichael: So, yeah, I’ll absolutely share some of that. 2012 was chosen— Well, thank you for the question. Well, it was a difficult year for Hess. We had a big cost overrun in the back and we had big cost overruns.

[00:33:09] Dougie McMichael: Another asset, and it really, the case for change sort of wrote itself that year, and as I mentioned, we didn’t get wells off the production line the way that we wanted to. Over the past, you know, four or five years, we’ve successfully met our production commitment to our stockholders, and we’ve met our capital commitment to our stockholders as well.

[00:33:31] Dougie McMichael: So we’ve managed to meet our commitments. We’ve got some predictability. You know, I’d probably struggle to say, too, you look, you know, we’re delivering wells for $6 million now. Without this, it would be $6.5 million or so forth. What I can say is, if we were delivering wells at the median of competition, it would probably be, you know, a few hundred thousand more per well, because we are, we are at the better end, not necessarily the cheapest, but that of course assumes you want to be the cheapest, and we want these wells to work for 30 or 40 years into the future.

[00:34:01] Dougie McMichael: Some other companies might have a little bit of a different business model. You actually do get most of the value in the first 10 years of the production life of the well. But we think we’re going to be operating for a long time, so cheapest might not be the only metric. I’ll give you one other metric that could be helpful to you.

[00:34:16] Dougie McMichael: When the downturn hit and we went from six rigs down to one rig, we were effectively able to do that, and we kept our completion crews operating. We didn’t build up any drilled but uncompleted wells. I showed at the start non-operated in interests. We participate in another, a number of companies, wells, and I can say that there’s one other organization in North Dakota, I wouldn’t say who.

[00:34:42] Dougie McMichael: We’ve got over $20 million of capital tied up in ducks with that company and we don’t know when we’re going to get the production. And so that’s material 20 million. If you lost that, you’d be very, very sorry. So you know, that may be a choice. I’m not saying that that’s not the right business decision for that company, but it’s not what we would choose to do.

[00:35:02] Dougie McMichael: That might well be the right business decision for that company, but it’s not what we would choose to do because we don’t want that money lying idle. We don’t think we can predict oil prices. If we did, we would be doing a different thing. So as we execute, we want to bring the production. And we’ve got some marketing capability that helps us.

[00:35:18] Dougie McMichael: So for example, Hess, during the depth of the downtown set oil to VLCCs, and we weren’t able to send those to Asian markets, eh, where the crude was sold around the end of this year rather than the depth of the cycle. So I’m not criticizing that other company because I think they’ve made a bad business decision.

[00:35:36] Dougie McMichael: They might have made absolutely the right decision for them, but it’s not what we would choose to do. And we think our system helps us manage.

[00:35:43] Roberto J. Arbulu: Excellent. Dougie, thank you so much for your participation. We ran out of time and so on behalf of PPI, once again, thanks to you and Hess for being really open and sharing.

[00:35:56] Roberto J. Arbulu: Yes. We’re achieving on how you are doing it. I think your comments about production systems and how you strategically use buffers and variability through choice and how you are integrating your suppliers because the production system, the well factory is— Right. You, you are the owner operator that integrates all the work and also the point you made at the end, before you started showing the results on the difference between controls and control and how you consciously and strategically differentiate ’em both, then use them both.

[00:36:30] Roberto J. Arbulu: So thank you so much for your participation, Dougie. We will move to the next session. Excellent. Have an excellent day. Thank you. Thank you.