Digital Energy and Value Creation for the Oil & Gas Industry
While the Exploration and Production segment of the industry has no problem embracing geological and drilling risk, it doesn’t like to be the first to embrace new technology - including information technology. Although the industry has been accepting of the more general uses of IT, E&P people usually want technology to be been proven in other industries before they will accept it. It takes a strong business case to convince a manager to risk both money and time on an IT project as compared to a ‘hard’ technology such as a new drill bit design or an enhanced logging tool.
The Essential Nature of IT in E&P
Just how important is the IT role in oil and gas exploration and production work processes? Speaking at the 2006 Digital Energy Conference, Marathon Oil’s Steve Hinchman indicated that the next generation work model will see more partnering relationships and people doing more with less through advancements in technology and processes. These new recruits will have a global perspective with accelerated knowledge transfer and learning, Hinchman predicts. But, he cautioned that bringing this new work model into practice will require smart and strategic applications of IT.
Slow Technology Adoption Impedes Digital Energy Deployment
The slow adoption of all technology is an issue that the energy industry must address. Surveys show it takes on average 20 years for the energy industry to adopt new technology, including those resulting from its own R&D activity. The reasons given for the lengthy time span vary. A contributing factor is the difficulty of hardening a scientific innovation sufficiently to perform well in field use. Another factor is access to needed resources in both boom and bust cycles. And yet another contributor is the level of risk that is perceived as acceptable. People will take risks on technologies they understand, rather than those they do not fully comprehend, such as IT.
The impact that new technology makes on existing workflow presents another obstacle to the readiness of the oilfield for automation. For instance, one of the workflows in a major oil company embodies more than 800 individual applications. A technology has to make a very significant improvement to motivate the company to modify its workflow to accommodate it.
Security, Collaboration and Digital Energy
Increased reliance on technology presents another obstacle to rapid acceptance of IT in the oilfield. That obstacle is information security.
In a presentation at the 2005 SPE Digital Energy Conference, Mehrzad Mahadavi, Global VP, Schlumberger and Dave Ferdman, CEO & President, CyrusOne, referenced a November 2003 CERA article titled “Information Security in E&P”. This article stated the potential for a “physically significant” event in exploration and production triggered from public networks is increasing and that information security is a complex subject characterized by uncertainty and influenced by personal beliefs and biases. These warnings underscore the fact that IT activities can be vulnerable to attacks and that a security umbrella should exist over all digital technology activities in the oilfield.
Operators are finding that increased demands to collaborate internally and with third parties result in the sharing of commercially sensitive information over public networks, as well as with outsourced management and operators of field assets. Because of the information security implications, operations are being increasingly exposed to potentially hostile action. Not only is commercial sensitivity high on the agenda, but with potential access via public networks to command and control systems, the possibility for physical compromise of assets is growing.
Ready or not?
With so many issues slowing adoption, is the infrastructure of the upstream industry really ready for what Digital Energy can bring to it? That answer is yes. The technology is available; however, it is the readiness of the processes that is in question, as well as the acceptance of IT by the organization and the ability to construct an acceptable value proposition for its use.
For instance, one of the processes in flux is data management. Companies are already awash in data, and new acquisition methods and analyses are contributing to the rapid speed of further accumulation. High-speed computing, better applications and faster networks help move the data around, but in themselves don’t affect the processes needed to ensure proper management of the data as well as its quality.
Another factor that affects readiness is the comfort level that people have in general with IT. The ‘over 40’ generation of energy company workers acquired IT skills on the job as adults. Though the use of the normal suite of products (spreadsheets, internet, email, etc.) is well-accepted, there is far less use of the collaborative and knowledge capture aspects of the internet. The older generation largely views IT and the internet as a tool to get a job done.
Contrast this with the ‘under 30’ generation of incoming energy company workers. These individuals have never known a life without computers; most of them came of age with the Internet. The use of collaborative and knowledge sharing technologies - chat/messenger clients, bulletin boards, blogs, etc. - is an integral element of their educational experience, as well as the basis for much of their social networking. To them, IT is more than a tool - it’s a part of how they live and work.
