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.

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.

Another key contributor to margin erosion is ineffective Supply Chain Management.  For midstream oil and gas companies, Supply Chain Management can be broken down into two main areas:  Hydrocarbon management and non-hydrocarbon management.

Hydrocarbon management involves the planning, scheduling, stock control, and custody transfer of hydrocarbon products. With hydrocarbon management, hydrocarbon loss is one of the main causes of margin decrease and can cost midstream companies millions of dollars in lost value each year.  There are a number of causes for hydrocarbon loss sediment and water intrusions, inaccurate measurements, retains, and theft to name a few.  Best-in-class hydrocarbon loss is under 0.25% loss, while under 0.5% loss is considered achievable for the average company.

To prevent this loss, companies can employ Hydrocarbon Loss Control Programs that focus on Mass Balance. Our team of Hydrocarbon Loss Consultants is experienced in implementing these types of engagements in a cost-effective manner using customizable tools and training material to empower your employees to sustain the results.

Non-Hydrocarbon management is another contributor to margin erosion and there are many causes of inefficiencies. Two of the most common root causes are poor planning and poor inventory tracking.

• Poor Planning: Not having the proper tools, equipment, and parts available when there is an outage can be costly if it results in a slowdown or stoppage of product throughput.  Understanding the cost of this downtime, the holding cost of the inventory and the lead time to receive additional inventory is key in making risk-based decisions.  Improved planning practices especially as it relates to supply chain management and work management planning can be used to optimize and reduce the direct and indirect costs of inventory management.

• Poor Inventory Tracking: The cost of consumables and parts is often not tracked well; however, a Pareto analysis on the usage of various consumables can often identify opportunities to reduce waste and unnecessary costs. Increased visibility allows for accountability and risk-based decision making. Furthermore, improved inventory tracking can prevent costs associated with stockouts, overstock, and obsolete stock.

Midstream companies have a clear opportunity to strengthen margins by addressing inefficiencies across both maintenance practices and supply chain management. By shifting from reactive to preventative maintenance, operators can significantly reduce operating costs, improve asset reliability, and increase throughput. At the same time, tighter control over hydrocarbon management and stronger inventory planning can minimize losses, lower downtime risks, and enhance overall operational visibility.