The impact to the oil and gas industry from the COVID-19 crisis, and the continuing low oil price, has been considerable. One thing the industry can be sure of as it starts to look at recovery and the future is that this type of impact will be felt again—albeit in a different form. The industry collectively has a responsibility to ensure the security of energy supply in the short term and deliver the energy transition in the long term, and the only way it is going to achieve that is by being prepared for the fluctuations that may come the industry’s way.
As well as a responsibility, what it has now is an opportunity to change the way things have always been done, to work together and forge an alternative route ahead. One way this change can be achieved is through a greater focus on digital collaboration across the industry’s entire supply chain.
There has been a lot of talk for a long time around digital and how important it is for the industry, but does it truly have a shared objective? There is no shortage of effort, but are those in the industry pulling in different directions? And how can they make a pivotal change in their business instead of wasting time caught up in the latest technology buzzword, only to later establish it means something simple and obvious?
Digital has become lost in so many iterations of what it is for individual organizations, but as an industry, it just means doing things better without as much human intervention.
Technology companies, especially those at the bleeding edge of the spectrum keen to find real-world applications, might not fully understand the industry problems that they are trying to fix, and the industry is currently too closed to work with them to develop the solutions. These companies are run by entrepreneurs, and the industry needs to recognize and respect that. Equally, digital companies need to appreciate what kind of companies they are selling to. What is needed is a new approach and mindset to ensure solutions are brought into the industry in a more efficient and effective way.
The oil and gas industry strives for perfection, seeking solutions that must be 100% right the first time. If it is not, the approach tends to be to start over. This is admirable, but when it comes to adopting and implementing the digital solutions that will improve the industry, it does not work. A dramatic change in the attitude to problem-solving is needed to ensure the industry can benefit sooner.
Developing the right solutions requires iteration and minimum viable product philosophy, where the solution has enough features to be successfully deployed while further enhancements are made and should be adopted.
Oil and gas operators have struggled to effectively engage with the digital supply chain, which differs considerably from the traditional oil and gas industry supply chain. To engage with a startup and scale-up community will require a pivotal change in the operators’ understanding of what kind of companies they are buying from. Treating the supply chain the same as their traditional supply chain (e.g., trying to put the same level of audit and compliance on a startup as one would with a well-established subject matter expert) just won’t work.
Too often the industry tries to force standard terms and conditions for procurement to the digital supply chain when it is in no way suitable for the procurement of technology. A change in mindset should lead to new contracting principles for software as a service (SaaS) and for agile development to be put in place to allow efficient and effective delivery.
A new SaaS version of the standard contracting principles that have existed in the industry for some time should be created.
Competitiveness wins over collaboration every time. It has been proven in other industries, including aviation and automotive, that when the advancements in digital are rapid, they have been a lever for great steps forward. They have achieved this not by pitching the digital companies against each other, but by sharing the common goal and working back from that.
The competitive and closed nature of the oil and gas industry means it never gets the opportunity to pull in the same direction and to pool its collective expertise to benefit the whole industry. Road maps and strategic directions are not shared, which leads to overlap and people pulling in different directions rather than toward a common goal, wasting time, effort and resources.
A way ahead?
Operators cannot do this alone, and neither can the technology companies. Some compromise needs to be found:
- From the operators: acceptance that solutions will need iteration once they are in play; and
- From the technology companies: acceptance that their products initially need to be more viable than those for other industries.
One does not have to own it to do it. The industry does not have all the answers—not even within its own digital teams. It is OK to utilize expertise from outside with the industry to develop the needed solutions. What is needed is an idea or a well-thought-through, well-defined problem statement and then engagement with the right people to make it happen rapidly.
The industry needs to collectively define the common goal. Where does it want to get to as an industry and what is its strategic direction? It is almost like having an industry-level problem statement, with recognition of where all the players fit in and how the solution is reached.
The opportunity presented now—to change the traditional way of doing things and move ahead together—won’t last forever. Too much time and too many opportunities are already wasted. The industry must seize this one now. Each individual act may not change or save the industry, no single thing will, but the industry has to start backing the ideas that will make a difference.
The change needs to be collective. Individual heroes will not deliver this, and technology alone is not going to be the answer. The industry needs to work together to embrace different ways of doing things and to bring solutions into the industry faster.
Above all, what the industry needs to recognize is that none of this is going to start happening organically. It must genuinely want this change and be the change that it seeks.
Jay Graham is back after the successful sale of WildHorse Resource Development to Chesapeake Energy with a new venture—this time in the Permian Basin.
Pin Oak Energy Partners tacked on nearly 10,000 net acres to its Utica Shale position in the Appalachian Basin as part of a recent acquisition from EnCap-backed Protégé Energy.
Matador Resources CEO Joseph Wm. Foran said he also voluntarily agreed to reduce his base salary by 25% as the Permian Basin operator responds to a slump in oil prices.