JourneyApps recently sat down with Jim Crompton, the author of the book “A Digital Journey: The Transformation of the Oil and Gas Industry” to share learnings on navigating digital transformation in the oil & gas industry. Jim spent 37 years at Chevron and now serves as an Adjunct Faculty Member for Petroleum Engineering at the Colorado School of Mines, and Managing Director of Reflections Data Consulting, where he aims to help companies achieve the benefit of advanced analytics and increased insight into their oil and gas operations with the digital oil field and emerging digital technology. Leon van Heerden from the JourneyApps business development team combined Jim’s insights with his own knowledge of digital transformation in oil & gas, and provided this helpful summary.
For over a decade, a buzzword across a majority of industries has been ‘digital transformation’. As technology improved on a hardware and software front, early-adopting companies recognized the potential to save time and money through business process automation. Integral processes in areas such as sales & marketing gave rise to customer relationship management (CRM) systems, while the need to consolidate processes across the organization gave rise to enterprise resource planning (ERP) systems.
The adoption of these types of systems became widespread among leading companies, and it is now considered the norm to have these implemented. CRM and ERP systems digitized many core processes within an organization, but at the same time many processes were left outside of the circle: what we refer to as manual non-integrated business processes. For example, in the banking industry, this included processes such as applying for a loan, while in the oil and gas industry, this includes processes such as tracking the daily work done by workers out in the field.
The speed of tackling the automation of these initially non-integrated processes is disparate among industries. While the financial sector is a leader in digital transformation, industries such as oilfield services has lagged behind. According to the McKinsey Global Institute Industry Digitization Index, the financial and insurance sector has relatively high digitization across the business, while the oil and gas industry has fallen behind in digitization of business processes.
While this has been the case for a while, in recent times there has been an increased push within the oil and gas industry to embrace digital transformation. This push is fueled by the realization that digitization brings with it a competitive advantage, and failure to embrace new technology means losing out on business. Jim Crompton navigates the landscape of digital transformation by taking a look at five aspects:
- Myths and truths of the digital oil field
- Adoption of technology in oil and gas
- The current reality
- The challenges that lie ahead
With the continued volatility of the oil and gas market, an important objective of companies within the industry is the ability to be more productive without having to increase costs. One of the biggest costs in the industry is labor. According to the U.S. Bureau of Labor Statistics, oil and gas extraction has increased by 60% since 2015, while oil and gas employment is the U.S. has decreased by around 50%. This means that there are less people to do more work, and process efficiency becomes increasingly more important. This is where digitization of the oil field becomes a necessity for companies.
The automation of manual, costly, time-consuming and repetitive tasks allows the limited workforce to complete more work in a given space of time. While there has been a move towards the automation of these manual field tasks, the companies that have migrated to a digital oil field are in the minority. For companies to stay competitive, they will need to accelerate their adoption of automation technologies and software in the field and in the office. As companies move into this era of the digital oil field, it is important to understand the truths and myths around what this entails.
Myths and truths of the digital oil field
Jim Crompton highlights five truths and five myths around the future realities of the digital oil field:
- The digital oil field is mostly about technology. Usually, the hardware technology exists. More importantly, it is also about data management and having the correct data models in place.
- The digital oil field is an IT thing. While IT plays an important role, the initiative should be driven by the operations side of the business. IT is usually not in a position to drive these innovation initiatives. IT departments are limited in capability, bandwidth and focus. A lot of their focus is on integration of systems (especially with the large number of mergers and acquisitions in the industry) and the maintenance of existing systems (for example ERP systems).
- The digital oil field is mostly about automation. While automation plays an important part, importantly it is also about increased productivity, effective data management and making more informed decisions.
- Operators trust the models the asset team builds. Trust in digitization has to be earned in an industry that is skeptical of change.
- Major capital projects are greenfield opportunities. New major projects should not be used as testing grounds for new technology. Current projects, with existing and entrenched processes should be used first to implement new technologies.
- Data Management is worse than you think. Competent data management, and the analysis of this data, is very important to the success of oil field digital transformation.
- Technology capabilities > Deployed technology: The ability of your team to use and gain an advantage from technology is more important than the type of technology deployed.
- Organizational capabilities for the digital oil field are more than just a strategic staffing numbers game. While new technological capabilities enable companies to do more work with restricted staffing numbers, aspects such as informed decision-making, profitability, safety and real-time work tracking are improved as well.
- Most folks out there are too busy to listen. Vendors need to stand out from the crowd to get the attention of the correct people within an oil and gas organization. The attention of an oil and gas executive is focused on operations, profitability and the market. Demonstrate specific value to convince them of the necessity to implement digitization initiatives.
- Lessons learned from refining and process industries are hard to transfer. Refining and manufacturing are industries that have had great success moving towards a digitally transformed organization. There are important lessons to be learned for these industries, but keep in mind that transferring them to the oil field is challenging and may not always be a fit.
