Is digitalization delivering?

The oil and gas industry has embraced digitalization over the past few years as an effective means for managing costs and raising efficiencies in a challenging oil price environment. IHS Markit documents individual cases in which these efforts have helped to reduce costs by 10 to 25 percent, increase productivities upwards of 8 to 10 percent, and enable safer and more environmentally-sound operations―impressive results.

At the same time, IHS Markit notes that this isn't the first time that upstream players have turned to digitalization as a vehicle for transforming how they develop and operate their oil and gas resources. An earlier wave during the early- and mid-2000s resulted in similarly impressive one-off gains, but often struggled to achieve organization-wide acceptance and thus failed to move the needle on overall corporate performance. Senior management subsequently shuttered many of these ambitious and integrated programs (e.g., i-fields, Integrated Operations) in favor of more focused and discrete initiatives.

Now several years into this renewed digitalization push, it may be an appropriate time to assess whether it is delivering as expected. A good place to start the discussion is a consideration of where previous efforts sometimes fell short:

• Business acceptance. Engineering and other technical staff incorporate developed solutions into existing work flows, and readily introduce new operating practices that are enabled by them.
• Sustainability. Solutions are regularly maintained and updated, and program support continues even as management turns over.
• Integration. E&P organizations pursue high-value solutions that span organizational and E&P lifecycle boundaries, in addition to those initiatives targeting discrete functional opportunities.

Acknowledging these earlier challenges, E&P organizations are taking a different tact with a new set of enhanced technical and organizational approaches that aim to anticipate and avoid them.

• Emerging enabling technologies. The new suite of digital technologies (e.g., advanced analytics, machine learning, digital twins) are in many practical ways similar to those of the previous generation ― reliant on seamless access to well-conditioned data to perform their analysis, and serving a demanding workforce that expects ease-of-use. What is changing, however, are the underlying technologies that companies are putting in place to address these needs, including more flexible data architectures, cloud computing infrastructure, and mobile computing platforms.
• New organizational models. Companies are re-positioning themselves to help ensure greater business acceptance and accelerated value capture from deployed solutions, including by 1) strengthening ties between technology organizations and operating staff via improved organizational positioning and cross-pollination of personnel, and 2) establishing cross-asset operational support centers in key functional areas (e.g., drilling, artificial lift) that facilitate rapid technology deployment and refinement.
• Expanded industry partnerships. With a growing recognition that digital expertise is just as likely to reside outside organizational (and even industry) boundaries, upstream players have been more apt to tap such external capability by 1) partnering with traditional oilfield services firms, technology companies, and E&P-focused start-ups to jointly develop advanced digital solutions, and 2) leveraging digitally-enabled supplier service offerings in discrete areas (e.g., equipment surveillance), while also considering more transformative business models (e.g., buying capacity rather than buying equipment).

IHS Markit observes a range of "digitalization models" emerging amongst E&P firms to execute these ambitious strategies (see Figure 1). Where a company falls within the spectrum appears to be influenced by past digitalization experiences, inherent upstream organizational structures, and broader corporate pressures. It should also be noted that E&P firms typically pursue hybrid approaches, with a single dominant model often emerging.

Figure 1: Upstream digitalization models

Learn more about the digitalization of exploration and resource development.

Judson Jacobs is an Executive Director, Upstream Technology and Innovation at IHS Markit.

Oscar Abbink, Ph.D. is a Director, Upstream Energy Research at IHS Markit.

Carolyn Seto, Ph.D. is a Director, Upstream Technology and Innovation at IHS Markit.

Posted 15 May 2019

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.