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Optimizing the Oil and Gas Industry
Digitalization is not what you think it is
Digitalization is very popular in the Oil and Gas world today, but it’s not what you think it is.
Let me explain.
The evolution of oil and gas
“Since the industrial revolution, the Oil and Gas industry has played a pivotal role in the economic transformation of the world, fueling the need for heat, light and mobility of the world’s population” explains BP Group Chief Executive, Bob Dudley in the white paper: Digital Transformation Initiative – Oil and Gas Industry.
Throughout history, new technological developments have consistently steered oil and gas operators into new frontiers – deeper waters, more remote locations and the need for unconventional solutions.
Bruce Weinelt, Head of Digital Transformation with the World Economic Forum, reminds us that “the Oil and Gas industry is also no stranger to big data, technology or digital innovation. As early as the 1980s, Oil and Gas companies began to adopt digital technologies, with a focus on better understanding a reservoir’s resource and production potential, improving health and safety, and boosting marginal operational efficiencies at oil fields around the world. A wave of digital oilfield initiatives swept through most of the industry in the 1990s and the early part of this century.”
However, for most of this decade, the industry has not taken advantage of the opportunities that derive from using big data and technology in a meaningful way.
How did we get here?
For the sake of brevity (and the assumption that most people interested in reading this blog have a decent, high-level understanding of the events that shaped the current state of the oil industry) I won’t go into detail but rather try to provide a quick refresher.
During the industry’s recent boom years, high energy prices swept away much of the cost of inefficiency.
Similarly, IT has not been seen as an essential element of operations, rather, a “nice to have” function. As a result, most implementations were installed selectively with basic systems that were not quite fit for purpose.
A recent period of low crude prices combined with a supply and demand mismatch, frequent budget and schedule overruns, as well as greater demands on climate change accountability (and a host of other challenges) have created a mandate for oil and gas companies to focus aggressively on both capital and operational efficiency to reduce costs.
Setting the stage
Oil and gas companies are realizing they can’t simply continue cutting costs to survive.
They need to reinvent themselves. They need to leverage current technologies to boost operational efficiency because the standard approach to downturns in the Oil and Gas industry is not sufficient.
Dramatic changes in business models, workflows, talent and technology across the hydrocarbon value chain are necessary to improve response to market signals and maximize efficiency.
They need to be the next disruptors. But how?
The current state of affairs
To know where you are going you must know where you are. Let’s take a quick look at the state of most businesses in the Oil and Gas industry currently.
Silos: People, processes and technology are disconnected
As I mentioned, many oil and gas companies exist as islands of technical excellence, which is not shared across departments. This lack of integration across systems, people and processes prevent enterprises from taking full advantage of big data, analytics and the capabilities of the Internet of Everything (IoE – the networked connection of people, process data and things). It prevents them from boosting operational efficiencies and making better, faster decisions.
Manual and repetitive tasks
Additionally, in the business backend, manual and repetitive processes are alive and well simply because that is the way things have always been done. Innovation is typically focused elsewhere.
Incremental Change, Not disruptive
Much of the effort so far has been evolutionary; starting with digitization (not to be confused with Digitalization) – the conversion of text, images or sound into a digital format which can be processed by a computer.
Companies are making incremental rather than disruptive performance improvements through the selective use of business and digital technologies. One reason for this gradual approach is that most companies aren’t ready for a big transformation because they lack the people, processes and capital required to make it happen.
Looking Ahead: The Perfect Storm
Until recently, most of the technology has been focused below ground — finding oil and gas and getting it out of the ground as quickly as possible. When it comes to applying technologies to business operations, the industry often falls short.
An Industry Ripe for a Digital Transformation
The traditional mindset is costly and inefficient, particularly in today’s sustained low oil price environment. Many companies have already scaled back their workforce, slashed budgets and pushed their suppliers for price reductions. Adapting to this new normal state in market fundamentals, companies are taking a hard look at their operating models and asking themselves how they can change to survive.
Learning from Others
As other capital, intensive industries (such as aviation and automotive) have revolutionized their business and operating models through a holistic application of digital technologies, the opportunity for the Oil and Gas industry to leverage the transformational impact of digitalization has become more evident.
Technology as an Enabler: The Time is Now
Technology has now advanced to a state where it can act as an enabler and the growing consensus is that the Oil and Gas sector is on the cusp of a new era.
The fourth Industrial Revolution:
The Digital Revolution
“While digitalization could be a source of positive change, there are a number of challenges, that need to be overcome to realize its full potential for both business and society.” Says Bob Dudley, Group Chief Executive of BP.
Bruce Weinelt suggests the traditional approach of selectively adopting a set of technologies and unsystematically implementing digitalization might not be suitable. Instead, the industry could benefit more by pursuing a revolutionary agenda with digital as a backbone.
A digital transformation has the potential to create tremendous value for both the industry and society as a whole. Such a transformation will require organizations to implement a focused digital strategy.
Bain & Company as well as Forbes have provided some insight on how to approach implementing a digital strategy:
Make a Plan
Without a long term, integral plan, companies risk high investments while capturing few beneﬁts.
