Drilling for Data: Digitizing Upstream Oil and Gas
The upstream oil and gas sector is well behind other industries when it comes to being digitally enabled. The iconic image of “roughnecks”—overall-clad workers with oil-stained faces handling equipment on a drilling rig—has not changed much over the past few decades, even as the industry is recognized for its technological innovation. Yet look at a modern-day automotive manufacturing plant, where lines of workers assembling individual car parts already have been largely replaced by robots. The difference between the two images is clear.
That said, there is an enormous amount of interest in and expectation around the benefits that digital solutions can bring. Although many oil and gas companies are trying out new digital ways of working, no one can claim to have “cracked it” just yet. We believe there are some basic guiding principles that companies should consider when developing their digital business models:
- Digital transformation is not a technology-led solution. It is a business-led transformation that leverages technology.
- This transformation requires all aspects of the operating model (vision, strategy, process, culture, and behaviors) to encompass digitization.
- Digital solutions need to be holistic. All dimensions of a company and its operating ecosystem (its suppliers and external partners) need to be digitally enabled.
- Companies need to develop their own digital transformations because there is no “best practice” model in the sector to replicate.
- Getting the right weighting between technical (the engineers) and technology (the data scientists and software engineers) capabilities is critical.
The Size of the Prize Is Significant
In its 2017 Digitization & Energy report, the International Energy Agency estimates that digital technologies could cut production costs by as much as 20%. We conservatively estimate that use of digital technologies in the upstream sector could result in cumulative savings in capital expenditures and operating expenditures of $100 billion to $1 trillion by 2025. Our own experience confirms this significant potential. As illustrated in Fig. 1, savings can be realized in operational excellence (such as more efficient maintenance and better operation of assets); in the supply chain; in the use of artificial intelligence; and in the use of integrated platforms (connecting the organization with external partners).
Signs of Digital Transformation Emerging
Many upstream companies have for some time been using elements of digitization, which we define as the strategic business value of data-based technology that includes the Internet of Things, cloud computing, and artificial intelligence. Examples of these elements are 3D seismic technology, unmanned oil and gas installations in the Dutch and Danish parts of the North Sea, and advanced reservoir modeling.
The trend toward digital innovation is accelerating across the sector because companies are much more focused on cost and driving operational efficiencies in an era of relatively low oil prices. Some major companies are already fairly far down this path.
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