QUEST AND TRIUMPH: One Company’s Leadership for World Class By Preston Ingalls, President, TBR Strategies LLC

Aristotle once said, “With regard to excellence, it is not enough to know, but we must try to have and use it.” Excellence is like wealth, we know what it looks like, we just don’t know how to attain it.

It is a rarity to have the opportunity to oil company, had comparable operations, slowly witness a company move from average and in many cases, across the road from the to excellence. As a consultant, we are often Shell locations. The unification of these two engaged for segments of time to guide and strong operations was intended to provide assist clients in making the journey toward even more strength in a market crowded excellence or World Class, but seldom do with large operators and small independents you have the chance to watch the entire in California. This was a significant strategic metamorphous occur so pronouncedly. But move as almost a century of exploration and more so, it is a testament to the importance production of these oil fields has created slow of having a foundation of strong and and non-reversible depletion of reserves. determined leadership when one chooses With over 1100 employees and to embark on such a journey. In fact, this totally self-sustaining with their own Human account focuses more on the leadership of Resources and Information Technology depart- change than the actual mechanics of change. ments, Aera produces several billion a year in revenue. Daily production is 220,000 barrels The Quest of oil along with 77,000 MCF of gas throughout The formation of Aera Energy, head- California. They have locations as far north as quartered in Bakersfield, California, in 1997 Coalinga and as far south as Huntington Beach, came from the merger of Shell and Mobil oil to include several offshore platforms. If Aera and gas production operations in the state Energy was independently owned, it would of California. Prior to the merger, Royal be the seventh largest oil company in the US. Dutch Shell, a Netherlands-headquartered The acquisition of Mobil by Exxon a few years oil and gas company, operated CalResources ago now has Aera being owned jointly by Royal in California. Mobil, a Fairfax, Virginia based Dutch Shell and Exxon Mobil. There was considerable effort in An initial one-day overview session the formation of Aera to create a different with selected mid-level managers, supervisors culture, one that combined the best of both and engineers was well-received and lead to companies. Hundreds of hours were spent on an invitation to begin the first stages with aligning people to the new purpose, vision, me conducting a Maintenance Effectiveness and values. The intention was that if you Assessment. The assessment, conducted want people to feel part of something special, shortly after the merger in June 1997, they need to understand the reasons why and determined the gap between where they were the intended outcome. It is this consultant’s and where they needed to be in regards to opinion that this grounding in a common maintenance practices. purpose and vision helped to sew the seeds There was a shortage of benchmark that would lead to Aera Energy’s successful data for oil and gas maintenance operations position today. but we used what we could to at least At the time, I was working for another reference some comparable data to compare maintenance consulting and training firm. performance and costs against. However, it Two of CalResources’ employees, Tracy didn’t require many benchmarks data points Strawn and Tom Funkhouser, had attended to see that the merged organizations were a public seminar I routinely provided called primarily reactive in regards to equipment Total Productive Maintenance (TPM). TPM is service, with about 65% of their maintenance a process developed by the Japanese that activity on priority one (emergency work). engages the workforce in asset management and is based on extensive teaming. They both expressed a fascination with TPM but struggled to see how it could be applied to the “oil patch” business. Traditionally, TPM had been primarily applied in manufacturing and the folks at CalResources and, later Aera Energy, did not see themselves as manufacturers (at that time). Needless to say, we were all confident that, with modification, we could apply TPM in some fashion. Physical examination of the equipment showed the effects of years of aged equipment, much of it 70’s vintage. Most of senior management was aware of the problems but not clear as how to change it. Therefore, my initial efforts to recruit and organize a steering committee of senior management to provide vision and leadership support was unsuccessful. Rather than accept this as a set-back, we continued our organizing efforts. At the time, according to Mike Turner, Senior Vice-President, Belridge “Developing and planning were the big visible activities. Operations and maintenance were perceived as non-core, not sexy. This changed a maintenance department or maintenance with the new philosophy of Aera.” supervisor for formal oversight. There would Fortunately, we were able to muster be no champion of maintenance outside of a small core group of supporters. One of our production. Although this proved to be a first decisions was to change the name of good decision, in the beginning it was a rough Total Productive Maintenance to Total Process journey. Reliability (TPR), which had been started in In the beginning, I hesitated providing Mobil. Also, we dropped the maintenance educational sessions to avoid “sheep-dipping” name to broaden the appeal to non- but the client was fairly insistent that they maintenance people. We felt the approach wanted their newly merged employees to we intended was broader than traditional TPM understand the value and new expectation guidelines. TPR was now the guiding concept of taking care of their equipment. I was and our challenge was to create a ground encouraged to continue the two-day training swell of support. sessions for hundreds of oil field workers and On top of all the numerous challenges certain support staff. we faced, there was an even larger one. These two-day workshops were well The design teams, made up of Mobil and received by the participants, but at the Shell representatives, decided that they same time, considerable apprehension and would completely do away with centralized skepticism permeated each of the classes. maintenance and embed maintenance Every class was full of participants who, craftsmen in each of the production teams although professing their support for the for the new company. The expectation was concepts, constantly expressed a reluctance that the newly titled Reliability Specialist, to believe that their management would formerly called an operator, would assume support the process long term. Silently, I some of the maintenance care for the agreed and shared the same anxiety as my equipment and there would be no need for efforts to engage mid-level leadership had not refused, stating that continuing to just train without making fundamental changes to the organization and developing a support group of senior leaders was a waste of their time. I informed Marcel that the only way I would consider returning was if they could convince the senior management of Aera Energy to spend a day listening to what TPR was and to get them to commit to active support.

