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1. What is CORAL 2.0?
Cost Reduction Alliance 2.0 or better known as CORAL 2.0 is a long-term industry wide programme driven by PETRONAS with an aim to inculcate cost-conscious mindset across Upstream Malaysia. CORAL 2.0 will support sustainability of the oil and gas industry in the country and prepare for future industry challenges by optimising cost, increasing efficiency and driving industry innovation across all operators.
It is a continuation of CORAL 1.0 which was implemented from 1994 to 2005.
2. Why did PETRONAS embark on CORAL 2.0?
This was prompted by the slowdown in global oil demand as well as the downtrend in oil prices which changed the oil and gas business environment globally. For Malaysia to weather this situation, it demands a long-term, sustainable, structural response which is embedded in CORAL 2.0.
The implementation of CORAL 2.0 will reduce the cost for the entire upstream sector domestically. The cost reduction will support the economic viability of projects in the country as well as give Malaysia’s oil and gas industry further competitive advantage.
3. How long is the programme to be implemented?
CORAL 2.0 is a five-year programme from 2015 until 2019.
After 2019, the initiatives under CORAL will transition to the new normal practice across the industry domestically.
4. Why is an alliance necessary?
The industry’s current situation demands us to re-imagine traditional cost optimisation methods and focus on industry-wide optimisation. The synergy between PETRONAS and operator sunder CORAL 2.0 programme will bring a more sustainable response to help Malaysia’s oil and gas industry, especially the upstream sector, remain regionally and globally competitive.
5. What are the mechanics of the programme?
There are three main objectives under CORAL 2.0.
1. To inculcate cost-conscious mindset.
2. To benchmark efficiency with best-in-class performance.
3. To increase collaboration and innovation as well as infuse global best practices.
The objectives will be achieved through 11 core initiatives driven by collaborative cross operator and PETRONAS teams.
Also each operator will share best practices from their cost optimisation programme with the others in order to promote knowledge sharing and help improve industry outcomes.
6. What are the 11 core initiatives?
Low cost drilling
The initiative will drive reduction of drilling costs through optimisation of planning & well design, operational practices, logistic operations and application of new or fit-for-purpose technology.
2. Surplus materials management
Reduction of surplus material through improved planning, inventory management and monitoring by PACs will be the focus under this initiative.
3. Re-negotiations current contracts
Initiative will drive rationalisation of tenders & contract rates / prices to enable better economics of E&P activities, ensuring continuity of development & production operations.
4. Joint sourcing of services
Drive incremental savings for services through joint sourcing and implementation of innovative sourcing strategies & processes.
5. Joint sourcing of materials
Drive incremental saving for materials through joint sourcing and innovative sourcing strategies.
6. Technical standards
Drive competitive & standardized design for platform types, systems, equipment and components to optimise project CAPEX and shorten project duration.
7. Logistic control tower
Establish common planning and scheduling of logistics resources across PA Contractors in order to maximise asset utilisation by expending PCSB’s Control Tower concept.
8. Warehouse centralisation
Initiative will consolidate and centralise warehouses, expand Vendor Managed Inventory (VMI) concept and reduce inventory holding costs.
9. Cost driver benchmarking - (OPEX)
Drive cost savings for asset O&M and G&A cost categories through collaboration in cost driver benchmarking & analysis.
10. Cost driver benchmarking - (CAPEX)
Establish CAPEX benchmarking across PA contractors & standardise CAPEX KPIs to reduce capital expenditure.
11. Late field optimisation
The initiative aims to optimise the Operations and Maintenance of ageing facilities without compromising safety and integrity.
7. How much savings do you expect from this programme?
In the first year, PETRONAS and its PACs are targeting savings of between RM1 to RM1.8 billion. The amount of annual savings are expected to grow each year, reaching a steady state of between RM4 to RM7 billion annual savings in the year 2019.
8. How much savings do you expect from each of PACs?
The cost-saving target for each PACs is varied. PETRONAS will work together with the PACs to set the cost-saving target and to ensure the targets are in line with PACs’ current and planned spending.
9. Where will these savings go towards?
These savings will be used by each PACs to invest in their other projects.
10. How do you measure and monitor the effectiveness of this programme?
A special taskforce, CORAL 2.0 Programme Management Office (PMO), has been set up to monitor the progress of the programme as well as to provide guidance throughout the implementation of the programme. The PMO team is monitoring the progress of the initiatives through regular progress tracking against milestones and savings targets.
Under the programme, PETRONAS will benchmark the industry competitiveness in CAPEX and OPEX areas with their peers both in the regional and global arena. The programme effectiveness will be measured through improvement in competitiveness of Malaysian domestic upstream industry against regional and global peers.
11. What is the definition of CAPEX and OPEX?
Capital Expenditure (CAPEX) are financial spends that are long-term in nature, and consist of huge capital outlays. Examples include funding of a new oil field project across its development to production lifecycle.
Operational Expenditure (OPEX) are financial spends that keep the day-to-day operations and maintenance work at operators’ facilities. Examples include the spending on flare inspection etc.
Coral 2.0 targets reduction in both CAPEX and OPEX.
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