Leveraging logistics:

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1 sponsored by: technical Digest Leveraging logistics: Dynamic solution systems for the business of energy Vital, complex and capital intensive, the energy business faces a unique set of challenges in maintaining performance and profitability. Energy sectors such as the oil & gas industry must balance specialized service and transportation requirements in an environment of ever-increasing demand and regulation. When factoring in the need for cost and resource control, the energy business can seem like a nearly impossible and precarious juggling act. So how does the industry that fuels every industry stay responsive to market expectations and streamline costs? In a word, logistics. This Technical Digest explores the innovative benefits and solutions offered by advanced logistics for the oil & gas sectors. Learn how, under the umbrella of logistics, an array of advanced organizational and implementation tools are integrated to streamline and optimize these long-standing strategies. By boosting efficiency and controlling costs, logistics can offer the dynamic solutions needed for the energy industry to remain wholly competitive. 2 Shale revolution calls for flexibility in oil and gas 5 Rising transportation costs once again pose problems for oil and gas 8 Electronic answers to unique oil and gas safety problems 10 Meeting the Demands of the Energy Industry

2 Shale revolution calls for flexibility in oil and gas by PennEnergy Editorial Staff The concept of mobility in oil and gas exploration has emerged as a crucial factor in the success of the industry. While the flexibility to investigate possible deposits wherever they might be found has always been a feature of the oil and gas industry, the growing importance of this ability can be tied primarily to the main trend in the American energy sector today: the rise of unconventional fossil fuels. New needs Through the middle of the last decade, U.S. oil production was in the midst of a decades long decline, while natural gas output had plateaued and was feared to be heading down a similar path. The emergence of new oil and gas exploration methods such as hydraulic fracturing, or fracking, reversed this downward trend, sending natural gas production to new heights and spurring a shocking recovery in the oil industry. According to the U.S. Energy Information Administration, shale gas could account for as much as 49 percent of all gas production by 2035, while tight oil could represent nearly 36 percent of all oil output. At the same time, however, the shale revolution launched a major shift in the needs of the oil and gas industry in terms of logistics. Shifting markets 2 Oil & Gas Journal reports that the rise of hydraulic fracturing, with its regular need for truckloads of water and sand, has driven a growing demand for transportation services in the industry as a whole. This makes it critical to create systems that can flexibly respond to shifting demands for different materials as various projects reach different stages of development.

3 Shale revolution calls for flexibility in oil and gas For Oil and Gas Companies On The Move, Execution Is Everything In the energy industry, when deliveries are compromised, production schedules suffer, along with customer satisfaction and profits. It takes a reliable flatbed fleet with an unmatched safety record to move your freight wherever you need it, and get it there on time. As a leader in transportation and logistics, with a long-standing history of service and performance to oil and gas companies, Ryder stands ready to deliver, with available 24/7 service to support your needs. Sponsored Content Oil services company Baker Hughes tracks drilling rig activity throughout the U.S., and over the past decade the country has seen a massive shift toward new states like Colorado, Pennsylvania and New Mexico. Yet, just in the past two years, that landscape has shifted once again as exploration companies are moving out of unsuccessful areas like California and Arkansas, or productive regions with too much an emphasis on natural gas like Pennsylvania. The Bakken shale play in North Dakota and the Marcellus shale in and around Pennsylvania have established themselves as the focal points of the new oil and gas markets, respectively. However, a variety of newly-developing formations from the vast Permian Basin in Texas and New Mexico to the Brown Dense shale in Arkansas and Louisiana continue to push oil and gas companies to maintain a flexible resource base. Drilling in the pad 3 Even ignoring the sudden need for drilling rigs to scramble around the country, however, unconventional oil and gas has called for responsive rig transportation systems.

4 Shale revolution calls for flexibility in oil and gas The EIA points out how the industry has shifted toward pad drilling, in which a single rig is moved between several nearby drilling sites each of which is connected to multiple horizontal wells. This approach allows more thorough exploration of a given area without requiring an excessive number of drilling rigs or crews and has helped companies in the Eagle Ford shale cut drilling times by nearly one-fifth in less than a year. Oil & Gas Financial Journal reports that a major player in North Dakota s Bakken formation, Whiting Petroleum Corp., managed to cut the cost per well by as much Critical to those savings is the ability to reliably and responsibly move equipment from site to site as necessary. as $2 million using this method. Critical to those savings is the ability to reliably and responsively move equipment from site to site as necessary. Oil rigs were never meant to be permanent fixtures, but the changing nature of oil and gas exploration has necessitated more frequent movement within a field and longer travel between various parts of the country. Maintaining a flexible logistics system allows companies to explore the resources available without wasting money overinvesting in transportation. 4

