Proactive supply chain management

Encana’s approach mitigates D&C cost inflation

As industry activity ramps up in 2017, inflationary pressures are also expected to increase in some services. Encana, through an innovative approach to its supply chain, is well-positioned to manage these cost pressures.

"We've taken a number of decisive steps to manage expected drilling and completion cost inflation as we aim to keep our costs steady through 2017," said Mike McAllister, Encana EVP & Chief Operating Officer.

"One calculated step we took was getting a head start by building to our full-year 2017 activity levels late in 2016. This helped us to secure services and materials for the full year."

Another major advantage for Encana is its centralized approach to supply chain management. Seventy-five percent of Encana’s capital spending is controlled through its centralized supply chain team. This group is embedded within operations and is comprised of professionals with expertise in operations, markets and procurement. This allows the drilling and completions teams to focus on what they do best -- drilling and completing wells.

Rather than a more traditional, splintered approach, Encana sources and purchases its own supply for a number of key materials in its drilling and completions operations, including frac sand, water, chemicals, casing, tubing and drilling mud. This results in capturing improved pricing and security of supply.

Encana manages the entire supply chain process. A good example of this is how sand was managed for a large, multi-well pad in the Permian. Regular meetings were held with the sand mine, the railroad, terminal and trucking, on-site coordinators and completions engineers in order to bring all areas of the supply chain together as one team. The end result was accurate sand estimates and greater overall efficiency of sourcing and delivery.

This collaborative approach with key suppliers also resulted in a recent agreement on company-wide frac sand supply. Since frac sand represents a large percentage of the cost of completions, efficiency improvements in sourcing can result in large cost savings. By engaging the supply chain early, Encana is continuing to mitigate the risk of cost inflation. For the supplier, the benefit is a strong client that serves as a base for its business, regardless of the tonnage utilized.

By bringing everyone together as one team, the savings extended beyond a single well pad and has built efficiencies into our programs beyond 2017.

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