One decade ago, a group of Turkish shepherds sat down to enjoy breakfast while their sheep grazed nearby. One sheep decided it would be a good idea to leap from the cliff. Because of an innate, powerful tendency to follow the herd, almost 1,500 other sheep leaped from the same cliff before the stunned shepherds realized what was happening and intervened. With the first jumper, maybe it was reason, but for the others, it was just response.
Recently, I sat with a corporate executive from one of the leading global oil and gas corporations. We were both doing presentations at a school career day. As we traded stories and talked about people we both knew, the discussion eventually transitioned to the current state of the industry. She shared with me her biggest challenge was preventing the plants from making knee-jerk reactions when it comes to turnaround work. The plants were trying to push too much work into the future — more than she considered a prudent course of action. I was intensely interested in the conversation because I know her company to be one of the exceptionally smart companies.
With the oil and gas industry being suppressed these days, some plants are pushing out turnarounds due to lower profit margins. But I have been in this industry long enough to know something else is at work as well: the herd mentality. The “Big Boys” are delaying turnarounds, so it must be a good idea, right? In all actuality, it may be a very bad idea.
When we are comparing plants, rarely are we comparing apples to apples. Just because it is a good time for one refiner to delay a turnaround does not mean it is the right time for another refiner to delay a turnaround. One refiner may be in a better place in the regulatory cycle than the next refiner where he can afford to push the envelope longer or perhaps more easily gain a variance from the authorities. Or perhaps better metallurgy, longer catalyst life or a newer, more reliable unit may allow for pushing off maintenance. Another refiner may have a different operating strategy that allows for a longer run time of his unit.
Beyond comparing units, there are other reasons to perhaps execute a turnaround sooner rather than later. For instance, you can take advantage of labor availability. One risk that shows up very commonly on our risk registers is a labor shortage because many companies are all doing turnarounds at the same time. And would it certainly not fit our contracting strategy better to take a turnaround at a time when it is easier to negotiate rates? Taking a turnaround while others are delaying could indeed help with both risk mitigation and cost control. Right now, worker fatigue is lower, meaning the work should be not only more productive, but the safety record should be better.
My stock broker likes to remind me his job is keeping his clients from doing what the masses are doing. If you are buying when everybody else is buying and selling when everybody else is selling, it means you are missing the best opportunities for sure. Often, the right response is a gutsy response that is out of step with the herd. For certain, when margins are higher and all the turnarounds come roaring back, turnaround costs will be higher. This may not be the time to push turnarounds out but rather the time to implement new efficiencies and develop more effective execution strategies. New strategies and innovations arise almost daily, but the formula never changes: people, processes and technology. When it comes to people, obtain the very best personnel and invest in the very best training. When it comes to processes, ensure your processes truly represent current best practice. You are never truly an expert until you are an expert on what your competition is doing and why they are doing it. When it comes to technology, you must be able to weigh more than just your investment in your current technology and the cost of changing it. You must be able to weigh the return on investment in new efficiencies. Our never-ending quest must be, “How can we do it safer, faster, cheaper and better?”
For more information, contact Mike Bischoff at (281) 461-9340, email sales@tamanagement.com or visit www.tamanagement.com.