5 Rising transportation costs once again pose problems for oil and gas by PennEnergy Editorial Staff The oil and gas industry has been the single most profitable and reliable segment of the U.S. economy for the better part of a century. But its ongoing success seems to be increasingly tied to finding new efficiencies and cost savings. Steep costs despite profits According to the U.S. Energy Information Administration, the average cost of an oil or gas well steadily rose over the course of the past decade. In 2002, when production was still in its long decline, companies ran $1, for the average well. That number had risen to $3, by 2007, the latest year with complete data. Data from the U.S. Bureau of Labor Statistics show that the oil and gas industry saw decreased productivity in the middle of the decade as well, likely because of a move by companies to adopt a variety of new techniques to tap into unconventional oil and gas reserves. IndustryWeek reported early this year that Chevron, the fifth-largest publiclytraded oil and gas company in the world, saw its profits decline on higher costs even before the massive collapse in natural gas prices. Since then, many of the other energy giants have faced a similar fate. 5 Among the various costs driving the rise in expenses is a jump in logistics requirements. The rise of hydraulic fracturing has necessitated the regular transport of millions gallons of water and other materials, helping to push logistics costs to their highest levels ever in 2007, according to the Council of

6 Rising transportation costs once again pose problems for oil and gas Supply Chain Management Professionals State of Logistics Report. The financial crisis reversed that trend, sending logistics costs down to record lows only two years later. However, a recovering economy, the loss of many transportation companies during the recession and steadily rising fuel costs have combined to push logistics costs back upward. Mixture of old and new to ease logistics pressure Several options have arisen for oil and gas companies looking to lower their logistics costs, however, some are integrating new technologies and others returning to older methods. According to IndustryWeek, the energy sector has started to adopt the use of radio frequency identification technology. These systems allow companies to easily identify, track and account for assets in terms of both equipment and production. Ryder offers dedicated transportation and Recording the movement brokerage services along with transportation and of assets to ensure that lead logistics management for the oil and gas industry in these locations: they go through all quality control steps is vital to our industry, but it can be cumbersome for floor workers, Konrad Konarski, president of Merlin Concepts and Technology, told the news source. No other data-capture technology can enable the sort of seamless, automated tracking in the way that RFID can. Locations Ryder s Oil and Gas Industry HQ Service Locations 6 This approach can especially simplify operations in the very active fields of North Dakota and other major shale regions, where limited amounts of equipment must be moved constantly between several sites.

7 Rising transportation costs once again pose problems for oil and gas However, it can also help take advantage of another growing trend in the oil and gas industry - the rising use of intermodal transportation. Particularly in areas with limited existing infrastructure, like the Bakken shale, it can be tempting to over-rely on trucking for transportation given its general flexibility and usually low costs, according to LogisticsWeek. However, there are already extensive freight lines stretching from major commercial centers around the Midwest to refineries along the East Coast, the Gulf Coast and even all the way to California. By limiting truck transportation to simply moving materials to and from train depots, the news source notes that oil and gas companies can reduce safety and compliance concerns associated with trucking. This also limits the industry s exposure to jumps in diesel fuel costs, allowing companies to take better advantage of high crude oil prices, profiting from the rise rather than paying for it. Particularly as the industry continues to shift away from its traditional bases, finding new ways to limit transportation and other logistics costs could prove crucial to maintaining strong profitability. 7

8 Electronic answers to unique oil and gas safety problems by PennEnergy Editorial Staff The oil and gas industry in the U.S. encompasses hundreds of thousands of wells across dozens of states. According to the U.S. Energy Information Administration, the country now hosts more than 2,100 active drilling rigs. Each of these drilling operations and many of the wells require regular shipments of equipment and materials. With the oil and gas industry often drilling in remote, difficult to access areas, most of this will be carried to the site by truck. Safety on the roads to and from oil and gas fields has risen quickly into the public consciousness in the past few months. A major piece in The New York Times on trucking in the energy sector highlighted regular dangers faced by oil and gas drivers who often work long hours at oil rigs, then sometimes face equally long trips back from the field. The Times leads with the story of one driver who died in a crash, not at the rig, but during a four-hour drive home after work. Rules and exemptions The focal point of these concerns is the long-standing exemption that oil and gas companies have been granted from driver safety rules known as Hours of Service regulations. These rules limit the length of time that drivers can stay on the road each day, with the hope of preventing fatigued driving, a condition commonly associated with serious accidents. However, the oil and gas industry has used an exemption from these rules that allows drivers to discount so-called waiting time. 8 As the Federal Motor Carrier Safety Administration, the U.S. primary regulator for the trucking industry, later clarified, though, the oil and gas exemption

