28 Nov Digital strategy for upstream oil and gas
Digital technologies are overturning one industry after another, so what should be the digital strategy for a typical upstream oil and gas company? Here’s our view.
Will Digital Impact the Upstream?
In a word, yes. Digital technologies are here to stay, they’re evolving much faster than anyone can easily predict and they will have unforeseen impacts. They are already making an appearance in the upstream, and their business applications are instructive for how progressive companies view the role of digital in their business models.
The key word here is “progressive”. The more progressive companies no longer just deploy point solutions to continuously cut costs and gain incremental improvements. They embrace systems thinking, target sustainable cost reduction, and embed an innovative mindset. These companies have realized it is not about doing things better, but doing things differently. Exploring digital technologies is one such way of doing this.
We include a pretty broad range of resources in the definition of upstream, including conventional and unconventional resources, bitumen mining, gas and liquids, on shore and off shore. Upstream to me means exploration and production (we think there’s a different strategy for midstream companies – those focused on processing and transportation of hydrocarbons).
How Might Digital Impact the Upstream?
The value of an upstream company is strongly correlated (70%) to just two variables – how much of the commodity the company has in reserves, multiplied by today’s price of the commodity. 30% is for everything else – how efficiently resources are produced and how effective is the company at replacing and growing its reserves.
A digital strategy in the upstream, therefore, should be one that makes a material difference to these key variables (reserves, efficient production, growth), in which case it will be strongly aligned with, and supporting, the business strategy. Of course, the business strategy will be flavoured by the nature of the resource, reserves location, extraction methods, capital availability, venture structures, supply chain capabilities, and so forth, and the digital strategy needs to take this into account. The strategy should also create short term value (such as reducing fuel consumption through sensors on vehicles) as well as longer term value (such as improve reserves understanding through better analytics).
Here’s how some of the broad categories of digital technologies might feature in a digital strategy for the upstream:
This category includes external collaboration (as in the supply chain); software to software collaboration via Application Programming Interfaces (APIs); and cloud orchestration.
The first key use of digital data integration in the upstream is during capital execution and handover. Much upstream data related to man-made assets originates with suppliers, and improved data management about assets is probably the single most impactful investment in digital that typical upstream companies can make. The benefits last a lifetime (life of asset), and enable many other innovations in digital.
The second key use case is in software to software integration. Upstream companies usually have dozens of critical software applications that are deeply embedded in their business operations and these applications transition very slowly over time. Building integrations between them, using the kinds of new capabilities found in the digital economy, is the second most important investment opportunity for the upstream, and helps preserve the value of data captured during handover as well as changes to data during on-going operations.
A third use case is in the area of cognitive computing, a technology that works on new classes of problems by approaching them like a human does, adaptively, interactively, iteratively and contextually.
This category includes visualisation tools; predictive analytics; machine learning; deep learning; and, artificial intelligence.
After data, analytics is the second most important digital investment for oil and gas. The sector is already analysis intense, there’s ample data to work with, and users are sophisticated. Better visualisation, self service analytics, cloud analytics, forecasting and modelling will impact all key measures (reserves, production efficiency and effectiveness).
One application of analytics that helps accelerate capital execution is using gaming software tools. One project fed its Primavera 6 project plan into a game engine to visualise how the project plan would work. The game revealed a variety of planning goofs, such as cranes arriving to install structures that hadn’t been delivered, for example. This field is called Forensic Animation.
Predictive maintenance is another great use of analytics. One of the problems in many oil and gas fields is downhole pump failure. Pumps have a warranty period but frequently pumps fail well before that time, and retrieving a bad pump is costly, both the call out for a rig and the lost production, not to mention potential for damaging the reservoir. Analytics can help direct downhole maintenance to those pumps most at risk.
This category includes wearable devices like watches, bands and sensors that people might wear; In Vehicle Monitoring Systems (IVMS) for lighting up forklifts, cranes, trucks, and rigs; the two-way communications that such devices enable from a central control facility or from peers; geofencing (the ability to put business rules in effect relative to GPS coordinates).
