Oil and Gas: An Industry Ripe for Digital Transformation

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To quickly respond to market changes, oil and gas companies need to reinvent themselves. They need to be the next disruptors.

By Julia King

 

Today, hundreds of thousands of sensors and smart devices are monitoring and controlling equipment on rigs and in oil fields around the globe. Making oil and gas companies no strangers to digital technology or big data.

But these companies are just at the starting blocks of digital transformation. If they plan to out run their competitors, they must quickly race to full digital adoption. Today.

Worldwide oil prices have dropped more than 50% since June 2014, and production is out pacing demand.

This scenario means that oil and gas companies need to reinvent themselves by grabbing a hold of today’s technologies. They must boost operational efficiency. They need to be the next disruptors.

But what will they need to do to survive and disrupt? Many experts believe that the Internet of Everything (IoE) is the answer.

IoE is the networked connection of people, process data and things. And by fully harnessing it, oil and gas firms can generate an 11% annual profit improvement. This could equate to an increase in the global GDP up to $816B over 10 years.

 

But first they need to deal with all the data they are collecting. It’s the biggest challenge oil and gas companies face today.

Much of this data is stuck in far-flung and disconnected silos. It’s also separate from enterprise information systems. This is limiting its use in real-time decision-making.

Adding to the chaos? People and processes are disconnected. Operational technology, including devices on physical assets, such as meters, valves, sensors and motors, is often managed separately from IT. That includes even critical functions such as cyber security.

Simply put, a shortage of data is not the problem. The more critical issue is an industrywide lack of integration -- across systems, people and processes.

This disconnection prevents enterprises from taking full advantage of data analytics and IoE capabilities.

It prevents them from boosting operational efficiencies and making better, faster decisions.

But there is good news. This is an industry ripe for digital transformation.

Oil and gas companies are realizing they can’t simply continue cutting costs to survive. And no one knows for sure when the slump will pass.

Oil prices are projected to remain relatively low through 2016. Possibly longer. This means that the oil and gas industry needs all the help it can get. To overcome this, the best and the brightest in the industry are making different kinds of strategic investments. They need to in order to survive and to position themselves for aggressive growth.

“The dynamics have changed dramatically,” says Chris Nevin, an oil and gas industry analyst at IDC.

“There’s a huge emphasis on being more efficient. When oil was $100 a barrel, oil and gas companies didn’t worry about efficiency and costs because they were making so much money. But now, it’s a huge issue,” he says.

Mark Hill of Oilprice.com characterizes the oil price crash as a “blessing in disguise.”

“In the past, a downward move of 50% would have spelled disaster for the oil and gas industry," Hill writes in a March 9, 2015 Oilprice.com article.

“This time, a convergence of new factors suggests a different view of what’s happening.” Hill continues.

“In 2015, oil field, drilling and information technology have combined to create a perfect storm of capability and agility that will allow oil markets to respond with a speed typically only seen in the digital realm. Technology is whitewashing old school rules,” he writes.

Experts say a big chunk of the new IT investment by oil and gas is in data analytics.

IDC forecasts that by 2016, 50% of oil and gas companies will have advanced analytics capabilities in place.

New analytics methods are boosting the performance of certain industry activities.

In one case, a Canadian oil sands company is tracking the movement of its fleet of trucks. To do that, it is combining sensors, GPS and real-time analytics.

Real-time data and the trucks can be viewed on virtually any device, including smartphones and tablets. This move to digital is increasing production efficiency and reducing downtime.

 

Beyond Technology: People and Processes

But getting the greatest value from analytics depends on the data available for analysis.

This means breaking down data silos. It requires reengineering many of the disconnected but traditional processes in place at oil and gas companies.

Accenture estimates that nearly two-thirds of oil and gas companies manage analytics by specific function or department. This approach cuts off end-to-end enterprise visibility.

But as data become indispensable, people across operations and in IT need to collaborate. Digital transformation requires not only technical skills and business knowledge, but also industry and operations expertise, experts say.

Oil companies should be developing and attracting employees who possess knowledge, skills and experience to manage IT software. These employees must also have a strong understanding of engineering and operations.

This is a tall order for oil and gas. Historically there is a high degree of separation between IT and OT organizations across the industry.

IDC’s Nevin notes that turf battles between the two functions are not uncommon. 