The Triumph A week later, I received a phone call from the TPR Process Manager saying he had been successful in setting up a one-day TPR Executive been successful. We had support at the top Overview that would include the President and but lacked support at the CEO, the COO, all the senior vice-presidents, Manager of Operations and Process Supervisor and several directors and senior managers. The levels. In the classes, I would work at rest would be up to me. reassuring and calming those fears while Although, we had been engaged with attempting to motivate them to go out and TPR previously, this meeting was the turning change what they had direct control over. All point and would launch the journey that would the while, I was becoming more convinced culminate in Aera being recognized as one of that gaining leadership buy-in and, more the most premiere maintenance organizations importantly, long-term commitment, may be in the world. Part of this turn-around was by an elusive target. providing a thought provoking question to the After about the twelfth two-day President and CEO, Gene Voiland, which would training session (first with CalResources and win him over and produce a strong champion then Aera), I began to feel I was wasting the and sponsor for the process even to this day. client’s time and money in just educating and The meeting was successful, but perhaps motivating the population. I was also feeling two things were most remembered by those some degree of failure in my inability to rally who participated. One was when I asked Gene the support of senior leadership for such a Voiland, after using an aircraft metaphor to significant initiative. Changing an environment illustrate reliability, if his equipment was an had to be supported at the top. airplane, would he fly it? Gene nervously A few months into the effort, I received laughed. I then told him when he had the a phone call from Marcel Goedhart, a Royal confidence to “fly” his equipment, we had Dutch Shell maintenance engineer, one reached our goal. It was a question that, to of the leads for TPR at Aera, inviting me this day, Gene still mentions to his guests, back for the next wave of training sessions. who travel from all over the world to view his With considerable reluctance, I basically operation. The other turning point was when I Steering Committees at each of the major led an exercise as to what leadership sounds assets (business units). We helped them like. In other words, how does a leader sound charter each by setting vision, mission and when showing support? I then led an exercise goals. We also outlined the Key Performance brainstorming what leadership looked like. Indicators (KPIs) we would use to track The differences were stark and elicited success. considerable ah-has among the leaders in the Belridge is the largest of Aera’s room. There was a realization that leadership operations and produces about 60% of the had to do less with what you say and more total volume for the company. One of the as to what you do. Peter Drucker, noted early adopters was Mike Turner, at that time, management expert, once said, “Management the Vice-President of Operations for Belridge. is doing things right; leadership is doing the His leadership would be tested when in early right things.” 1999, the price of a barrel of oil plummeted Ed Besenfelder, who at the time to a twenty-year low. In many cases, the was a Manager of Operations at Belridge, lift cost (cost to produce a barrel of oil) was stated, “Shortly after forming Aera, senior management gathered all its employees together for meetings on Aera’s Purpose, Vision and Values. At this time, Greg Cox, the Chief Operating Officer, rolled-out our current vision of Total Process Reliability and drove home the fact that excelling in Equipment Reliability was the key to Operational excellence. It was the first time in my 20+ year career in E&P to hear senior management talk about the need Belridge, the largest field in Aera for maintenance excellence. This indicated to me that Aera Energy LLC was changing our more that the revenue per barrel, resulting approach to the oil business.” in many operations coming close to being in We were able to charter our steering the red. This placed TPR in a very vulnerable council that day. The steering council even position. At that point, we were aggressively held meetings in the field at the equipment conducting Coordinator Workshops (hands- and worked on the equipment to learn more on training on the equipment) of four-days about it and to show their support for TPR. It each. We were also in the process of adding was a pretty powerful message to operators Reliability Engineers to the staff to support when they saw the Chief Operating Officer, the maintenance and reliability efforts. Greg Cox, one of our initial sponsors, in a Logistic Specialist positions were being filled Tyvek suit, marking lube points and gages to support the planning and scheduling of on a compressor. maintenance activities and to support the After the formation of the Corporate new enterprise information management TPR Steering Council, we began to form system, SAP. Mike stated, “One huge enabler Manager of Operations (r) and Supervisor (c) congratlating operator on certifying equipment for Autonomous Maintenance at Ventura operations to our success was the formation of the SAP Failure Analysis, PM Optimization, Equipment implementation team, Sequoia, and the strong Improvement Teams, and so forth. operations and maintenance with SAP using Fortunately for Aera, Belridge was the PM module.” not the only operation to have visionary Mike Turner, new to the VP role, leadership supporting TPR. First