The successful adoption of digital energy technologies and processes will be directly proportional to how well companies are able to bridge the ‘experience gap’ between the generations - for the younger workers to lead the way to help older workers to make use of IT, and for the older workers to use IT to embed and transfer knowledge and process to the next generation.
Value is the driver: How Digital Energy makes the business better
Does digital technology really enable increased business value? Business cases across multiple industries show that it does, because enterprise resource planning, deal capturing and transaction systems bring commercial events together and enable improved communication with suppliers of goods and services and their buyers. This, in turn, increases business value.
The usual metrics in business are total shareholder return, return on capital employed, price-to-earnings ratios, cash flow and market capitalization. In the oil and gas industry, the reserves replacement ratio, seismic exploration expenditures, reservoir performance measures and lease operating costs are also closely watched. IT has enabled better analysis of these indicators which, in turn, enables better business decisions.
According to one major exploration company, there are even more drivers that influence their IT business value creation. Their list include the reduction of project cycle time and improvements in production volumes, drilling operations and general E&P operations. Prospect evaluations are carried out far more quickly, with far better management of data and intellectual property, while collaborative technologies coupled with data management and enhanced communications help leverage limited technical expert resources
While the drivers may vary among companies, all agree that IT creates business value through:
- The global exchange of information, best practices, and know-how
- The reduced cycle times associated with the design and construction of complex assets
- The integration of business processes between the reservoir and financial systems.
- The operation of assets in “right-time” mode by leveraging the latest data and technical models and by applying the right people to the task.
Digital technologies enable speed of operation, remote accessibility and operation, faster progression of facilities from the drawing board to construction, faster and more accurate pinpointing of oil and gas pay zones, higher quality imaging, 3D and 4D simulations, reduced costs and improved overall production.
As successful implementation is achieved, each of these new applications not only creates business value - it predisposes the company to use more digital technology to create more value. In fact, the real value of the application of digital technologies may be to create an innovative company culture that supports the re-engineering and continuous process improvement of all business functions.
The Petro-IT Professional
Many E&P companies still view IT in their business as ‘nothing special’ - that IT in E&P is no different than IT in, say, the aerospace industry. Compounding this perception, IT is sometimes seen as a place to work while waiting for a ‘real job’. Yet those that choose to work in IT within E&P view it a unique discipline, as to be effective, a person must understand the technical aspects of the business to obtain the best results through the application of digital technologies.
A new technical discipline is needed that will provide opportunities for careers in IT to E&P professionals. This ‘Petro-IT Professional’ would have specialist IT skills as well as background and education in the core technical disciplines of E&P. And the result would be processes and technology more closely designed to enhance the way in which E&P people work.
It seems a ‘no brainer’ to people working within IT that it must cross-pollinate with the rest of the scientific and engineering community in an E&P company. Currently, these two groups do not always speak the same language. Sooner or later, they must work together to bring a new work model into being because IT is more than just digital oilfields. It’s about harnessing the power of collaboration and will be essential to the careers of the existing workforce because ultimately, it will enable people to work in new ways.
Digital Energy: a creator of value that is here to stay - and grow
The SPE Digital Energy Conference was started six years ago by people who recognized the growing value and potential of the application of IT in the energy business. Businesses saw the dot-boom, followed by the dot-bust, and there were some in the energy community who wrote off all of that ‘IT stuff’ as a passing trend, expecting a return to business as usual.
But something happened during that time: operations within energy were made more efficient through the application of IT, and value was demonstrated that could not be overlooked or attributed to other means. From the early experiments around online market places and data rooms, to the use of IT to enable onshore drilling engineers to run offshore drilling projects, to the deployment of enterprise-wide systems for business management and knowledge capture and sharing, IT has become integrated into every part of energy operations.
There is no doubt that the “digital genie” is out of the bottle and there is no going back. Digital Energy is here to stay - and it’s up to us in the industry to take best advantage of it.
