Cost Management and Optimization for Midstream Companies: Maintenance Costs
Midstream companies are a key link in the oil and gas sector and provide the transportation network that brings hydrocarbons from producers to refiners and ultimately to consumers. Despite having this important role, midstream companies are not without challenges and they often suffer from inefficiencies that impact the bottom line.
Most of the inefficiencies in this asset-intensive sector are increased operating expenses (OPEX) related to maintenance costs and inventory management. This article will focus on maintenance costs while a separate article will discuss inventory management.
Are Inefficiencies Impacting Your Margin?
In answering this question, one important metric to examine is the ratio between preventative maintenance (planned) and reactive maintenance (unplanned) by both count and cost. The ratio is important as reactive maintenance is often three to ten times more expensive than preventative maintenance and can result in employees feeling overwhelmed and out-of-control. A best-in-class ratio is six preventative work orders for every one reactive work order (85%:15%); however, two preventative work orders for every one reactive work order is considered achievable for the average midstream company (67%:33%).
Another important metric is an annual calculation of Total Maintenance Cost over the Replacement Asset Value. The Total Maintenance Cost should include all costs associated with labour, parts, lost throughput, and other relevant maintenance costs. The Replacement Asset Value should include the cost of purchasing new equipment and the installation costs. This metric identifies the effectiveness of a maintenance program; the lower the value, the more effective the maintenance program is. Best-in-class targets are around 2% depending on the type of equipment. However, if the value is over 100%, this indicates that the equipment should likely be replaced rather than repaired, barring any safety, environmental, or other considerations. Even a value as low as 20% indicates the maintenance program may not be efficient because, at 20%, the company could purchase new equipment every five years instead of fixing it.
By focusing on preventative maintenance, midstream companies can achieve more throughput with reduced costs and improved margins. To learn more, you can read about Maintenance Planning for Success, Maintenance Best-Practices, Defect Elimination, and Work Management.
If your current metrics are not best-in-class and you need help with your Asset Management Program, reach out to our team on LinkedIn or through our Contact Us page to learn more about how Trindent can Make it Happen in your company.
The author of this article – James Greey is a Senior Consultant at Trindent.