As oil prices continue to erode margins throughout the industry, the offshore sector tightens its focus on efficiency and cost reduction.
But what are the long term implications – and how can the sector secure its sustainable and viable future?
Research by Lloyd’s Register Energy suggests that the answers lie in collaboration, innovation, data technologies and crossover technologies from other industries.
According to the Lloyd’s Register Energy Oil & Gas Technology Radar 2015, “Operational efficiency” is now the top driver for innovation investment – narrowly overtaking safety, which topped the list in the 2014 survey.
“Improving access to potential reserves” and “Increasing the life span of assets” also rated more highly as innovation drivers in 2015 than in 2014, suggesting that, as well as nudging down the bottom line, companies are looking to push up the top line by extracting maximum value from resources.
The survey, which includes more than 450 professionals from across the global sector, reveals a broad consensus that innovation is vital if the sector is to meet the challenges of today and tomorrow. But innovation is challenging, inherent with risk and usually costly.
Often, boards need to look beyond the typical three to five year planning horizon – and be accepting of an extended return profile. Even where there is investment appetite, it can be difficult to secure access to the right talent or to adequately evaluate and mitigate the personnel, environmental, technological and commercial risks.
Despite the complexity, the research finds that innovation has not halted – although it has slowed.
According to the report, “Technology initiatives that are close to completion may be accelerated, while those with longer development periods or a lower probability of success are likely to be put on hold.”
Longer-term, disruptive innovations are most likely to be stalled for now, whilst technologies that offer short term impact are often prioritised. This includes enhanced oil recovery (EOR), unmanned aerial vehicles (UAVs) and standardisation of oil fields.
Whilst this reflects the sharp cost reduction agenda throughout the sector, the need to find new sources is also recognised, with “Improve access to potential reserves” also ranking highly.
According to the survey, most companies rate themselves as better than their peers at conceptualising and developing new technologies – but average or below average at deploying them.
To a large extent, this reflects the commercial issues around risk and return; evidenced by the survey, which ranks “Uncertainty over returns” as the top deployment challenge.
This has been compounded by falling and uncertain oil prices, as returns become ever more difficult to evaluate.
The Wood Review outlined a number of measures to accelerate the sector’s economic recovery.
Within this, collaboration was identified as a central part of the solution which led to the creation of the Oil and Gas Authority, an independent industry body charged with encouraging collaboration across the sector.
The 2015 Energy Bill strengthens this mandate, giving OGA a raft of tools to facilitate collaboration between industry stakeholders, including dispute resolution, information sharing and meeting attendance.
However, collaboration is itself fraught with risk. Collaborators share risk and resources, but they also share intellectual property, competitive advantage and, crucially, returns.
For these reasons, the collaboration remains the exception rather than the rule throughout the sector, although there are recent examples that suggest this may be changing.
Undoubtedly, there are commercial, legal and cultural challenges to be unpicked before collaboration can become the industry norm, but Peter Wallace, Group Technical Authority, Naval Architecture at BG Group believes none of these issues are insurmountable.
In the report, he says: “The IP and competition issues have obviously been addressed and resolved by other industries, so there should be no reason why the oil and gas industry should not resolve them.”
This reflects a growing recognition of the opportunities for learning from other industries.
As well as new models of collaboration that are successfully facilitating technological development elsewhere, there is almost limitless potential for adapting new technologies from other industries.
Examples include imaging technologies, advanced lightweight and corrosion-resistant materials, remote inspection, nanotechnologies, data mapping, advanced data analytics, cardiovascular-type pump technologies, additive manufacturing, underwater autonomous vehicles, sensors, super insulation and carbon fibre.
Traditionally, aerospace is considered to be a rich potential source of new technologies because, like the oil and gas sector, it is highly regulated, mission critical and relies on materials that can withstand extreme climatic conditions and pressures.
Upstream companies are already looking into the composite materials developed by the aerospace industry because they are light, durable and corrosion resistant, as well as sensors for data transmission.
But this is just the beginning, and many other industries offer similar potential, including Biomedical, ICT/gaming and automotive.
Many of these opportunities will come from data technologies.
Although the offshore sector has become increasingly digitised in recent years, other industries are well ahead in this area – such as retail.
The survey reflects an acceptance that this needs to change: 61% agree that their ability to collect and analyse data will be critical to performance in the short term, but only 44% rate their company as excellent or very good at collecting data. Still fewer rate their company as excellent or very good at analysing data.
The survey identifies the key issues as the lack of data integration across the business and the company’s ability to collect data with sufficient relevance/reliability.
In some regions (such as the North Sea), this is partly down to the age of existing offshore infrastructure, which dates from a time when platforms were not built to accommodate wireless instruments.
Talent is also an issue, as companies cannot effectively introduce or extract value from new data technologies without access to specific and niche data skills.
Ultimately though, any company wishing to remain competitive will need to successfully tackle these challenges, as evidenced by the survey, which shows a distinct correlation between high data performance and successful technology development.
BP’s David Eyton, a contributor to the report, is optimistic, noting that data integration issues can often be overcome because analytics companies are often format-agnostic.
He said: “Once we make our data accessible to the data analysts, they will use what we’ve got and see what they can do with it.”
The Technology Radar research confirms that the offshore sector is rapidly realigning in response to the low oil price environment and other challenging dynamics.
The issues appear to be well-understood, aided by good-quality dialogue and increased collaborative efforts.
In this environment, staying afloat requires a new type of inventiveness and open mindedness; an eager and proactive search for novel technologies, approaches and ways of working.
Duco de Haan is commercial development director at Lloyd’s Register Energy