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Monroe Energy Improves Operational Efficiency, Enables Delta Air Lines’ Strategy to Cut Fuel Costs $300MM Per Year

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Monroe Energy Improves Operational Efficiency, Enables Delta Air Lines’ Strategy to Cut Fuel Costs $300MM Per Year IHSI LEADERSHIP CASE STUDY Oil & Gas Industry IHS Monroe Energy Improves Operational Efficiency, Enables Delta Air Lines’ Strategy to Cut Fuel Costs $300MM per Year Faced with soaring jet fuel costs, Delta Air Lines took a pioneering step in 2012 to improve its bottom line by acquiring an oil refinery through its Monroe Energy LLC subsidiary. Fuel costs have traditionally accounted for over 30 percent of major airlines’ operating expenses1, their biggest cost of doing business, so executives have tried many hedging strategies. But Delta is the first to take this bold approach.2 Even as fuel costs have come down, Delta’s strategy has proved highly effective, helping the company smooth out costs and enjoy record profits. Monroe Energy has played a key role in this unprecedented success by leveraging best-in-class engineering solutions to drive operational efficiency and business growth. When Delta Air Lines established Monroe Energy in 2012, the airline set an ambitious goal: Its new subsidiary would be asked to reduce the parent company’s jet fuel costs by $300 million per year. A key figure in meeting that goal was Jeff Warmann, a chemical engineer and seasoned industry executive, who became Monroe Energy’s CEO and President. Tasked with buying a refinery and fine-tuning the company’s business model, Delta chose a facility in Trainer, Pennsylvania (near Philadelphia), based on its location in the northeastern United States, where more than 25 percent of Delta's assets are located. After purchasing the Trainer refinery for $180 million, Monroe Energy’s workforce of over 400 employees and some 1,000 contractors restored the refinery’s full-scale production to 185,000 barrels of crude per day. This capacity, combined with multi-year agreements with BP and Conoco Phillips to exchange gas, diesel and other refined products for jet fuel, enabled Monroe Energy to meet 60 to 70 percent of Delta’s domestic jet fuel needs of 220,000 barrels/day at a greatly reduced cost.3 Challenge Underpinning Delta’s business model, however, was the imperative that Monroe Energy must maximize ► Enable innovative strategy to reduce jet fuel operational efficiency at the Trainer facility – especially costs by $300 million per year given a falling jet fuel “crack spread" (the margin ► Increase efficiency/productivity of refinery between the cost of crude oil and the price of refined operations to improve profitability while jet fuel) – in order to ensure the plant’s profitability. The ensuring safety and environmental compliance challenge lay in continually improving the refinery’s productivity while maintaining the highest level of Solution safety and environmental compliance. IHS Knowledge Collections Maximizing Efficiency, Boosting Productivity powered by IHS Goldfire® To accomplish this dual goal, Warmann recognized Results that the refinery had to change the way it was accessing and leveraging critical information. Its ► Provided engineers, supervisors and staff with engineers needed the opportunity to spend more time single-source, online access to 110+ million addressing issues and driving innovation rather than authoritative technical reference documents constantly scouring a host of different systems, ► Increased productivity by 30 minutes to 2 hours manuals and other resources for reliable technical a day per engineer – with 40 engineers this information. generates approximately $600,000 each year Monroe Energy engineers were already relying on in savings, a manifold return on investment IHS for single-point access to industry specifications ► Enabled both engineering and non-technical from such standards bodies as ASTM International personnel to perform technical searches with (formerly American Society for Testing and Materials) robust knowledge-discovery search capability and API (American Petroleum Institute). Now ► Strengthened corporate governance by Warmann and his team decided to build on that ensuring accountability compliance with trusted partnership. safety/environmental standards Continued on next page > www.IHS.com Monroe Energy Increases Efficiency and Productivity Continued from previous page In 2014, Monroe Energy gave its engineers access to an “The time savings [with IHS] is significant, expansive collection of trusted, authoritative technical increasing productivity anywhere from reference content through IHS Knowledge Collections. This IHS engineering solution provides single-source, 30 minutes to several hours a day for online