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 2017, though, and now is the time to kick it into a higher gear to reap the benefits of being an early mover. New charging models, digital investments and compliance solutions are a couple of the initiatives oil and gas companies will be pioneering to leverage the industry turnaround in 2018, predicts Magne Halvorsen, Global Industry Director for Oil & Gas at IFS.
Industry recovery will boost digital investments by 30%
The good news is that the cost-cutting and downsizing of the past few years are now at an end, both for the oil companies themselves and their ecosystem of suppliers. Global demand for oil is growing in the West and China, with OPEC recently claiming that it will increase its forecast by 1.35 million barrels per day (b/d) to reach 98.12m b/d. With the macro-figures telling us this increase may last for the next few decades, industry players are ramping up their activity, with many playing catch-up in the digital space.
When talking to customers and prospects in the oil and gas industry, I hear the need to tap into digital technologies including cloud, the Internet of Things (IoT), big data, advanced planning and scheduling and automation to become 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 you need to maximize the human resources to hand. 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 (ERP) system, IFS Applications, 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 data points can trigger automated work orders, this will save significant time and costs.
Other potential investments may come in rolling out 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 delineate which areas they are already cleared to drill in.
Investment in compliance solutions to increase by 20%
With governments around the world increasingly focused on restricting pollution, 2018 will see a continuing 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, like 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.
20% of oil & 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.
Thus, where an oil company might have agreed on a contract of $300,000 per day for 100 days, they may offer more or a bonus if that can be completed in, say, 80 days. This creates new opportunities for those industry suppliers who can become more efficient. Again, the IoT and big data analytics are key enablers here, with sensors able to feed back data on various environmental and drilling conditions to maximize productivity. However, technology alone will not produce the desired goals unless organizations can break down traditional silos between teams which monitor equipment, those which 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 enterprise asset management (EAM) capabilities to their offerings can reduce CO2 emissions by 10–15% and maintenance costs by 25–30%. 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 $300–400K per day, the three weeks this can take could lead to losses in the tens of millions.
Advanced planning and scheduling technologies will, therefore, become a game-changer for both oil 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 the human resources on board 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 2018 oil and gas industry trends? 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, for example, 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.
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