9 Electronic answers to unique oil and gas safety problems was intended to ease the compliance burden on specialist drivers. Many pieces of equipment on oil and gas rigs require special training to operate, and see infrequent, irregular use. The growing number of tankers and trucks being used to haul water, sand and other materials that are used in hydraulic fracturing were never meant to be included. Some drivers, however, would use this exemption to work regular oil field jobs in between trips to and from the rig. Though this issue is far from ubiquitous, Before we had this system, if I needed to find one of our drivers, I d have to phone them and see where they were. Now, I can t imagine not having this. it did serve to significantly increase the risks faced by drivers for the oil and gas industry, while simultaneously putting at risk important and expensive equipment. According to the Times, as many as 300 oil and gas workers have died in highway accidents, and fatality rates in the industry were rising even as numbers were falling nationwide. Logistical solution To help combat this problem, Basin Oil & Gas reports that many companies have turned to integrated truck monitoring systems that can provide constant satellite tracking of individual vehicles as well as daily reports on compliance with everything from Hours of Service rules to speed limits. Before we had this system, if I needed to find one of our drivers, I d have to phone them and see where they were, Mike Wilcox, operations manager at BML Crude Oil Marketing, told the news source. Now, I can t imagine not having this. 9 These electronic on-board recorders can simplify a variety of other compliance requirements, including eliminating much of the paperwork required of drivers. EOBRs have proven controversial on the national stage, as many companies note the cost and truck drivers worry about the potential for such systems to be abused. However, in an industry with clear incentive for change, these systems provide a simple approach to saving both lives and costs. The Commercial Carrier Journal notes that some of these devices are even equipped to specifically account for the exemptions and added rules imposed for oil and gas companies.

10 Meeting the Demands of the Energy Industry Value-added solutions for dynamic business Demand for energy in the U.S. is rising, creating unprecedented supply chain challenges for companies drilling for oil and gas. Energy companies must move materials into position quickly and without incident with loads often including oversized or non-conventional freight requiring special handling. As a logistics specialist managing $4.2 billion in transportation for customers across North America, Ryder provides dedicated, value-added transportation solutions that help businesses be nimble, run lean and stay safe. Be Nimble Ryder helps companies adapt to changes in demand, staffing and service needs without missing a beat. With Ryder s highly skilled drivers, trained in specialized handling, you can put an end to missed deliveries and get products to their destinations with less damage and an on-time delivery rate of 99.9%. With 900 fuel/service locations, 400 engineers and technicians trained in the latest technology, you can ensure your company stands apart with higher-caliber customer service. Run Lean Working with a framework of standardized processes, Ryder creates the optimal balance of people, technology and services to improve quality and productivity, drive continuous improvement to eliminate waste and reduce costs. You benefit from a lean culture that saves Ryder and its customers millions every year without the upfront costs. Stay Safe 10 Ryder helps businesses offload the risks of owning, operating and managing a transportation network. As the first transportation company and only third-party

11 Meeting the Demands of the Energy Industry logistics provider to be awarded the Green Cross for Safety medal, with an 80- year commitment to safety, Ryder s success is built on institutionalizing safety for every fleet they operate. Businesses can leverage Ryder s safety-driven culture to reduce crashes and delivery interruptions. Success Stories: Leading oil & gas drilling equipment manufacturer partnered with Ryder to improve their transportation operations. Results included: :: Optimized transportation network with dedicated fleets in key locations :: $1.5 million in savings per year in premium freight cost :: Streamlined business processes for common carrier moves :: Increased visibility to all orders :: Automation of time-consuming, costly manual activities :: 8% reduction in procurement :: 4% optimization savings Global energy company drilling for oil in the Gulf of Mexico partnered with Ryder to implement a transportation management solution. Solution included the management of all inbound and outbound port deliveries for 18 oil rigs, as well as the management of approximately 4 million miles of distribution annually. Results included: :: Increased visibility, tracking and metric reporting :: Cost improvements through value stream mapping, network design, LEAN, Six Sigma, and A3 problem solving :: 49% reduction in pick-up and delivery delays :: 20% increase in load efficiency :: 9% decrease in cost per load 11

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