at South exercised leadership by insisting that TPR Midway Sunset and then at North Midway efforts continue full-blast. He said he believed Sunset, Andy Anderson was one of the original that the price of a barrel would not stay low members of the Corporate Steering Council forever and that by cutting back spending on and a major supporter. In fact, during the maintenance when business was bad was not first years of the Annual TPR Audit, Andy was the new way. This move would later posture chosen as the Most Supportive Manager of Belridge to lead the company’s TPR efforts. Operations for three consecutive years (he By resourcing support positions, he not only was recently promoted to Vice President sent a powerful message to the organization of Operations). He participated on the but he also staffed it with high quality people TPR Steering Council for the company, his who would go onto develop World Class own operating unit’s steering committee, maintenance practices. Belridge would later headed up a Leadership Group within his pioneer many of the TPR practices within unit to review strategy and also served as a Aera such as Condition-Monitoring, Root Cause permanent or ad hoc member on many of the Process Supervisor (r) helping to 5S a mechanics’ shop at Huntington Beach focus teams. At any given week, Andy would success as well. Starting with the Senior be in multiple meetings on TPR or providing Reliability Engineer at Belridge, Steve Fox, rewards and recognition for those who had and Rich Colvin at North Midway, to name a accomplished specific goals. few, this group would become the champions When we looked at superlative and technical experts to support a solid unit leadership, Andy exemplified classic effort. characteristics. He was actively involved, We were able to make even more leading by example while collaboratively headway when in 2000 I began conducting setting the direction and goals. He stayed one-day workshops for Change Leaders. engaged without micro-managing the process. This workshop was designed to show those North Midway would later produce the most people directly involved in TPR how to significant cost reductions in Aera. This influence others to support the process. We was achieved, in no less part, from Andy’s had a year-to-year plan starting in 1998, but leadership and the strong support staff of in 2000, we put together a five-year plan talented supervisors and reliability engineers. that was adopted by the Steering Council. Reliability Engineers were key to the Aera also began aggressively applying Lean Vice-President of Operations (l) and Manager of Operations (r) inspecting equipment as part of a Leadership Audit in Ventura Manufacturing concepts to TPR. visionary enough to recognize the potential Another major advance in leadership in maintenance practices they were not doing was the assignment of Ed Besenfelder as TPR and when I exposed them to a new concept or Process Manager and Chris Majusiak as TPR they read or heard from another source, they Process Supervisor for Aera. This duo would would eagerly bring those practices to bear in provide the coordination of most of the major Aera. changes within TPR from 2000 to today. Remarkably, the traditional suspicions Having had the opportunity to work with these toward corporate support staff was not gentlemen for almost five years, I have seen evident towards these individuals because them exercise Change Leader actions. Since they chose a role of “How can we assist” they had to work with their colleagues, their rather than “Here is what you need to do.” sole tool was their ability to influence and They would garner enough respect that even persuade. Ed and Chris had to lead as Change when they had to assume the role of auditor Leaders, convincing others to take a particular on the Annual TPR Audit, people would listen. action. Not only that, but both were Having also served as a member of the audit for seven years, I observed them approaching for implementation was key. All are aligned the audit with “Where can we find the best with compliance measures. If many teams practices to share with the others” or “Who is are not meeting the compliance measures, it doing something really good to recognize.” is a process owner problem. If it is a couple This changes the tone of the audit from teams, it is a line issue.” “Gotcha” to “I caught you in the act of doing We know that audits drive behavior. something outstanding.” For this reason, the The thing we wanted to do was to avoid the annual TPR audit, although lengthy, lasting classic punitive nature of the audit and use it several weeks in length, is looked for and more as a constructive means to collect best expected as a means to ensure all the units practices and reinforce the behaviors have a standardized approach. But it is also we wanted. Finding excellent practices to a means to “showcase” accomplishments emmulate became a major priority for the throughout the year and spread Best Practices audit process. This has accomplished that. throughout the company. Mike Turner said, “Aera’s dual account- ability with process leaders accountable for designing and line managers accountable

Manager of Operations (l) and Senior Vice-President (r) Presenting a plaque and Certification of Recognition for TPR efforts When California operations of Mobil and Shell merged, their emergency maintenance rates were as high as 65%. In 2005, it had been reduced to 3.5%. Aera has estimated that maintenance costs are down by at least 25% from 1997 by using the following:

