The biggest current recruiter in upstream? Digitalization, by a distance. Technology is already playing a part in downstream’s recovery from its lows a few years ago. Upstream, urgently seeking structural solutions to its down cycle is following at quickening pace. Digitalization is becoming central to the plan.
A very different milieu fills the packed-out digitalization sessions at oil and gas conferences. Are these digital rock stars merely preaching to the converted, fellow data scientists? There may be a few curious career upstream people in there too, weighing up their job security. With the story evolving from concept towards implementation, here are some thoughts after meeting with technology specialists earlier this month.
Digitalization is big data and analytics, cloud computing and storage, virtual reality, drones, robotics and automation, and machine learning (applications such as face recognition and the rest). These are proven technologies already embedded in other industrial sectors, automotive and aerospace among them, as well as downstream.
The prize for upstream will be in applying them effectively to time honoured processes – sub-surface and above ground, brownfield and future projects, and the supply chain. However new-age sounding some technologies may be, measurable success will be more prosaic – higher cash flow. Upstream wants technology to maximize reserves and production, minimize costs, and do both while putting fewer people in dangerous places.
No one expects digitalization to solve all upstream’s present challenges. On its own it won’t transform the sub-par economics of pre-FID deep water projects left high and dry by US$50/bbl oil. And it won’t be instant – the full benefits of the transformation may take years.
But digitalization will play its part in the structural changes the industry has to make to bring the industry into the 21st century. There is a huge, potentially lucrative opportunity in digitalization to reinvent the upstream of the future, say start up E&Ps; an even bigger one re-invigorating the old, legacy business. There will also be commensurate challenges.
First, the big data opportunity in upstream is incalculable. The data pool is so vast no-one one knows how much there is. Data has been collected since the 1960s, primitively at first then intelligently over time. Some may be more use now than the purpose for which it was meant. All of this data, from sub-surface to production facility and beyond, needs to be drawn together, cleaned up, then stored in the cloud. Only then can the data scientists usefully do their stuff and start making that data sing.
Second, the industry has to change the way it runs the E&P business. Right now it’s dysfunctional, deep silos littering the value chain. Exploration, appraisal, engineering, construction and operations do their own thing; as do individual operators; and relationships with service companies are typically arms length. No-one speaks to each other, let alone shares data or information. Unification of multiple company-wide IT systems into a single, central platform is the Holy Grail, opening up access to users (whether real people or machines); and relevant partners. All the users can then work in concert to make things happen.
Third, people will prove the biggest challenge. There’s a major battle ahead to win hearts and minds. Well intentioned early digitalization initiatives in upstream have already died a death in the middle layers of management – the turkeys wouldn’t vote for Christmas. The hard truth is unavoidable, the structural change needed will leave legacy roles stranded; but digitalization will also bring new ones. Given all this, executive leadership needs a clear strategy and plan of action. Critically a cross-functional implementation team needs to be empowered to make decisions and take risks. Failure will be part of the learning experience.
Skeptics may argue that digitalization is part of a race to the bottom with negative implications for price. Maybe, but there’s no real choice. In a world of plentiful resource, oil or gas, and demand growth under threat longer term, the low cost producer wins. The management teams that digitalize most effectively have the best chance of being that low cost winner.
What advice then to under graduate geologists, geophysicists, petroleum engineers puzzling where they fit into a future, digitalized upstream? Go get a Masters in predictive analytics. The industry will need data scientists, but better still ones that understand how the E&P sector works.
Simon Flowers is chief analyst and chairman for Wood Mackenzie.