Oil & Gas Operational Excellence Driven by Digital Transformation

Summary

Companies operating in the oil & gas, energy and chemicals industries met in Calgary, Canada in June at the Operational Excellence in Energy, Chemicals, & Resources conference to discuss how they can realize Oil & Gas operational excellence even in challenging times.  The upstream oil & gas segment alone has seen CapEx reduced by over $700 billion in last three years.  Well over 100 companies have filed for bankruptcy, layoffs exceed 400,000, and a wave of consolidations have created an environment in which companies are more open to embracing new technologies and changing cultural mindsets to realize operational excellence.  

Impact of Digital Transformation on Innovation and Oil & Gas Operational Excellence

Raja Banerji, Chief Marketing Officer, Manufacturing, Life Sciences, Energy & Resources, TCS kicked off the two-hour Digital Transformation track (which TCS sponsored) by highlighting the company’s extensive capabilities in empowering companies to achieve operational excellence.  Mr. Banerji also highlighted several industry sources that provide strong indications that digital transformation and the technologies that empower it are here to stay.

Rustom Mody, Vice President, Enterprise Technology at Baker Hughes then provided an excellent presentation,  elaborating on the company’s goal to enable safe, affordable energy to improve people's lives and defined “innovation” as a new idea that can be successfully turned into goods or services that can be sold or traded.  To provide value, he believes that innovation must be tied to customer needs, be economically sound, and built on viable technology.  Innovation requires knowledge, according to Mr. Mody.  He cited UBER as an innovation that created a $60 billion market.  He said that digital technology is a main reason just over half of Fortune 500 have disappeared since 2000.  That’s because “digital creates disruption.”  Examples include UBER, Netflix, and Amazon that are all succeeding via evolutionary leaps, relentless efficiency, possessing minimal assets, and leveraging a dynamic value chain vision.

Mr. Mody outlined the many challenges the oil & gas industry faces today.  These include low oil prices, increasing global energy needs, and production sustainability at the new normal of $50 per barrel.  He said the main goal is to reduce exploration and development costs for new wells, focus on optimizing production, mitigating risk on new and old wells, and use ultimate recovery and booked reserves as key metrics for operating companies.

Mody sees a big “digital data gap” in oil & gas since the sector is data intensive, but has an unconnected and disparate value chain.  He feels that big disruptions such as technology tools like IIoT, data analytics and machine learning, and virtualization and automation will help close gaps over time; moving the industry toward what he referred to as “intelligent energy.”  Mody provided a future picture of offshore wells – using the “man and dog” analogy: man is there to feed the dog and the dog keeps the man from touching any dials or buttons, with the platform monitoring and operated remotely or via a self-regulating system.  Arguably, the oil & gas industry is in the “perfect storm” position for change, since today’s stubbornly depressed energy prices are forcing companies to reimagine their operations through digital transformation. 

Driving Results with Analytics in Oilfield Operations

Following Mr. Mody’s thought-provoking presentation, the track included a panel discussion with discussion moderator, Tom Franklin, Director – Upstream Center of Excellence at TCS; Rustom Mody; Jan Johansson, Principal Consultant, Oil & Gas Domain at TCS; and Tim Shea, Senior Analyst at ARC Advisory Group (the author of this report).

Mr. Franklin set the stage for the panel discussion, stating he believes that oil & gas is still a great business but it needs to operate differently going forward:  "Reimagine the business from the ground up, everything is on the table and digital technology is a key driver for unlocking future potentialities.” He stressed the need for operational excellence and asked the panel about the role analytics can play in that regard.

Mr. Mody talked about how analytics are helping drive results via intelligent completions by increasing the number of frac zones and improving “sweet spot” targeting, enhancing subsurface visibility, and enabling a viable digital oilfield.  As Shea expressed on the panel, ARC agrees that the industry is ripe for opportunity by leveraging analytics and developing the cultures that foster innovation and operational excellence, especially during this “lower for longer” market.

Mr. Johansson talked about how the digital world is requiring industry to change the way it will do business going forward.  He talked about how TCS’ machine learning solution leverages analytics to help natural gas operators realize when their pumps are likely to fail (prior to failure) and the cause(s) and fixes to reduce maintenance costs and avoid unplanned downtime. Johansson said the key is to think about the problems that need to be solved and applying analytics effectively to realize results.

Shea talked about how IOCs and NOCs have been trying to develop and implement digital oilfields for over a decade now, but only since the recent advances in analytics (and by working with technology partners such as TCS) have they sensed that they have been making any real progress toward the goal of integrating their previously siloed operations.

