KEY PERFORMANCE INDICATORS:

OIL & GAS INDUSTRY

BY
MRIDU PAVAN CHAKRBARTY
(mridu.chakrabarty@infosys.com)
CONTENTS

• Key Performance Indicators

• Key Performance Indicators in Oil & Gas Industry
• Categories of KPIs
• Important Core and Additional KPIs
• Comparative Analysis of top six Oil & Gas Companies of Europe and
USA
• Benchmarks and Best Practices in Oil & Gas Industry
 A key performance indicator (KPI) is a business
metric used to evaluate factors that are crucial to
the success of an organization. “Key performance
indicators” means factors by reference to which the
development, performance or position of the
business of the company can be measured
effectively.
KPIs should provide a balanced view of the business to give a complete picture of a company’s health and performance
The oil and gas industry plays significant role in the contribution of
the world’s economy. In terms of dollar value, the oil and gas
industry is considered to be one of the biggest sectors. The oil and
gas industry can be categorized into three main key areas:

1. Upstream: The Upstream component, also known as Exploration and

Production (E&P), encompasses the exploration for underwater,
underground natural gas or crude oil fields and the drilling of exploration
wells to recover oil and gas.
2. Midstream: The Midstream involves the transportation and wholesale
marketing of crude or refined petroleum products. This process helps in
the delivery from production sites to refineries.
3. Downstream: Downstream refers to the filtering of the raw materials
obtained during the upstream phase.
The key performance indicators for the oil and gas
industry may be segregated into 2 forms – one for
the exploration industry and the other for the
production industry.

• Exploration Industry
• Production Industry
• Exploration Industry:
• The quantity and quality of seismic data produced and the time taken to obtain such
data.
• The quality of interpretation of such seismic data and the time taken to process the
data.
• Down Time which is the number of man-hour losses as a result of equipment failure or
stakeholder disturbances.

• Production Industry:
• Production rate which is based on the number of barrels of oil produced per day.
• The production cost for each barrel is also the key in assessing performance and
efficiency.
• The Down Time as a result of equipment failure or stakeholder disturbances.
• The number of environmental issues such as oil leaks due to equipment failure,
technical glitches or even the sinking of oil containers at sea.
The performance indicators are organized under two categories –

1. Core KPIs, and

2. Additional KPIs

This classification is done to differentiate between indicators that

are commonly adopted across companies in the oil and gas
industry versus indicators that may not have general applicability
to all oil and gas industry companies and/or may not be
sufficiently well-defined for common adoption.
Core indicators are typically:
• Considered relevant to almost all oil and gas industry
companies;
• Inherent to activities in the oil and gas industry (e.g.,
upstream and downstream);
• Of common interest to a wide range of local and global
stakeholders;
• Generally related to aspects or issues of national or global
significance;
• Sufficiently mature in terms of consistent usage and
reproducibility by those in the oil and gas industry.
Additional indicators are typically:

• Assessed as relevant by the reporting company and its

stakeholders;
• Associated with only a subset of the industry;
• Reflective of local regulations or legislation;
• Generally related to issues of local or regional significance;
• Evolving and under development.

Additional indicators may often represent a leading practice in

sustainability or non-financial reporting.
Some important Core and Additional KPIs for Oil and Gas Industry:
Core KPIs
1. Net cash from operating activities ($ billion)
2. Production available for sale (thousand boe/d)
3. Total shareholder return
4. Project delivery
5. Equity sales of liquefied natural gas (million tonnes)
6. Refinery and chemical plant availability
7. Total recordable case frequency (injuries per million
working hours)
Additional KPIs
1. Earnings per share on a current cost of supplies basis ($)
2. Capital investment ($ million)
3. Return on average capital employed
4. Gearing
5. Employees (thousand)
6. Proved oil and gas reserves (million boe)
7. Operational spills of more than 100 kilograms
8. Refining Energy Intensity Index (EII™) (indexed to 2002)
9. Direct greenhouse gas emissions (million tonnes of
CO2 equivalent)
10. Number of operational Tier 1 process safety events
• Net cash from operating activities ($ billion)
Net cash from operating activities is the total of all cash receipts and payments associated with
company’s sales of oil, gas, chemicals and other products. The components that provide a
reconciliation from income for the period are listed in the Consolidated Statement of Cash Flows.
This indicator reflects the ability to generate cash for both distributions to shareholders and
investments.

• Production available for sale (thousand boe/d)

Production is the sum of all average daily volumes of unrefined oil and natural gas produced for sale
by Company and its’ subsidiaries and Company’s share of those produced for sale by joint ventures
and associates. The unrefined oil comprises crude oil, natural gas liquids, synthetic crude oil and
bitumen. The gas volume is converted into equivalent barrels of oil to make the summation possible.

