1 August 2016

Professionalizing Logistics Management in Unconventional Oil and Gas

Asuquo Edem PhD, MBA, CPSM Logistics Strategy Lead, Unconventionals. Shell Houston.

Agenda

August 2016 2

1.0 Unique Challenges of Logistics in Unconventional O&G

2.0 Field Logistics Coordination Model

3.0 Role of 4PL

1 2 3 4 5

4.0 Potential Opportunities for Industry Level Collaboration

5.0 Q&A

Current state of Logistics in Unconventional Oil and Gas

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High volume of transportation with risk of incidents

Low coordination at field level

Mostly concentrated in non-urban Areas with potential implications for infrastructure

Intricate overlap between Transportation and Site Services

Tight margins for operators with pressure on transportation cost

Opportunity for improvement in Safety culture

Less mature compared with other O&G sub sectors: Downstream and Conventional

Traditionally, (Unconventional) oil and gas operators have lacked a central focus on transportation and logistics for onshore operations, often pushing the coordination to service providers or the field.” C. Carr, D. Wedemeyer, S Pearson – Deloitte Oil and Gas Practice (June, 2012)

Case For Centralizing Logistics in Unconventionals

4

High volume transportation and associated risk would benefit from coordination

Data indicates increase in oil and gas related RT incidents

Time liberation for operations staff: increased productivity

Logistics as key cost enabler: direct and indirect

Key enabler in enhancing Social License to Operate

Decentralized vs Centralized Field Logistics: Shell Example

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On Site Logistics Coordinator (Field Based)

Drilling Completions Production Projects

R1 R3R2 U1 U2R4 R5 F1 F3F2 P1 P3P2

Carrier 1 Carrier 5 ------ 100Carrier 4Carrier 3Carrier 2

Information flows for services related to

Drilling, Completions, Productions and

Projects / Construction from rig foremen /

Superintendent to the onsite logistics

coordinator and further on to the contractors

…

Centralized Logistics Model

These diagrams are general depictions of Decentralized and Centralized Logistics models. They are in no way intended to demonstrate how all Shell transportation contractors, no matter the size, location, function, etc. were, or are currently, managed in all cases.

Case For Professionalizing Logistics in Unconventionals

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Contractor Safety Management still challenging

Incident rate not at desired level

Transportation efficiencies and cost not fully optimized

Too much reliance on manual processes

Low data availability and quality

Low delivery reliability due to absence of technology

Followed up with implementation of a 4PL model

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• Uncoordinated Logistics management

• Significant improvement opportunities

2009 – 2011 Centralized Logistics Organization

Pre – 2009 De - centralized: Site Managed

• Increased focus on contractor HSE management

• Increased focus on standards

• Introduction of Logistics technology

• Improved transportation planning

• Development of carrier base

• Greater supply chain visibility

• Introduction of Lean principles.

• Reduced safety exposure – miles/truck count.

• Implementation of minimum safety standards

• Synergy at Asset level: Wells/Production/Projects.

• Focus on contractor performance management

• Time Liberation for Frontline Staff

2012+ 4PL Managed Logistics

Eagle Ford

Marcellus

South Texas

Haynesville JV

Pinedale

Montney AlbertaDeep Basin

Foothills

The Journey

The 4PL Concept

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4PL™ is an Accenture Registered Trademark

4PL defined as:

an integrator that assembles the resources, capabilities and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions.

Main characteristic of a pure 4PL is that it does not own assets.

4PL vs 3PL

Qualities of a Good 4PL

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Capability: People, Processes, Systems

Experience: Industry wide and Oil & Gas specific

HSSE Competence: Operational Safety and Systems

Carrier Management Experience

Innovation & Adaptability

Benefits of Effective Professional Logistics

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Improved focus on safety standards and overall culture

Reduced transportation risk exposure and Safety Incidents

Reduced Carbon footprint

Increased Transportation Efficiencies and Cost

Greater Supply Chain Visibility: technology innovation

Note:

Despite noted successes, a lot more still has to be done including collaboration within the broader O&G industry as legally permitted to further mature the safety culture

Industry Level Collaboration

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Maintaining Social License to Operate is still an Industry wide challenge

Collaborative Logistics can mitigate this challenge

Common Industry Logistics delivery model unlikely

Focus on non-commercial grounds for collaboration

4PL companies can act as catalysts

Possible Industry Level Collaboration Staircase

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Minimum Standards Focus

Logistics Organization/ Resource Sharing

Professionalized Logistics Management (4PL)

• Use only carriers that consistently meet

DOT standards

• Support Industry wide effort on compliance

with statutory standards

• Establish a mechanism to emphasize

and as permitted enforce compliance

• Maintain own safety metrics and share

best practice as permitted

• Manage Logistics as a safety critical discipline

• Consider implementing a 4PL model

or similar outsourcing option

• Consider investing in Transport

Management Systems if not fully outsourced

• Influence internal Business strategy to increase the potential for reduction in overall safety exposure.

• Use safety performance data to drive

sustainable improvements

• Be an Industry Transport Safety Champion

• Consider some form of centralized or coordinated

Logistics

• Coordination could be achieved either

through process alignment or setting up formal

Logistics organization

• Where permitted, share common carriers with other

operators to increase the potential for reduced trucking exposure

• Establish measures to track reduction in road

transport related safety exposure

Copyright of Shell Exploration & Production Company

Questions and Answers

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