Upstream Oil & Gas Ripe for Digital Transformation

Sharing some of ARC’s research and learnings in this area, Tim Shea provided an overview on how the challenging environment created by low oil prices makes this an ideal time for companies to consider investing in IIoT-enabled solutions such as advanced analytics and machine learning, cloud computing, and collaborative communications. New upstream technologies such as multiphase flow metering, intelligent completions, and intelligent pumps can help operators thrive. 

Shea concluded his presentation by highlighting some real-world applications in which IIoT-enabled solutions and operational analytics are helping operators monitor and optimize wells, artificial lift, and supply chains; and implement collaborative operations that connect to drive other operational improvements.  He cautioned the audience that most operating companies are in the extracting, producing, and/or refining business; not the complex systems integration and analytics business.  As a result, he stressed the need to work with technology partners that possess both deep domain knowledge in oil & gas, as well as expertise in analytics, engineering, and complex systems integration.

Fueling Freedom

Steven Moore, Senior Economic Advisor to the Trump Administration, Senior Economic Analyst at CNN, and Contributing Editor for the Wall Street Journal gave a very informative presentation that highlighted the current administration’s strong support for the domestic energy industry.  Mr. Moore started his presentation with a slide contrasting the lack of electricity in North Korea (almost entirely dark) versus the well-lit landscape in South Korea.  He stressed that “energy is everything” for a society and that energy use is highly correlated to economic growth and development.

The next few slides showed how many hundreds of years of supply remain for oil, natural gas, and coal and that the growth in oil & gas production in the eight years leading up to 2015 exceeds by nearly two-fold the total current production of energy from all renewable resources (excluding hydroelectric).  Mr. Moore noted how $150 billion was spent over the past five years to support solar and wind projects, yet these still represent less than 5 percent of the total energy supply.  He indicated that North America has emerged as the new swing producer.  (It should be noted that Moore’s presentation was delayed one day due to the fact that he was at the White House meeting with President Trump.)

He provided evidence to support the conventional wisdom that natural gas is the bridge fuel of the future and that we are entering the “century of natural gas” since it is a more efficient and produces fewer emissions.  Another interesting point he made was that the US has reduced greenhouse emissions by 60 percent per unit of GDP since 1970, more than any other country.  Mr. Moore’s concluding comments focused on the need to reduce corporate taxes to spur increased investment and the increasingly important role and rapidly increasing adoption of new commercial technologies such as smart phones and tablets in industry.

Industry 4.0:  The Next Wave of Operational Excellence 

Henrik von Scheel, a board member of Google and Gazprom, gave an interesting presentation highlighting his focus on “patternicity.”  He started by discussing the large gaps between the perception of where the oil & gas industry thinks it is today vs. the reality.  Nine out of ten industry participants think their strategies are successful; but – in reality – 70 percent of those strategies never succeed.  While 7 out of 10 projects were declared “successful,” in reality, 72 percent of projects fail to deliver on time or on budget and almost all are only implemented in silos, he said.

Von Scheel showed the four phases of industrialization and explained how that, up until Industry 3.0 (starting in 1969 until 2013), there was linear innovation in which exponential technology lagged the status quo.  Now, as we proceed into the Industry 4.0 phase, we are seeing exponential innovation with new technology surging past the status quo.  “When disruption happens, it happens fast,” he said, and that “the convergence of physical, digital and virtual world will be the true realization of Industry 4.0.”

Von Scheel highlighted three different approaches to leveraging pattern recognition.  These are based on the top 5 percent and 15 percent value core differentiating areas of operations: service, value, and revenue models.  These require more customization to maximize impact, versus the remaining 80 percent non-core areas (operating and cost models) in which low cost and standardization are critical to the bottom line.  He believes business strategy and operational excellence should be “linked like Siamese Twins.”

Several other interesting presentations and panel discussions focused on achieving operational excellence; either by adopting new technologies and/or processes, enhancing operations management systems, and/or via changes in cultural mindsets.  We heard the famous quote from Peter Drucker, “Culture eats strategy for breakfast,” more than once during the conference.

Conclusion

The Digital Transformation track sponsored by TCS at the Operational Excellence in Energy, Chemicals, & Resources conference imparted strong thought leadership and real-world examples on how companies operating in today’s margin-compressed times can leverage digital solutions and develop technology partnerships with companies such as TCS to achieve operational excellence.

The larger conference itself provided several informative and thought-provoking presentations and panel discussions that show the industry is moving towards the realization of operational excellence through both technology and cultural improvements.

 

 

 

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Keywords: Analytics, Digital Transformation, IIoT, Oil & Gas, Machine Learning, Oilfield Operations, Tata Consultancy Services (TCS), ARC Advisory Group.