Hess to cut costs by mimicking Toyota’s manufacturing process

Hess Corp is looking to a manufacturing process developed by Toyota to decrease costs and increase production in the midst of low oil prices, according to a recent report by Reuters.

Using the method dubbed Lean manufacturing, which is utilized by only a few other oil producers, the company has saved approximately $400,000 on the costs of each of its North Dakota wells in the past eight months. This savings are even seen while the company uses more sand and frac stages on each of its wells, reports Ernest Scheyder. Additional benefits include a reduction in the time required to drill new wells.

As reported by Reuters, by mimicking the methods used by Toyota, Hess hopes to weather the current oil price climate and emerge on top of its game with more advanced capabilities than its competitors. In recent times, Toyota has been steadily pushing its employees to develop methods in which vehicles can be produced more efficiently and at lower costs. This, in turn, has resulted in a manufacturing process that rivals its competition in Detroit.

Hess Corp is confident that by utilizing this process, its 1,200 wells operating in the Bakken formation will remain profitable while crude oil prices hover above $40 and $50 per barrel marks. Furthermore, the company says that by using the Lean manufacturing process it could survive for the next five years, even if low oil prices persist. At the recent DUG Bakken and Niobrara conference, Hess President Greg Hill commented on the process by saying the company has only begun to explore the possibilities. Scheyder notes that since the first quarter of 2012, the company’s well costs in the Bakken region have dropped by almost half and aims to further reduce costs throughout the year.

Since 2009, when Lean manufacturing was implemented, the time spent drilling new wells has also dropped by more than half. The company’s management stresses the need for its employees to eliminate waste by evaluating what worked and what didn’t on a daily basis. Mistakes made are to be learned from quickly, and rather than cutting costs by eliminating contracts and employees, the process emphasizes, for example, personal accountability. Another example of how Hess has managed to cut costs was the discovery that using ceramic proppant during the fracturing process was not cost effective, so it was eliminated from the process. To read the original article.