“What’s happening is the implementation of more and more smart devices, but when these devices have multiple processors installed in them, IT says, ‘that’s an IT thing.’ So what happens is we have all these siloes of data and devices and there’s a struggle between IT and OT as to who owns them,” he says.  “They’re starting to come together because the IoT devices are helping to automate the oil field environment.”

By automating some manual processes, oil and gas firms can improve efficiency, safety, and accuracy, while reducing risk.

But it’s not only about attracting employees. Oil and gas companies also face the dilemma around their current professionals. Many are retiring soon.

This means that companies should automate many routine analysis and decision-support processes.

According a recent survey conducted by Cisco, oil and gas professionals believe that IoE has the potential to automate 25%-50% of manual processes.

 

As recently as 2014, Rockwell Automation CEO Keith Nosbuch noted that across all industry sectors, less than 14% of assets with an IP address are connected to the enterprise network.

But steadily if not swiftly IT/OT convergence is inching forward, helping to seed digital transformation.

To do this, some companies are implementing digital collaboration tools to unify their workforces.

In Tulsa, OK, Explorer Pipeline is using videoconferencing to transform its recruitment, hiring and training processes. Today, the company is conducting job interviews, training and communications to employees wherever they are located.

Explorer is moving fuel from the U.S. Gulf Coast to the Midwest. To do this, the company uses 1,830 miles of pipeline. Explorer employees need to collaborate to be productive, company officials say. Videoconferencing “raises the level of engagement among colleagues. We feel more connected,” says Todd Golla, director of IT.

It also has enabled Explorer to recruit more widely for the hybrid technical and operations skills it needs.

“We often conduct panel interviews with multiple people, and we use videoconferencing to save travel time and costs,” says Angel Stacy, director of human resources and administration. “We can schedule interviews faster and be more flexible, increasing speed to hire, and everyone feels like they are in the same room together.”

Another example of this is Westfalen Weser Energy of Germany. This company is using video collaboration to extend remote expertise to field technicians. And they are seeing a significant improvement in the company’s service and repair process.

Another digital transformation is in the works at Essar Group. This $35 billion multinational company has investments in steel, energy, infrastructure and services.

Given its presence across multiple sectors, the company generates a huge amount of operational and business data on a daily basis. With different systems for different lines of businesses, the amount of data tops 3TB.

To access that data quickly for real-time decision making, Essar implemented a unified computing platform. This allowed them to augment an in-place SAP HANA system with in-memory computing technology.

Business leaders can incorporate real-time data and operational reports from many different and widely dispersed systems to accelerate real-time decision-making.

Essar says access to consistent, real-time data was critical to improve its forecasting abilities. It also provides intelligence on how to redirect the business as needed based on events, customer relationships, product plans and market variations.

 In addition to accelerating real-time decision making, bridging the IT/OT gap has “dramatically improved business performance, all while reducing TCO,” says Jayantha Prabhu, Essar’s chief technology officer.

These examples are just the tip of the digital transformation iceberg.

Bain & Company analysts note that pervasive computing devices, including sensors that collect and transmit data, coupled with evolving analytic capabilities, are opening new possibilities every year.

For example, oil producers now can combine real-time down-hole drilling data with production data of nearby wells to adapt their drilling strategy.

Bain estimates that the analytic advantages could help oil and gas companies improve production by 6% to 8%. That, too, is just the tip of the iceberg.

According a 2014 survey by Bain of more than 400 executives across multiple sectors, “companies with better analytics capabilities are twice as likely to be in the top quarter of financial performance in their industry, five times more likely to make decisions faster than their peers and three times more likely to execute decisions as planned.”

The bottom line is this: Oil and gas companies that master the data, people and process elements of their businesses, are improving efficiency and cost savings.

Indeed, most oil and gas companies responding to a recent industry survey believe that data-driven insights will foster much more than incremental changes. They bring transformative changes in business and operational processes.

These include -- but aren’t limited to -- better asset utilization, process and supply chain efficiencies and greater productivity.

According to Oxford Economics, the potential economic impact of these IoE-and analytics-driven benefits will generate $600 billion in Value at Stake for the industry from 2016 to 2025.

For a $50 billion oil and gas firm, that translates to a $538 million annual profit increase opportunity.


That’s truly black gold.

 

Julia King is a technology and business writer based in Pennsylvania.

 

More Information: The Internet of Everything is transforming Oil & Gas operations.