Monitor key industry and technology trends
Focus on the identiﬁed value chain areas that are speciﬁc to the operations. Decide whether to lead the industry by innovating or by acting as a fast follower by implementing tested technologies and processes.
Update operating model and reconnect information flows
Clearly deﬁne the links between the company’s most critical decisions and digital applications, including showing how digital applications will improve decision-making effectiveness. In addition, remove silos by adjusting the operating model to facilitate the sharing of key information, leveraging all available data sources.
Evaluate the investment necessary to digitize the key activities of the company’s value chain and develop a multiyear budget and an overall roadmap balancing the capture of economic beneﬁts with the ﬁnancial burden on the cash ﬂow.
Have the RIGHT people on board
Assess current personnel capabilities and develop a plan to address the gap. The talent upgrade plan should deal with investing in current employees, deﬁcits in technical expertise and include a comprehensive set of actions to instruct those at the front line on how to change their way of working.
A Great Example
One company who is providing an excellent example of how to approach digitalization in the oil and gas industry is Statoil. On their website, they have outlined their plans to deal with digitalization over the next several years, which includes:
Establishing a digital center of excellence to coordinate and manage the digitalization efforts across the company.
Launching a roadmap with seven specific programmes for areas to focus their digitalization efforts.
Identified their areas of opportunity.
Recruiting internally and externally for the center of excellence and the programmes.
Developed and committed to a budget.
A statement of their goals, which includes becoming a global digital leader within their core areas.
With this kind of preparation for digitalization, Statoil are well on their way to achieving their goals.
Benefits and Opportunities
Digitalization across an organization can break down silos and build bridges from the islands of excellence to allow digital innovation to permeate the whole organization.
Statoil identify 3 areas for new opportunities that stem from the rapid technological development including:
Digitalization of work processes
Advanced data analytics
Robotics and remote control
Eldar Sætre, Statoil’s chief executive officer says that “Digitalisation can help improve the safety and security of our operations, both by means of data that provide us with a better decision-making basis, and through reduced exposure in risky operations. A combination of digitalisation, standardisation and a culture for continuous improvement may drive cost reductions, and form the basis for increased value creation and activity”.
Similarly, in their white paper, Digital Transformation Initiative, the World Economic Forum detail four digital themes central to the digital transformation of Oil and Gas over the next decade.
Ahmed Hashmi, Global Head of Upstream Technology, BP says that “How you get people to interact with the automation is the biggest challenge”. Attitudes around digital need to change and must be made a priority for senior executives.
A different Skillset
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. Professionals with a technical education in Engineering or IT and operational experience are the ideal candidates to lead the way in this new field that exists at the intersection of business and engineering.
What does it really mean to digitalize a business process?
So far we have only thought about digitalization as an incremental implementation of technology, aiming to close the gaps between disparate departments and business functions by facilitating communication and better decision making through the use of analytics and predictive models.
I said that oil and gas companies need to be the next disruptors however, this too, sounds like more incremental change, an extension of automation. While this may be a practical approach for dealing with the complexities of a non-ideal world, it is nearsighted as digitalization does not end there.
“Digital business transformation is about doing things differently. It’s not just about automating or inserting technology into an existing process. Nor is it about replacing paper or people” Janelle Hill, vice president and distinguished analyst at Gartner, told delegates at a Business Process Management Summit.
Gartner uses “digitalization” to emphasize that the goal is to create and deliver new value to customers, not just to improve what is already being done or offered. It’s not about taking people out of the process, but getting them back to doing what they are good at.
“We now have the ability to use machines to support and augment people to help them realize their potential, not have them bogged down in paperwork and systems data entry,” Ms. Hill said. “We need to think about how to identify the right work for people.”
All great Acts of Genius began with the same consideration:
Do not be constrained by your present reality.
– Leonardo Da Vinci
First principal thinking is a concept that hinges on this idea from Leonardo Da Vinci. In order to explore the boundaries of what is possible, we cannot simply create another iteration of what already exists. True innovation requires a different type of thinking.
Instead of trying to fit a process to a technology or the other way around, we need to re-think how we do business. We need to seriously evaluate and update the operating models and workflows our businesses are based on.
What is Digitalization?
Digitalization is more than a technology.
My vision of Digitalization is the successful implementation of technology throughout an organization which facilitates the following:
Utilising the digital opportunities that large volumes of data provide
Enabling people to realize their full potential
The Optimization of business processes
To deliver new, shared value to the customer and business.
Beyond Digitalization: Optimization
At Proximity, it has been our vision from the start to maximize the value of our customer’s data.
In order to do this, we believe that your systems need to be able to share your data, so your people can communicate, effectively and efficiently.
This is why we have developed our software as a modular product platform, so you can share your data freely between people and departments as required. Our products are also made to integrate with your existing systems to enable you to get the most out of your data.
By sharing your data you can paint a bigger picture; You can identify patterns to gain business insight and extract more meaning. This is what it means to maximize the value of your data.
When you feed that information back into your business, you can optimize your business processes and make better, more informed decisions.
Proximity has recently moved into our new offices at Forus. The new address is Luramyrveien 13, Building D, Sandnes. In the middle of Forus – easy to access and coffee or tea will always be available. Stop by us if you are in the neighbourhood.