By Emmanuel Udeh
Digital transformation is a predominant trend impacting today’s global business. Historically, the Oil and Gas Industry has always been a leader in the application of technology to achieve business value. However, the implementation of digital solutions has been slow in the oil sector even though it has transformed other sectors like Banking, Healthcare and Sports.
With the decline in oil prices since 2014, the oil industry has aggressively pursued several measures to help the industry return to profitability. Oil and gas companies have started adopting digital solutions to gain operational efficiencies through improved use of technology. This is evident in the increased innovation and collaboration throughout the industry, which has created new revenue opportunities for both operators and service providers alike.
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Digitalization has the potential to transform the upstream industry’s fortunes by substantially improving capital efficiency, lowering production costs, and reducing the time it takes to deliver new oil. To effectively capture the value of digitalization, the oil industry needs to look beyond embracing specific digital capabilities but implement a comprehensive roadmap towards digital transformation centered around people, processes, technology and of course data!
Digitalization and Digital Transformation
Digitalization, according to Gartner, Inc., is the process of employing digital technologies and information to transform business operations. Whether by optimizing production rates to improving ultimate recovery factors or by reducing equipment downtown through predictive analytics of data, the industry is already seeing examples of companies that are applying digital solutions in smart, innovative ways to transform and generate tremendous opportunities for their business.
One of this is Chevron’s seven-year strategic partnership with Microsoft. This digitalization initiative aims to leverage Microsoft’s powerful cloud computing and analytics to drive efficiency and streamline production operations. Another good example is Equinor’s use of a digital twin to maximize production, cut costs and ensure safety on its massive Johan Sverdrup field which will account for 20 to 25 % of Equinor’s total offshore production in the plateau period.
To tap transformational benefits, upstream companies need to understand the current challenges they face, decide the potential impact of digitalization on their business and how best to benefit from it. Of course, digital technologies are nothing new to the oil industry. Technology has been used for several decades in our industry in automating and simplifying processes. Sophisticated sensors on drilling and facilities equipment are already standard tools, reservoir modeling and simulation software are used to analyze current and historical data to select the most economic method of developing a field.
Effective implementation of a strategic digital transformation program will help Oil and gas businesses re-align core business processes, which will integrate operations and analytics in a smart and simple approach to accelerate innovation, harness assets and drive real-time insights. This will, in turn, lead to lower costs, greater efficiency and increased collaboration between their partners, suppliers and customers.
A recent study by market research and analytics firm Kimberlite found that offshore oil and gas operators experience, on average, $49 million annually in financial impacts due to unplanned downtime. For the worst performers, the negative financial impact can be upwards of $88 million. The effective use of digital technologies in the oil and gas sector could reduce capital expenditures by up to 20% and cut upstream operating costs by 3-5%, according to a report by consulting group McKinsey
Impact of Data
Data is not just a key part of digital transformation. It remains a constant denominator across the entire process of achieving both specific and enterprise-wide digital transformation goals such as improving operations, innovating or realizing competitive advantages. Whether it’s used to optimize performance forecasts, enhance oil recovery, or implement predictive maintenance, data is required to make critical decisions which can help oil and gas businesses gain a competitive edge over their industry peers.
Just as organizational decision-making requires data, digital transformation needs digital and digitized data. However, Forbes estimates that 7 out of 8 digital transformation programs fail and that may be because they do not start with data. Most organizations begin their digital transformation journey without thinking about the data which is the lifeblood that connects systems, processes and technology. Whether it is workflows improvement, predictive analytics, asset integration and optimization, high-quality data is the critical defining factor for any successful digital transformation.
The oil industry generates and analyses data for numerous specific purposes, most times applications of digital technology on data have been directed in solving specific challenges or optimizing identified opportunities in specific parts of the business. A data centric approach towards digital transformation, which seeks to collect, integrate and utilize vast amount of data in a holistic manner is critical for oil companies to remain profitable and gain operational efficiencies through improved use of technology.
For the oil and gas industry to succeed in its digital transformation journey, it needs to start off by comprehensively defining a data driven roadmap towards digital transformation. This usually requires an in-depth understanding of their current position in the digital value chain, the associated technology critical in this journey and from there, map the data requirements that will potentially impact both internally and externally this organizational change process.
A revised approach that starts with data will ensure that digitization and digital transformation deliver the expected results and help companies streamline, automate and optimize business processes to become smarter, faster, and simpler!