• Total shareholder return

Total shareholder return (TSR) is the difference between the share price at the beginning of the year
and the share price at the end of the year (each averaged over 30 days), plus gross dividends
delivered during the calendar year (reinvested quarterly), expressed as a percentage of the share
price at the beginning of the year (averaged over 30 days). The TSRs of major publicly-traded oil and
gas companies can be compared directly, providing a way to determine how the company is
performing in relation to the industry peers.
• Project delivery
Project delivery reflects company’s capability to complete major projects on time and within budget
on the basis of targets set in our annual Business Plan.

• Equity sales of liquefied natural gas (million tonnes)

Equity sales of liquefied natural gas (LNG) is a measure of the operational performance of the
Upstream business and LNG market demand.

• Refinery and chemical plant availability

Refinery and chemical plant availability is the weighted average of the actual uptime of plants as a
percentage of their maximum possible uptime. The weighting is based on the capital employed,
adjusted for cash and non-current liabilities. It excludes downtime due to uncontrollable factors, such
as hurricanes. This indicator is a measure of the operational excellence of our Downstream
manufacturing facilities.

• Total recordable case frequency (injuries per million working hours)

Total recordable case frequency (TRCF) is the number of staff or contractor injuries requiring medical
treatment or time off for every million hours worked. It is a standard measure of occupational safety.
• Earnings per share on a current cost of supplies basis ($)
Earnings on a current cost of supplies basis (CCS earnings) attributable to company shareholders is
the income for the period, adjusted for the after-tax effect of oil-price changes on inventory and non-
controlling interest. CCS earnings per share, which is on a diluted basis above, is calculated by
dividing CCS earnings attributable to shareholders by the average number of shares outstanding over
the year, increased by the average number of dilutive shares related to share-based compensation
plans.

• Capital investment ($ billion)

Capital investment is a measure used to make decisions about allocating resources and assessing
performance. It is defined as capital expenditure and investments in joint ventures and associates as
reported in the “Consolidated Statement of Cash Flows” plus exploration expense, excluding
exploration wells written off, new finance leases and other adjustments. Capital investment has
replaced net capital investment as a performance indicator and is aligned with the basis for capital
allocation in annual Business Plan.

• Return on average capital employed

Return on average capital employed (ROACE) is defined as annual income, adjusted for after-tax
interest expense, as a percentage of average capital employed during the year. Capital employed is
the sum of total equity and total debt. ROACE measures the efficiency of the utilization of the capital
that company employ and is a common measure of business performance.
• Gearing
Gearing is defined as net debt (total debt less cash and cash equivalents) as a percentage of total
capital (net debt plus total equity). It is a measure of the degree to which company’s operations are
financed by debt.

• Employees (thousand)
The employees indicator consists of the annual average full-time employee equivalent of the total
number of people on full-time or part-time employment contracts with company, including the share
of employees of certain additional joint operations.

• Proved oil and gas reserves (million boe)

Proved oil and gas reserves are the total estimated quantities of oil and gas from company and
company’s share from joint ventures and associates that geoscience and engineering data
demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs,
under existing economic conditions, operating methods and government regulations. Gas volumes
are converted into barrels of oil equivalent (boe) using a factor of 5,800 standard cubic feet per
barrel. Reserves are crucial to an oil and gas company, since they constitute the source of future
production. Reserves estimates are subject to change due to a wide variety of factors, some of which
are unpredictable.
• Operational spills of more than 100 kilograms
The operational spills indicator is the number of incidents in respect of activities where company is
the operator in which 100 kilograms or more of oil or oil products were spilled as a result of those
activities.

• Direct greenhouse gas emissions (million tonnes of CO2 equivalent)

Direct greenhouse gas emissions from facilities operated by the company, expressed
in CO2 equivalent.

• Number of operational process safety events

A process safety event is an unplanned or uncontrolled release of any material, including non-toxic
and non-flammable materials, from a process with the greatest actual consequence resulting in harm
to members of our workforce or a neighboring community, damage to equipment, or exceeding a
threshold quantity.
Top Six Oil & Gas companies in Europe and USA
 Comparative Analysis

• Two Core KPIs:

• Net cash from operating activities ($ billion)
• Production available for sale (thousand boe/d)

• Two Additional KPIs:

• Earnings per share ($)
• Capital investment ($ billion)
 Net cash from operating activities ($ billion)
60

Net cash from Operating Activities

50

40

($ Billion)
30

20

10

0
CONOCCO
BP SHELL EXXON MOBIL CHEVRON TOTAL SA
PHILLIPS
2012 16.8 36.84 56.17 38.81 24.71 13.92
2013 17.55 32.7 44.91 35 23.63 16.09
2014 25.86 34.53 45.12 31.48 21.24 16.74
2015 16.28 24.13 30.34 19.46 19.79 7.57
Data Source:
Top Six Oil & Gas Companies of Europe and USA Annual Reports

Inference: As this indicator reflects the ability to generate cash for both distributions to shareholders and
investments. Its Important for the companies to generate cash from their operating activities to sustain in the
business. Exxon Mobil has been at the top in this category since 2012 as per data.
 Production available for sale (thousand boe/d)

