Only a couple of years ago, while the world reeled from the economic effects of the global recession, the oil and gas industry benefited from high consumer demand and rising crude valuation. OPEC crude oil prices went up as high as US$109.45 per barrel in 2012, in fact. This is not to say that the industry got through unscathed. The subsequent fall in oil prices resulted in the following large-scale cost-cutting measures:
- Lay-offs of over 400,000 workers
- Canceled or deferred projects
- Industry brain drain
- Extremely low break-even price range of $20-25 per barrel
The upstream oil and gas industry is slowly recovering from the downturn, with the offshore market being the slowest to recover; executives in the upstream oil and gas industry are just now catching their breaths following the drastic price and demand decrease. So, while the price per barrel is currently almost 50 percent lower at US$67.33, the industry regards today’s prices as stable. It’s far higher than the post-recession low of US$40.68 per barrel in 2016, after all.
There is one area that’s proving more challenging to recover from, though: brain drain. The layoffs were a necessity some three to five years ago, but it also resulted in a lower number of knowledgeable people who are eligible for key roles in recovering companies.
Measures that seek to rectify this knowledge gap, like energy camps for middle school students, are ongoing. Their effects, however, won’t bear fruit for many years. In the meantime, upstream oil and gas, and exploration and production (E&P) companies must leverage digital technologies to make-up for manpower gaps and improve oil and gas production and distribution on a larger scale.
Business Segments Ripe for Digitization
PennEnergy Research’s 2016 Upstream Oil and Gas Digital Technology Trends Survey reveals that oil and gas executives recognize the value digital technology can bring to their business. Of the upstream professionals who responded to the survey, 36 percent said digital technology add high value while 17 percent said it brings significantly high value to their business operations. Furthermore, 72 percent of the respondents believe digital tech can help reduce overall costs — a challenge for all upstream companies today.
The survey also reveals the areas where digital investment may apply.
- Artificial Intelligence (AI) – Now more than ever, oil and gas companies need specialized machine learning algorithms that can help decision-makers predict operational events. Data won’t serve its purpose if companies don’t maximize it. With AI, companies can identify areas of operations that need changes or improvements. It can give executives insight into their productivity, production health, and other information that may influence future decisions.
- Big Data Analytics – Oil and gas companies work with many suppliers and vendors for all sorts of products and services: cast parts, bolting components, valves, exploration equipment, machines and parts, specialists, engineers, and other manpower solutions. Each category will have a set of suppliers, and each of these suppliers offers different rates.
Keeping a repository of pertinent information — categories, products, suppliers, prices, benefits — often takes too much time and effort. With digitization, specifically through computers and advanced-analytics programs, companies can analyze massive data records and find opportunities to save (e.g., find suppliers that offer the lowest prices).
Data analytics can also contribute to increasing productivity. It is useful when applying the Pareto Principle or the industry rule that says 80 percent of production increases comes from 20 percent of oil wells. By simplifying data gathering and using a reliable program to crunch the information, companies may determine which of their wells have the highest impact on overall production.
- Collaboration Tools – It’s common for oil and gas companies to employ hundreds, if not thousands, of employees at any given time. Their workers would work on different areas of the business and in different locations within and outside the site. This design of how upstream enterprises work breeds inefficiencies, however.
When workers are segmented, they may not be on the same level, productivity-wise. The risk of miscommunication is high, and data transfer can be slower (especially where there’s bureaucratic red tape).
Digitizing processes and channels for collaboration can help parallel departments do a better job of aligning with one another. More importantly, it encourages teams to communicate. Companies may reduce underperformance and avoid fatal errors as a result.
- Cloud Resources – Cloud management solutions have saved oil and gas companies up to 20 percent in labor costs. They’ve also helped operators reduce provision testing environments from three months to 10 days. Its practical benefits include a lower need for physical storage spaces and real-time, on-demand access to information.
Along with collaboration tools, cloud enables field engineers to share data with office personnel quickly. As a result, production operations have lower risks of downtime, delays, and miscommunication.
- Robotics – It’s a given that automation brings efficiency gains, and the latter can give oil and gas companies the profit margins they continually seek. Robots, whether computer-based or free-moving devices, can maintain the ideal pace of production and reduce risks for field workers.
A great example is the Iron Roughneck, which automates the task of connecting drill pipes as they are placed in position under the ocean floor. It increases efficiency and spares the field and rig crew from performing this dangerous task. While this is not new technology, when it was introduced it was so groundbreaking that most drilling contractors refused to install them on their drill-floor, but now it is a standard piece of equipment on most drilling rigs.
- Wearable Technology – Field and rig workers often need both hands free to do their jobs correctly and safely. If they need to review diagrams or cross-check calculations, they may not have the opportunity to pull out a record pad and read written data. It’s best if their essentials are on their person, and they don’t need to do much to access those tools.
Examples of wearable tech are biometric shirts or other accessories that monitor vital signs and respiratory activity; headgear cameras and lighting; notification devices that keep people’s productivity in check; and high-tech smart glasses that allow wearers to see schematics and other data without compromising field of vision.
Applications of digital technology on these segments will be beneficial to the industry at large. The World Economic Forum backs this with data, saying digital transformation could create value worth $1 trillion for oil and gas firms and create $640 billion worth of benefits for customers ($430 billion of which can come from reduced carbon emissions). It can also help save the local ecosystems as the digitization can also help prevent oil spills and other losses to the environment.
These are fringe benefits for upstream companies, but they can affect the way of life of every person on this planet. The industry is at a point where major players can meet their revenue goals even as they move to green technologies and engage with society at large.
If companies play their cards right, they can change people’s perception of the oil and gas industry as opportunistic and exploitative. More importantly, oil and gas companies will be able to achieve their goal of working smarter and accomplishing more for less.
But even with all of the new technology entering the oil and gas industry, the implementation, ongoing operation and decision making still falls to the technicians and subject matter experts working on your project. We at SPRI embrace this shift towards efficient operations brought on by the technological advances in our industry and provide upstream oil and gas consults who understand the latest trends in data analytics and needed to extract oil and gas in the most cost-effective manner.