Many oil and gas companies experienced a tough couple of years recently as oil prices plummeted to record-low levels. The recovery of the industry started in 2017and now is the time to kick it into a higher gear to reap the benefits of being an early adopter of new technologies and business models.
Magne Halvorsen, global industry director for oil and gas at IFS, predicts new charging models, digital investments and compliance solutions will be the three key initiatives that companies within the sector will pioneer to leverage the industry turnaround in 2018.
1. Industry recovery will boost digital investments by 30%.
The good news is that the cost cutting and downsizing over the past few years is now at an end, both for oil companies and their suppliers. Global demand for oil is growing in the West and in China, with OPEC recently claiming that the China will increase its forecast by 1.35 million barrels per day (MMbbl/d) to reach 98.12 MMbbl/d. With the macro-figures indicating this increase may last for the next few decades, industry players are ramping up their activity, with many playing catchup in the digital space.
When talking to customers and prospects in the industry, I hear the need to tap into digital technologies—including cloud, Internet of Things (IoT), big data, advanced planning and scheduling, and automation—are key to becoming smarter and more efficient at extracting oil and gas. Part of this is being driven by the downsizing that has taken place over recent years. With fewer crews to man rigs and facilities, organizations need to maximize human resources. Thus, automating manual tasks becomes important.
Songa Offshore is one of those at the vanguard of this push. The company has connected IoT sensors to 600 assets on each of four oil rigs throughout the North Atlantic Basin. The IoT data is fed into the Enterprise Resource Planning system, which forms the basis for reducing maintenance costs and increasing productivity by driving operational efficiencies. The main potential optimization lies in the automation of work orders. If specific datapoints can trigger automated work orders, this will save significant time and costs.
Other potential investments are rolling in, including beacon technology to improve safety by alerting crew members when they’re in a restricted zone. Elsewhere, advanced visualization and planning tools could help oil and gas contractors speed up the drilling license application process and maximize productivity by being able to better indicate where they are already cleared to drill.
2. Investment in compliance solutions to increase by 20%.
With governments around the world increasingly focused on restricting pollution, 2018 will see a continued rise in demand for ways to minimize CO2 and NOx emissions as well as to accurately document them for compliance purposes. Thus, we are likely to see a move away from diesel-powered plants to the use of alternative energy sources, such as tidal, to reduce emissions. With each rig producing as much CO2 annually as 5,000 cars, there is a heavy price to pay—financially and environmentally.
Advanced compliance and risk solutions will become an essential requirement to automate the monitoring and reporting of emissions, replacing inefficient manual processes. While remote facilities have historically been difficult to connect to the internet, satellite communications are enabling a new wave of cloud-powered systems to support these efforts.
3. About 20% of oil and gas companies will adopt a more service-centric business model.
Another key evolution in the industry driving the push to become faster and more efficient at extraction involves a change in the way oil and gas companies pay their suppliers and contractors. The traditional “day rate”—the flat-fee rate a contractor is paid per day for operating, say, a drilling rig—is increasingly moving to a performance-based system.
Where an oil company might have agreed to a contract of $300,000 per day for 100 days, it may offer more or even a bonus if that can be completed in 80 days. This creates new opportunities for industry suppliers who can become more efficient. The IoT and big data analytics are key enablers here, with sensors able to feed back on various environmental and drilling conditions to maximize productivity. However, technology alone will not produce the desired goals unless organizations can break down traditional siloes between teams which monitor equipment, analyze weather conditions and those focused on other parts of the operation.
These trends can also be seen in terms of the gradual servitization of the industry. In fact, IFS research on the benefits of servitization for oil and gas companies has revealed that those looking to add innovative service and asset management capabilities to their offerings can reduce CO2 emissions by 10% to 15% and maintenance costs by 25% to 30%. One key area to do the latter is in the classification process. Every five years, floating rigs must be taken out of operation while essential maintenance checks and documentation take place. But with firms earning $300,000 to 400,000 per day, the three weeks this can take could lead to losses in the millions.
Advanced planning and scheduling technologies will therefore become a game changer for oil and gas companies and service providers, helping them better plan and document maintenance offshore without the need to take vessels to the yard as frequently. These are highly sophisticated systems, maximizing human resources onboard and incorporating key risk assessments of equipment to ensure any maintenance work is done and recorded according to a strict timetable.
So, what do oil and gas companies need to do to make the most of these opportunities in 2018? Fundamentally, I’d suggest that many organizations are in need of a “digital cleanse.” Many legacy tools, technologies and, most importantly, processes remain in operation that might be a barrier to innovation. Automation will not work if you are simply automating inefficient and error-prone manual processes. In fact, our recent research found that only 7% of global firms are successfully harnessing data-driven insight to deliver faster time-to-innovation and competitive advantage—by far the lowest of any industry studied.
Fortunately, the industry is in good shape to recover from recent years of underinvestment. Enterprises know what’s required to capitalize on the current upturn to become modern, competitive organizations. But to achieve this next level of growth, increase margins and support exciting new business models, these firms will need to invest in new digital skills as well as technologies.
Magne Halvorsen is the global industry director for oil and gas at IFS.
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