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Oil Slump Sparks New Call for Digitization

- March 31, 2016 - 0 Comments

Looking at the marketplace today, now more than ever the oil and gas industry needs to take action.

Crude oil prices are at incredible lows—just over $30 last week. While I’d never assert my ability to predict future oil prices, I did ring the bell last April for digital as the modern-day anecdote for doing more with less when crude was in the mid-$40s!

According to a recent Reuter’s story, one-third of publicly traded oil companies are at high risk of going bankrupt this year. One-third. Talk about the power of creative destruction gripping the market!

Deloitte based their findings on the examination of 500 oil and natural gas exploration and production companies worldwide. To be fair, the 175 or so companies that are most at risk have a mountain of debt—more than $150 billion in total. Sometimes being highly leveraged can be deadly.

If there was doubt before, there can be no doubt now. Oil and gas firms must rely on technology to become operationally efficient.

According to Mark Hill of Oilprice.com, “Oil field, drilling, and information technology have combined to create a perfect storm of capability and agility that will allow … oil markets to respond with a speed typically only seen in the digital realm … In many ways, Moore’s Law has finally arrived in the oil patch.”

While there’ve been many downturns in the past, this one is different. It’s coming at a time when two forces are colliding: the need to keep pace in uncertain markets; and the digital era refusing to slow down or stop.

It’s not enough to sit on the sidelines until oil prices rise. Some firms will be out of business by then. Even those who may survive with becoming digital may not be able to effectively compete.

Becoming operationally efficient must be a permanent transition. It’s kind of like going from a VW Bug to a Ferrari—there’s no turning back after that.

The good news is that for those who create a digital strategy now, there are rewards down the road.

In fact, from 2015 to 2024, according to Cisco research, the oil and gas industry will generate $1.1 trillion in Digital Value at Stake.

The immediate focus for getting a share of this value is for oil and gas companies to integrate digital technologies and processes with their existing operational technology.

Oil & Gas Digital Value at Stake

Figure 1. Six value drivers have the potential to generate a total of $1.1 trillion for oil and gas companies worldwide (2015-2024).

The top areas of opportunity are:

  • Recover efficiency ($278 billion): Enhanced oil-recovery techniques
  • Lifting-process automation ($194 billion): Automation and remote management of production processes
  • Remote monitoring ($191 billion): Early detection/reaction to leakages, theft, rig downtime, etc.
  • Drilling optimization ($93 billion): Using data management and Big Data analytics to drive efficiencies
  • Project planning ($20 billion): Using Big Data analytics to improve project outlay estimates

It’s not all doom and gloom. Amidst the turmoil in the industry, including glutted oil prices, there’s an opportunity to gain competitive advantage. The question then becomes how? What are some oil and gas firms doing to take advantage of the digital opportunity that others aren’t?

They’re integrating IT, industrial controls, and business processes end to end. They’re breaking silos that are holding them back. All while saving costs and getting better visibility.

For example, ESSAR Group deployed a dynamic server platform for real-time access to data and analytics. It’s strengthened their business performance by giving them the ability to crunch data and uncover trends and patterns for better planning and forecasting.

With 70,000 employees across 20 countries, this is huge.

They’re also accessing intelligence to determine how to redirect the business, based on events, customer relationships, product plans, and market variations. And now is definitely a time for this efficiency, especially the ability to make market-based decisions.

Another example of grabbing hold of digital and getting it right is Explorer Pipeline.

They’ve adopted collaboration and videoconferencing tools to change the way they communicate and share knowledge.

With many employees far from regional offices, staying connected has been challenging in the past. Now, they’re bridging the talent gap by scaling experts and making the industry attractive to the next-generation workforce. They can offer virtual training and web conferencing. It’s increased employee productivity and is saving Explorer time and money.

So what’s the next move?

I’d use today’s challenging environment as the catalyst for leveraging digital technologies to drive innovation. The bonus? A boost in business and operational efficiency.

It’s a promising way to leverage existing investments to set the stage for an amazing drive to a digital future.

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