The best value mobility use cases are going to be related to vehicle and equipment (to help with optimisation and efficient allocation to boost capacity utilisation). Transport companies are well advanced in applying IVMS for road operations and safety, but much of the other kit has yet to be lit up. Wearables improve safety for employees (alarms, no-go zone alerts, rescues and evacuations), and contractor billing. Mining companies are already experimenting here.
Once critical data sources become accurate and reliable, a mobile use case to deliver operating and maintenance information directly to employees via mobile devices will emerge.
Industrial Internet of Things
This category includes surveillance and monitoring systems (cameras, motion detectors, accelerometers, measurement devices and sensors); and, systems that automatically adjust and correct for changing circumstances (like ventilation systems that ramp up and down depending on air quality). Progressive companies invest in integrated operations centers or control rooms that pull the data together to enable analytics, reporting and improved monitoring.
This use case is well established. In fact, most oil and gas companies are drowning in data from industrial sensors. Lately, gas companies have added cameras and sensors on gates, gauges and passages, but could go much further to integrate these technologies into dashboards with other industrial kit. For example, mining companies integrate air quality sensor data with in vehicle systems to amp up ventilation when subsurface mining vehicles are idling.
The key use case is likely in an area like fuel consumption. Fuel represents a large outgoing for most upstream companies and their suppliers, and anything that can help reduce fuel would be welcome. That might include measuring fuel usage by vehicle by driver by route, to find out where fuel usage is the highest, under what conditions, and how it might be improved by changing operator behaviour, routes or route conditions.
Crowdsourcing has proven its value in areas like reserves analysis, where seismic data and other subsurface information is handed to crowds in the cloud for help in improving analytical techniques. One upstream player uses crowdsourcing to improve its ability to identify sweet spots in unconventional basins.
Our personal favourite is Uber for Field Services, an aspect of the industry that is crying out for improvement.
This category includes workflow automation (a mature solution found in shared service centres, and now getting a renewal); and the automated execution of work. Best applied to routine work, these tools find their home in areas like field development.
This broad category includes the new network (high speed, pervasive, modular and adaptable) and security. In our view, these digital innovations are best deployed by suppliers to oil and gas, and then procured as a service. Cyber security is fast becoming table stakes after so many high profile security failures.
This category includes additive manufacturing (3D printing), robotics, and autonomous devices (drones).
Additive manufacturing could make a big difference to heavy oil and gas assets that contain lots of critical equipment (and therefore need critical spares) and are some distance remote from replacement parts. Printing spare parts makes the supply chain more responsive which boosts equipment availability, speed and quality, that together drive efficiency of production. The US Navy deploys 3D printers on its aircraft carriers for the same reasons.
Drones are already a feature of gas projects in Australia where they are used to inspect and monitor production facilities from the air. The impact is in cost reductions for well inspections and the improvement in productivity of field workers.
The Digital Strategy
A good digital strategy for an upstream company would start with the business strategy, then consider digital goals and objectives, where digital investments will make the biggest impact, how digital investments will differentiate the business, what new digital capabilities need to be put in place, and what new mechanisms will be needed to keep up progress. Key elements will likely address the following:
Data: without very strong underlying data and foundational competence in managing data assets, the potential benefits from digital are lost. New investments will not be able to rely on historic data, and will add fresh high quality data to a bad pile. Job one must be to create that strong underlying culture of data integrity and a clean up of historic data to make it reliable.
Integration: unless highly reliable data becomes commonplace across systems and databases, users will not trust it. Therefore, deploying high quality integrations between critical engineering systems is a second key thrust.
Analytics: the benefits of high quality and reliable data that is consistent across different systems and boundaries show up in decisions based on better analytics. Therefore; the third focus area should be on improving analytic capacity and capability
High value point solutions: there are a few high impact value releasing solutions that digital can impact immediately – fuel consumption (particularly in bitumen mining), sweet spot detection, and social collaboration with the supply chain.