2015
4000
3450
3500 3277

Production available for sale

2954
3000

(thousands boe/d)
2622
2500 2300

2000
1540
1500

1000

500

0
BP SHELL EXXON MOBIL CHEVRON TOTAL SA CONOCCO
PHILLIPS
Data Source:
Top Six Oil & Gas Companies of Europe and USA Annual Reports

Inference: In 2015, BP and Exxon Mobil have almost equal production available for sale.
 Earnings per share ($)
16
14
12

Earning per share (Basic) ($)

10
8
6
4
2
0
-2
-4
-6
CONOCCO
BP SHELL EXXON MOBIL CHEVRON TOTAL SA
PHILLIPS
2012 0.48 3.5 9.7 13.43 5.17 6.78
2013 1.03 2.16 7.37 11.18 4.11 7.44
2014 0.16 1.86 7.6 10.21 1.55 5.55
2015 -0.3 0.4 3.85 2.46 2.2 -3.57
Data Source:
Top Six Oil & Gas Companies of Europe and USA Annual Reports

Inference: Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share
of common stock. Earnings per share serves as an indicator of a company's profitability. It can be seen that
BP’s EPS is the lowest throughout. Whereas Chevron and Exxon Mobil have done comparatively well.
 Capital investment ($ billion)
40

35

30

Capital Investment
25

($ Billion)
20

15

10

0
CONOCCO
BP SHELL EXXON MOBIL CHEVRON TOTAL SA
PHILLIPS
2012 10.73 23.5 25.6 24.8 18.78 11.63
2013 6.54 33.54 34.2 35.61 23.22 6.25
2014 15.44 15.65 26.98 29.89 20.16 15.13
2015 14.73 19.31 23.82 23.81 20.28 8.66
Data Source:
Top Six Oil & Gas Companies of Europe and USA Annual Reports

Inference: Capital investment is a measure used to make decisions about allocating resources and assessing
performance. Capital investment in the year 2013 was the highest as Shell, Exxon Mobil and Chevron invested
almost equal amount. This was because Oil price at that time was quite high which was giving a high return to
the companies.
 Benchmarks and Best Practices in Oil & Gas Industry

• Correctly measuring and tracking company’s performance is imperative.

Understanding where the company stand in the market and how you
measure up against your competitors allows companies to make the
necessary changes and improvements to succeed.

• Six areas where the Oil and Gas companies have been constantly focusing to
achieve the highest return.
• Operations
• Supply Chain Management
• Finance
• Risk Control
• Human Resources
• Information Technology
 Operations

• Key metrics to benchmark best operation practices:

• Percentage of capital project designed and engineered in-house.
• Percentage of actual CAPEX to Authorization for Expenditure (AFE).
• Time taken to start commercial production.
• Number of wells shut in.
• Reserve replacement ratio.
• Target operating cost per BOE.
• Corporate and Operating G&A cost per BOE.
• Net Developed acres to Total acres.
 Supply Chain Management

• Key metrics to benchmark best Supply Chain Management

practices:
• Suppliers and third party spend account.
• Individual Business unit spend to total corporate spend.
• Savings achieved through supply chain management.

• To achieve this, oil and gas companies should look at the following
opportunities in order to deliver better supply chain value:
• Supply Chain Market Intelligence
• Materials/Supplier Relationship Management
• Supply Chain Talent & Technology
 Finance
• Key metrics to benchmark best finance practices:
• Business days required to close and report to executive management.
• Metrics included in the monthly management report.
• Preparation of annual budget along with annual forecast.

• To achieve this, oil and gas companies should look at the following
deliverables:
• Evaluation of existing finance function in terms of both cost and value created and
assessment of the enablers including organization, people, process and technology
compared with peer group organizations, and best practice.
• Understanding key gaps and initiatives required to deliver the finance vision in
alignment with business strategy.
• Performing a high level cost benefit analysis in order to validate top down
hypothesis and prioritize improvement opportunities.
 Risk Control

• Key metrics to benchmark best risk control practices:

• Key controls over financial reporting.
• Number of enterprise wide risk identified and monitored.
• Internal Auditing.
 Human Resources

• Key metrics to benchmark best Human Resources practices:

• Percentage of field employees to corporate employees.
• Percentage of contractors to employees.
• Percentage of open/vacant positions to full time employees.
• Percentage of full time employees with stock options.
 Information Technology

• Key metrics to benchmark best Information Technology practices:

• Percentage of IT spend to the company operating budget
• Ratio of IT users to IT staff.
• Percentage of IT spend on outsourced or cloud services.
• Unplanned outage.
• Security breach incidents
References:
• www.bp.com
• www.conocophillips.com
• www.shell.com
• www.total.com
• www.exxonmobil.com
• www.chevron.com
• www.pwc.com
• www.bain.com
• www.marketwatch.com
• www.moneycontrol.com
• www.yahoofinance.com
Thank You