Common Key Performance Indicators in Oil and Gas
A key performance indicator (KPI) is a measurable value that is intended to show how well a business is adhering to its business model and strategies. The word “intended” is important here, emphasizing that a business must choose relevant and effective measurements that directly or indirectly reflect the level of success in meeting its goals. When developing KPIs, the business must ask three key questions according to consultancy Bain & Company: how can performance best be measured, what absolutely must be done right, and what data is most pertinent to decision support? The development of relevant KPIs isn’t enough, however. They must be implemented effectively, with the realization that measuring aspects of business operations alone is not enough to yield success. In many cases, the data related to KPIs should help guide discussion and strategic decision making rather than be considered as hard benchmarks of performance.
So what of KPIs specific to the oil and gas industry? The KPI Institute provides some insight, listing tens of different KPIs for oil and gas operations, including financial measurements such as quarterly exploration expenditure and maintenance measurements such as gas leaks per 1000 customers. Ultimately, however, the KPIs used vary based upon what each company has decided best drives their business forward. A local pipeline engineering company will likely have different KPIs than a global oil producer and refiner.
Several major oil and gas companies choose to publish their KPIs along with their business models and strategies in an online format open to the public. Sometimes these indicators are found within annual reports such as with Shell, while in other cases the KPIs can be found in a company’s description of what they do as with BP. Shell, for example, focuses on indicators such as total shareholder return, net operating cash, project delivery, production available for sale, and refinery and chemical plant availability. BP shares some indicators; however, they seem to favor their in-house profitability measurement of underlying replacement cost profit. BP also seems to track any unplanned or uncontrolled releases by number, while Shell narrows its releases to “spills of more than 100 kilograms.” Smaller companies like Dragon Oil choose to focus on much narrower KPIs like gross average production and operating cost per barrel, representative of a more focused business model.