In a recent episode of Gamechangers, Bonnie explored upstream challenges in the oil and gas industry regarding digitization. Her guests were Valerie Jalufka from Accenture, Chris Niven at IDC, and Stephane Lauzon from SAP.
Here’s what they discussed.
Pricing impacts on the industry
The recent fall in oil and gas commodity prices has had a strong impact on upstream companies. It’s impacted cash flow and high-risk project investment. Exploration and production involves finding, recovering, and reducing raw materials. It covers well location, construction, and operation. The recent focus has changed from drilling new wells to managing the efficiency of existing wells.
Understanding upstream helps everyone understand market prices. Exploration and production has been the key focus over the past 18 to 24 months.
Changing commodity prices drive automation and robotics. But many companies back off digitization because of the economic cycles common in the industry. How you move forward is vital to the success of your company. Innovation means you can keep your business moving to provide for the world’s energy needs. At the same time, you need to manage risks in capital spending.
Three trends in $50 oil
There are three trends in $50 oil. The first is the focus on innovation forming from upstream businesses. Smaller independent companies are changing the standard operations expected in the industry. In the shale boom, they bought up land and left industry leaders wondering where they could set production. This focus can make $50 a barrel the long-term goal.
The second trend is a shift to the customer’s perception. Digitalization and connectivity changes how customer engagement happens, and not only at the pump. It’s how we can engage land owners for exploration. Creating a customer focus allows you to better develop the necessary resources.
The third trend is more philosophical: It’s the belief that the only way to remain in the industry is to push through the changes. Oil companies around the world are hunkering down and consolidating their position after the changing commodity prices. Costs and employees have been cut, while production levels have been maintained. Overall, the businesses have become more agile. New reserves must be found to replace production that’s already been used.
Oil and gas companies are no longer focused on the next few months, but on the next several years as they shift toward long-term planning. They strive to create a stable entity that is well positioned to come out of the downturn as industry leaders for the next decade.
Demand increases as population rises, especially in countries that are improving their living standards, such as China and India. Knowing how to deal with a range of oil prices from $20 to $120 a barrel is vital to success. Surveys show that the top IT initiatives involve digitization, citing the strong benefits of cloud, Big Data, automation, and analytics as their reason for innovating.
Innovation allows smaller and more agile companies to take advantage of changing conditions. They’re gaining more of the market share as large industry leaders take too long to shift. Modernization mixes cloud and master data management with Internet of Things (IoT) platform development, which enables companies to monitor oil field equipment as well as device and data system efficiency. This in turn allows automation.
Past and future digitization
Oil and gas involves a mix of technology lag and innovation. The environment in which oil is produced demands creative approaches to discovery and production. New technology is required to get hydrocarbons from miles below the surface. Industrial robots are expected to comprise one-fifth of today’s price within three years, while offering a 500% increase in capability. Sensors, tools, and capabilities will allow robotic automation. This may include machine vision, speech recognition, force sensing, and advanced mechanics.
Master data management helps define terms and processes across the business. When one Texas oil CEO asked his company how many oil wells they had, different departments offered different numbers based on their perception. A central platform helped unify the company’s approach. Real-time systems use IoT for devices, data systems, equipment and controllers. Automation provides connectivity across the oil field.
Investment in underwater submersible design and advancement is removing the need for tethering. Intelligent drill bits are being developed to work around particular certain geological structures. Intelligence will play into modeling production, PDPs, and similar data to help figure out where to drill. This information helps figure out costs, returns, depth, and other criteria that feed into drilling site locations. Further automation of oil rigs allows for multiple wells from one well pad using drones and robotics.
The oil and gas industry has been digitizing for 15 to 20 years. It’s now seeing an increase in sensors and automation combined with a push for digitization in daily activities. Accounting, data processing, and analytics must be added to the existing capability. Connectivity must be improved to finish the process. Predictive analytics, real-time systems, and an IoT environment will prevent downtime. Overall changes to the industry requires creating a meld of existing and new digital technology.