How often do you think about the linkage of today’s digital Internet technologies with the gas that we put into our cars and the fuels that heat our homes? Probably not very often. In fact, for many years, I envisioned them as two separate worlds. Here’s why…
Back in 1995, when I met my wife and we were first dating, I distinctly remember talking with her father (now my favorite father-in-law!) Bill Dalgetty about his career at Mobil Oil. Like most senior Mobil executives, Bill started his career at a Mobil gas station and worked his way up over many years, eventually serving as the General Manager of Environment, Health and Safety for Mobil’s operations around the world.
At the time, I was just a few years into my career in high-tech, and we talked about how different our industries were – tech companies moved with relentless speed and innovation, while oil companies had to place long-term strategic bets on oilfields and exploration projects; tech companies constantly disrupt business models and channels to market, while oil companies have been fairly traditional in the upstream / downstream / distribution / retail model. Our industries event felt very different – oil and gas has more traditional career paths, while tech companies are more diverse mixtures of talent and experiences. We talked a little bit about the role of technology in exploration and process controls, but even those uses represented a fairly traditional view of the role IT played in the industry.
Fast forward to today – 20 year later – and the oil and gas industry is being invaded by the Digital Age.
The O&G industry has been upended by a confluence of new market dynamics, including rising production, soft demand, geopolitical instability, and an oil-price decline of more than 50 percent since last June.
Oil and gas companies now must make a critical decision: Will they attempt to ride out the downturn by simply cutting costs in hopes of surviving? Or, will they use today’s challenging environment as an opportunity to transform their business models and apply digital technologies to improve operational efficiencies and set the stage for long-term growth?
This week, our team released a new Cisco report that highlights the urgency for the oil and gas industry to adopt digital technologies powered by the Internet of Everything (IoE) — the networked connection of people, process, data, and things — to stay competitive and grow.
The industry has been employing new technologies in exploration and drilling for the past several years. In fact, that is a major reason oil production has increased — and why the United States has become the world’s No. 1 oil producer. Five years ago, it might have taken up to nine months to produce oil from a well. Now, firms can see results in 30 days or less. However, while they have been using new technologies for some time, many oil and gas firms are not realizing the full value from their digital projects. Processes remain confined to silos, and there is a fundamental disconnect between their digital strategies and business strategies.
To get to the next level of efficiency and agility, oil and gas companies have to knock down the silos and bring together information technology (IT) and operational technology (OT). By becoming “digital technology companies,” oil and gas firms can improve rig uptime and oil recovery rates, reduce oil spillage, boost employee productivity, and shrink costs. To be ready for true digital transformation, oil and gas companies need to converge their IT and OT strategies, connect everything, embrace analytics, and secure their technology and operations.
Here are some of the key findings in the report that I found pretty interesting:
IT and OT are not aligned: 59 percent of respondents do not believe that their organizations’ IT and OT strategies are closely aligned. However, companies that foster a strong IT-OT partnership can reap a host of benefits, including improved collaboration and problem solving, actionable insights from data analytics, and pervasive security for both their physical and digital assets.
Silos are preventing value creation: Oil and gas firms have actually made great progress in “connecting everything.” Thousands of sensors throughout the supply chain collect terabytes of data each day. However, their ability to effectively use this information to create greater efficiency and value is often limited by their siloed organizational structure and piecemeal approach.
Insights from the data and sensors is the biggest opportunity: Getting insight and intelligence from all the sensors and data is the key area needed to improve operational efficiency, and is the #1 driver for adoption of connected technologies powered by IoE. To harness data that is massive, messy, and everywhere, oil and gas firms need to deploy analytics from the core to the edge of the network, to bring together both historical and real-time data to generate actionable business insights.
The payoff can be huge: According to economic analysis by Cisco Consulting Services, a $50 billion oil and gas company could capture a potential annual profit increase of $538 million – or 11 percent – by becoming an IoE-powered digital business.
Now, can you imagine if back in 1995 I had said to my father-in-law this: “How about I come and show you how Mobil can get an 11 percent profit increase from technology!” I’m pretty sure he would have politely reminded me of our previous discussion about how different our industries were – and that IT had a well-defined role to play at his company. I’m not too sure they needed the advice of some 20-something techie.
But now – with the price of oil close to $60 per barrel – the time for oil and gas companies to act is here. The winners will undertake a strategic transformation underpinned by a new approach to people, process, and technology. In fact, a recent report in the Economist highlighted this very fact – that American companies are doing a much better job at using technology and finance than others, and that’s why America has become the swing producer in the market.
Similarly – back in March, Mark Hill wrote a very well-done piece for Oilprice.com where he says: “In 2015, oil field, drilling and information technology have combined to create a perfect storm of capability and agility that will allow American oil markets to respond with a speed typically only seen in the digital realm.” He goes on to point out that Moore’s Law is now invading the drilling and gas industries – and concludes with:
“I believe that there will be two camps who emerge from the current industry cycle characterized by depressed oil prices: those who curtail their innovation and shrink their business in lock step with the price of oil (as has been the practice during prior oil busts), and those who take advantage of the opportunity to trim the fat, beef up on technology and position themselves for aggressive growth when the cycle ultimately breaks.”
It’s starting to sound as though the oil and gas industry has been invaded by the Digital Age. And I’m looking forward to seeing my father-in-law this weekend to talk about it. Turns out he’s in town visiting for the weekend.