Adoption of technology in oil and gas
There is a lot of hype around there being a ‘digital revolution is oil and gas’ but the question is, “what is the best application?”. There are so many areas within the oil and gas value stream where processes can be improved by better use of data that they are already acquiring. For every operator, it is important to find out what their biggest problem is, and to tackle that first.
Some areas within the oil and gas value stream that can, and have, benefitted from digitization are:
- Upstream Exploration and Drilling (Subsurface): Scalable System Framework & high-performance computing in the cloud.
- Upstream Production (Real time operations): Wellhead monitoring and control.
- Midstream (pipeline, truck, rail): Pipeline integrity.
- Downstream (refining): Software defined industrial systems.
- Marketing (retail): Petrol station of the future (Smart terminals).
- Operations structure: Advanced analytics and AI, asset optimization, self aware/self organizing systems.
- Business structure: Advanced analytics and AI, enterprise cloud, data as digital capital.
- Infrastructure, security and management: Distributed and virtualized edge computing, embedded E2E security & management.
With such a variety of areas within the value stream open to being digitized, many companies have popped up in the last few years aiming to fill a niche. Many mobile applications, data management and analytics software companies have been started in the last decade; and a vast majority of them based out of Silicon Valley in the San Francisco Bay Area. While the technology of these companies is typically brilliant, an important area where they lack is the ability to speak the language of the oil and gas industry.
As the oil and gas industry has been late in adopting innovative technologies, convincing a company to invest in digitization requires demonstrating your understanding of their specific needs. Building credibility as a vendor to the oil and gas industry would ensure that companies are more likely to engage with you in their digital transformation efforts.
The current reality
While there are areas where the industry is lagging, it is definitely making progress. Improving operational excellence has been a focus for the industry for a number of years now. Communication and collaboration infrastructure implementation has seen success in terms of digital intensity and interconnectedness. Areas where this can be seen are:
- There has been an increase in the number and variety of data sensors deployed on equipment.
- Field automation has become more and more of a priority for companies.
- Smart equipment is being used at an increasing rate in the field.
- There has been an increase in the digitization of documentation.
- On the geotechnical side, the size of seismic surveys and reservoir models has increased.
- There are more remote decision support centers.
- In some areas of the industry, there is more remote control of processes.
- Supply chains are becoming more and more connected.
These areas need to continually be improved upon while those areas that are lagging need to be addressed by oil and gas companies. A collaboration between technology and science, business and management will lay the foundation for successful digital transformation within oil and gas companies.
The challenges that lie ahead
For the industry to continue building on its existing progress (and to implement new digitization initiatives), it will have to overcome a number of challenges along the way. These include:
- Technology transformation vs enterprise transformation
- Change Management
There is a big generational gap within the oil and gas industry. Due to the depressed oil price from 1980 to the mid-2000s, there was a downturn in hiring within the industry. Employees that were in the industry before the downturn, are still there, but are on the older side. Since the price rebounded, hiring has increased again within the industry. This means that the labor force within the industry mainly consists of 2 generations; those that have been in the industry since the 1970s and those that were hired in the last 10 years. This is typically referred to as the “Great Crew Change” or “Big Crew Change”.
Younger generations are more open to the adoption of new technologies, while the older folks are more resistant to change. This can be due to a number of reasons, including being used to doing something a certain way for decades, a lack of experience with technology, or seeing it as a threat to their job security. Companies will need to handle these objections, and effectively manage the organizational change that digital transformation inevitably brings.
Technology transformation vs enterprise transformation
It is important for companies to understand that digital transformation is not only about transforming the technology that is used, but is also about transforming the organization as a whole. Digital transformation breeds changes in a variety of areas within the company that need to be managed, including:
- Competencies, culture and mindset
- Business model and strategy
- Ways of working
- Customer experience
- Compliance and risk management
- IT’s operating model
Companies that have not made digital transformation a priority should pivot as soon as possible to make this a focus of their strategic initiatives.
The speed at which companies implement digital transformation is a more open-ended proposition. A good way to start the process is in incremental steps; start by implementing digital transformation initiatives in one business unit or one region, and then roll it out to the rest of the company.
A company’s business plan should also be aligned with transformation initiatives. For example, operational excellence should be a priority in terms of improving health & safety, lowering operational expenditure, decreasing its environmental footprint and reducing costs for activities such as drilling and completions. By working these objectives into its business plan, companies will force themselves into finding or developing digital solutions.
Companies within the oil and gas industry need to understand that digital transformation is an important part of where the industry is headed. The industry may have lagged behind in initial adoption of new technologies, but it is fast becoming the norm. Failure to implement new technologies and organizational changes in line with this technology, is tantamount to conceding a competitive edge to others.
For more information, as well as learning about ways in which you can approach your digital transformation strategy in incremental steps, contact JourneyApps.