In an industry where there are still few capital projects being initiated since the 2014 price collapse, and pressure on any new project to deliver cost effectiveness and ahead of schedule, IT is continuing to be a key enabler for upstream oil and gas companies. The industry considers digitalization as the way for companies, large and small, to work smarter and do more with less. Four key trends are transforming the oil and gas industry in 2017.
1. Out with the old business models, in with smarter financial models based on service delivery
According to Research and Markets, Global IT spending in the oil and gas industry will be worth $48.5 billion by 2020—with a key growth driver being the "enhanced efficiency of resources." Operational and information technology are beginning to converge as new enabling technologies such as the Internet of Things (IoT) have become more affordable and offer new ways to work smarter for less. This increased affordability will enable not just big tier one companies, but also smaller ones to transform their asset management systems and increase uptime.
The oil and gas industry has been an early adopter of sensor technology. Over the coming year, we’ll see more sensors collecting more and bigger amounts of data—and companies doing more compelling things with the data to impact the operations of their business. In 2017, we will see this early adoption paying real returns, enabling the industry to build smarter financial models which offer performance-based services, rather than fixed fee services.
Some upstream companies are now realizing that their underlying asset management systems, if agile and flexible enough, can be transformed by the integration and analysis of data for the delivery of smarter services. Collecting and processing equipment data will enable better projections and results—protecting the bottom line for smaller players. But with this new wealth of data, we will see new business models emerge, moving to the supply of services with consumption and performance-based pricing, rather than rigid fees.
2. Aging assets at a crossroads – scrap or maintain?
The unpredictability of the market has meant that industry has reduced spending on large-scale maintenance and the modification of assets. But it hasn’t stopped operating. The longer a company delays asset maintenance, the more potentially hazardous it becomes from a safety, environmental and operational standpoint.
Oil and gas organizations are struggling to catch up on these backlogs – witness the high profile North Sea Backlog last year - not helped by the headcount reductions in the industry after 2014. Executing a complex maintenance project means an increase in the use of contingent labor. According to Accenture, “contingent labor - perhaps 30-50 percent of a typical energy company’s entire workforce - may be under-managed, under-utilized and under-optimized.”
So effective use of reduced headcounts and contingent labor means having the right tools to plan and execute complex projects and manage the workforce. These strategies will become imperative in keeping companies time and cost-efficient. But the traditional large software portfolios just add to complexity and to cost. A modern, application-based approach, which includes point solutions as modules for operational planning, crew rotation and workforce scheduling, is needed. Agile IT means quicker implementation, and therefore quicker time-to-value of these large-budget projects.
3. Extracting the most from existing resources: new technologies provide the helping hand
Those companies that can move on new projects will continue to do so with a lower headcount. However, without the proper resources, companies run the risk of being unable to fulfil critical projects. We are seeing an emerging maintenance gap, particularly in the offshore environment. Older engineers are either being kept on for their experience or let go because of their relatively high cost. There is also a lack of younger engineers—who traditionally adapt more easily to new technology—coming through to bridge this gap.
Technology is on hand. Drones offer an inspection solution for hard-to-reach equipment, which has driven the industry to investigate use cases. BP has been investigating use of unmanned aerial vehicles (UAVs) since 2006 and recently began a project in Alaska for topographical mapping and scanning pipelines for damage. Drones can also be used to inspect remote and difficult-to-reach on-land assets or offshore rigs. The drone data can then integrate with backbone asset management and workforce management software to schedule relevant maintenance actions.
Another emerging tool is augmented reality applications. Augmented reality technology delivered via a wearables or mobile device enables remote, one-to-many over the shoulder coaching. Engineers on the ground can be guided by augmented hands and tools by specialists in another location, thousands of miles away. I anticipate that this will accelerate as companies look to maximize maintenance efficiency in difficult to reach environments and get the most of the resources they have available.
4. A leaner fitter industry is now ready to address the renewables market
The latest edition of the International Energy Agency’s Medium-Term Renewable Market Report sees renewables growing 13 percent more between 2015 and 2021 than it did in last year’s forecast. In the case of at-sea wind farms, service-oriented oil and gas organizations have relevant offshore experience—adapting to wind energy just requires applying their offshore expertise in a new way. Oil and gas organizations with their leaner IT and use of emerging technologies mean they are well placed to quickly adapt to new business strategies to support this growing market.
2017 is presenting oil and gas companies with new challenges as the industry moves further into uncharted waters. Organizations must balance budget cuts and reduced headcounts with increasing pressure to realize value faster than ever before, and exploit new opportunities.
One way to increase effectiveness is to move the infrastructure into the cloud, which I think we will see more companies doing within the oil and gas industry. Cloud-based infrastructure can speed up value realization and offer more agile, quicker-to-deploy solutions. Cost of entry is low and according to IDC, “the companies that will survive and prosper are the ones that know how to leverage enabling technologies like cloud and mobility, to help automate and optimize processes and apply analytics to improve operations output.”
Over the next 12 months, expect to see an increase in synergies between operators and service providers both looking to move in a more environmentally friendly direction and unlock new revenue streams. Agile IT will underpin this drive. Working smarter will become a necessity, not a luxury.