As low oil prices persist, the offshore sector is focusing on efficiency and cost reduction. But what are the long-term consequences, and how can the sector make sure its future is sustainable and viable? Research suggests that the answers lie in collaboration, innovation, data technologies and crossover technologies from other industries.
According to a report published in 2015 that includes a survey of more than 450 oil and gas industry professionals, “operational efficiency” is now the top driver for innovation investment, narrowly overtaking “safety,” which topped the list in the 2014 survey. “Improving access to potential reserves” and “increasing the life span of assets” also rated more highly as innovation drivers in 2015 than in 2014, suggesting that companies are looking to push up the top line by extracting maximum value—as well as nudging down the bottom line.
The survey reveals a broad consensus that innovation is vital for the sector to meet the challenges of today and tomorrow. But innovation is challenging, inherently risky and usually costly. Often, boards need to look beyond the typical three- to five-year planning horizon and accept an extended return profile. Even where there is investment appetite, it can be difficult to secure access to the right talent or to adequately evaluate and mitigate risks.
Despite the complexity, the research finds that innovation has not halted—although it has slowed. According to the report, “Technology initiatives that are close to completion may be accelerated, while those with longer development periods or a lower probability of success are likely to be put on hold.” Longer-term, disruptive innovations are most likely to be stalled for now, while technologies that offer short-term impact are often prioritized.
Technologies likely to get the go-ahead include enhanced oil recovery (EOR), unmanned aerial vehicles (UAVs) and standardization of oil fields. While this reflects the sharp cost reduction agenda throughout the sector, the need to find new sources is also recognized, with professionals ranking “improve access to potential reserves” highly.
With 67 percent of those surveyed identifying the challenges of deployment as a key barrier to innovation, it appears that development is not the most significant block. According to the survey, most companies rate themselves as better than their peers at conceptualizing and developing new technologies, but average or below average at deploying them.
To a large extent, this reflects the commercial issues around risk and return. The survey ranks “uncertainty over returns” as the top deployment challenge. This has been compounded by falling and uncertain oil prices as returns become ever more difficult to evaluate.
Could Collaboration Drive Innovation in Oil & Gas?
Published in 2014, the Wood Review outlined measures to accelerate the sector’s economic recovery. Collaboration was identified as a central part of the solution, which led to the creation of the Oil and Gas Authority (OGA), an independent industry body charged with encouraging collaboration. The 2015 Energy Bill strengthens this mandate, giving OGA tools—such as dispute resolution, information sharing and meeting attendance—to facilitate collaboration between stakeholders.
The 2015 report research suggests that many professionals recognize the gains that can be made by partnership with third parties. According to the survey, of the organizations that consider themselves to be “enthusiastic” collaborators, 29 percent say they are more successful at meeting their innovation goals—compared with 10 percent of “selective” collaborators, 10 percent of “cautious” collaborators and 16 percent of “reluctant” collaborators. The implications are clear: Collaboration is linked to successful innovation.
However, collaboration is fraught with risk. Collaborators share risk and resources, as well as intellectual property, competitive advantage and returns. For these reasons, collaboration remains the exception rather than the rule, although recent examples suggest this may be changing. Undoubtedly, there are commercial, legal and cultural challenges to be overcome before collaboration can become the industry norm, but Peter Wallace, Group Technical Authority, Naval Architecture at BG Group, believes none of these issues are insurmountable. “The IP and competition issues have obviously been addressed and resolved by other industries, so there should be no reason why the oil and gas industry should not resolve them,” he states in the report.
The Future Is Digital
Many of these opportunities will come from data technologies. Although the offshore sector has become increasingly digitized in recent years, other industries, such as retail, are well ahead.
The survey reflects an acceptance that this needs to change: 61 percent agree that their ability to collect and analyze data will be critical to performance in the short term, but only 44 percent rate their company as excellent or very good at collecting data. Even fewer rate their company as excellent or very good at analyzing data.
The survey identifies the key issues as the lack of data integration and the company’s ability to collect data with sufficient relevance/reliability. In some regions (such as the North Sea), this is partly because of the age of existing offshore infrastructure, which was built before platforms were designed to accommodate wireless instruments. Talent is also an issue.
Ultimately though, any company wishing to remain competitive will need to successfully tackle these challenges, as evidenced by the survey, which shows a distinct correlation between high data performance and successful technology development. BP’s David Eyton, a contributor to the report, is optimistic, noting that data integration issues can often be overcome because analytics companies are frequently format-agnostic. “Once we make our data accessible to the data analysts, they will use what we’ve got and see what they can do with it,” he said.