access to more than 110 million documents from each of the engineers. You achieve your vetted sources – including widely used reference goals more quickly and cost effectively.” handbooks and manuals, technical articles, patents, and other essential reference content. Powerful knowledge- Jeff Warmann discovery search technology allows engineers to quickly CEO & President, Monroe Energy drill down to precise answers to their technical questions and challenges. “With IHS Knowledge Collections, we can provide accountability,” Warmann explains. “We not only have equal access for all of our engineers to the latest a benefit that’s very tangible in cost savings and more specifications and technical manuals,” says Warmann. than justifies the IHS subscription, we have also “We’re giving them the online resources they need to realized the more intangible benefit of being able to be more productive, instead of spending thousands of ensure regulation compliance and standards that dollars on each engineer to load them up with promote sustainability and operational excellence.” engineering manuals and other documentation. IHS The company has also enjoyed benefits stemming has helped us combine all of those things – search from the IHS platform’s user-friendly interface. Non- engine, specifications, technical resources, and access engineering staff use the technical knowledge they to the Internet – that our engineers use to design, have found in the platform to improve instrumentation modify, and troubleshoot our facilities.” reliability and certify best practices. Warmann explains: The gains in cost savings, efficiency and confidence “The search interface is easy for anybody to use, from were proven immediately. Monroe Energy utilized the somebody just learning how to use a computer to a IHS platform to transfer time the engineers previously highly technical professional performing complicated spent doing research to applying that information in searches... The tool has enabled our non-technical or the field. “The time savings is significant, increasing non-engineering personnel to perform highly technical productivity anywhere from 30 minutes to several searches.” hours a day for each of the engineers. You achieve your goals more quickly and cost effectively,” Refinery Profitability Key to Business Model Warmann says. With over 40 engineers and Monroe Energy’s role in Delta’s fuel cost containment technicians using the tool, these time savings have strategy has proven formidable, even when most translated into close to $600,000 a year – a manifold refineries are being hit hard in the current era of low oil return on investment. prices. Delta Chief Financial Officer, Paul Jacobsen, Improving Compliance and Governance reported in April 2015 that the refinery produced an $86 million profit for the March quarter,4 and under While increased operational efficiency was important Warmann’s leadership, Monroe has helped to lower for Monroe Energy, safety and sustainability remained Delta’s fuel costs every year since the program’s paramount. “Our business goal is to operate this facility inception. In 2012, Delta paid a penny per gallon in a safe, environmentally-compliant and reliable higher on average than other airlines, a figure that has manner,” Warmann notes. “Having access to the latest dropped to nine cents less per gallon on average in information helps ensure the decisions we’re making 2014. While this ten-cent advantage might seem are based on the most current specifications.” Monroe paltry, each penny translates into roughly $40 million Energy’s leadership team also extended use of the dollars a year for Delta Airlines.5 IHS platform to supervisors and process safety “IHS has been very cooperative in helping us fully personnel, who use it to ensure compliance with fire utilize the tools to drive operational efficiencies,” and electrical codes. Warmann concluded. “In our refinery, IHS is seen as In the process, the IHS solution has helped Monroe the go-to place for any type of technical reference or Energy strengthen corporate governance, too. “The specification, knowing that IHS is very diligent about tracking tools allow us to see who has been using the keeping everything updated.” tool, for what purpose and for how long, providing LLEHS 1 http://www.monroe-energy.com/ 1 https://www.ihs.com/country-industry-forecasting.html?ID=106593548 2 http://news.delta.com/2015-04-15-Delta-Air-Lines-Announces-March-Quarter-Profit 2 www.businessinsider.com/delta-airlines-fuel-procies-20114-8 www.IHS.com 3 http://www.monroe-energy.com 4. http://news.delta.com/2015-04-15-Delta-Air-Lines-Announces-March-Quarter-Profit © 2015 IHS, Inc. All rights reserved. 5. http://news.delta.com/2015-04-15-Delta-Air-Lines-Announces-March-Quarter-Profit .
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