• Root Cause Failure Analysis using Cause • Steering Committees and Councils Mapping • Daily and Weekly monitoring of KPIs • Development of procedures and Process • Process Team Review of Maintenance Guides Activities • Preventive Maintenance Optimization • Internal Auditing • Operator Condition-Monitoring • External Auditing • Operator Basic Care or (Autonomous • Extensive training and education Maintenance) • Best Practice Sharing sessions (Super • Equipment Improvement Teams Wednesday) • Tactical Teams • Lean Manufacturing Techniques • Focus teams • Full utilization of enterprise information • Integrated Supplier Management of management (SAP) Inventory Control • Use of condition-monitoring processes

But the most significant achievement system, and how to leverage it to its fullest was the engagement and constant extent. Looking back over the past six to sustainability of a corporate initiative seven years, SAP has been a huge enabler in for maintenance and reliability. This was our journey to become an industry leader in attributed to the strong leadership of those Total Productive Maintenance and our quest listed and even more to those who were not for world class Total Process Reliability, which listed in this account. was a vision of the Aera organizational design Aera has no doubt mastered the SAP team! Little did we realize in 1998 that the enterprise system better than any other foundation we laid then would continue to company I have seen. Chris Majusiak told me, benefit us for years to come.” “By having a background in Operations, the Aera Energy has continued to reduce SAP implementation team realized the value its maintenance costs significantly since 1998. of having accurate, timely maintenance data For proprietary reasons I can not share those for all of our equipment. We approached this numbers, but I can say that it was a major project with an Operations mindset and not achievement, especially in this industry. an IT project. We quickly realized that we Shell, as one of Aera’s parents, had an opportunity to change the status quo, continues to send representatives from across standardize the way we use our CMMS (SAP PM the world to benchmark Aera to learn how Module) and implement significant changes to they have ran such an efficient operation. I our existing processes. Additionally, we began personally escorted twenty-two managers and to realize the value of having an integrated engineers from Shell’s European operations Senior Vice-President (r) viewing recent TPR efforts in Coalinga to spend a week at Aera. One told me “I have can they become?” And each year they answer been with Shell for over thirty years and this that with impressive actions and results. was a lifechanging event for me.” In November, I reportout the audit findings Aera Energy had the distinction of and recommendations to Gene Voiland, becoming the first oil and gas operation to win the CEO and all the VPs, several directors, the North American Maintenance Excellence and Manager of Operations. Gene, as he (NAME) award in 2002, awarded to the did eight years ago, has a keen interest in Belridge unit. When North Midway, under Andy how the TPR process is going. He responds Anderson’s leadership, applied for the 2004 to recommendations and will ensure those award, they not only won, but were informed recommendations are acted upon. they had the highest score ever received for He will often give me an update to the the award. question, “If your equipment was an airplane, Each year, in October, I head out to would you fly it.” He will chuckle and tell me California to join our audit team. I look he is flying. forward to the maturity I see from year to Due to its Lean Manufacturing imple- year, asking myself, “Just how much better mentation efforts and the move toward seeing itself as a manufacturer, Aera After being inspired by Aera’s TPR Energy has been recognized as the leader successes, Shell had asked me to assist in Lean implementation in its industry. It in implementing TPR throughout its 110 has partnered with Toyota in applying the Exploration and Production operating units concepts to many parts of its business. across the world. Two representatives from In response to what are we doing to take corporate headquarters in the Netherlands, this to the next level, Mike Turner stated, Allan Grieve, Total Reliability Team Leader, “Aera’s first priority was to improve our and Stewart Officer, Maintenance and Integrity process reliability and stabilize our systems Team Leader for Shell participated in the 2005 (i.e. get everyone on the plane to quote TPR audit at Aera. Stewart Officer stated, Gene’s analogy). We have accomplished this “The learning’s and practices we observed successfully across the organization and have at Aera were at a level to which we aspire seen significant benefits. Obviously to stay on globally and emphasized the extent of the the top, we need to be constantly improving journey we have now embarked’ When I and looking for the next opportunity. We was asked by the editor of Maintenance have been focusing on Lean Manufacturing Technology and Ed Besenfelder at Aera for the last several years and have this now to write this account, I knew my most implemented in all our core processes. difficult task would be how to share such an We feel this sequential effort of leaning accomplishment without mentioning all those out our now reliable processes accelerates involved. But as Harry Truman once said, “It our journey to excellence (i.e. making the is amazing what you can accomplish if you do airplane run more efficient with less waste). not care who gets the credit.” We have used the traditional manufacturing industry as a guide to our vision as process Printed with permission from Aera Energy LLC, Bakersfield, CA leaders of the oil and gas.”