Digitalisation’s place in upstream’s future
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The biggest current recruiter in upstream? Digitalisation, 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. Digitalisation is becoming central to the plan.
A very different milieu fills the packed out digitalisation 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.
Digitalisation includes big data and analytics, cloud computing and storage, virtual reality, drones, robotics and automation, and machine learning, such as facial recognition.
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 maximise reserves and production, minimise costs, and do both whilst putting fewer people in dangerous places.
No-one expects digitalisation to solve all upstream’s present challenges. But digitalisation will play its part in the structural changes the industry has to make to bring the industry into the 21st century.
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.
However, there is a huge, potentially lucrative opportunity in digitalisation 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 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 its dysfunctional, deep silos are 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 digitalisation 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 digitalisation 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.
Sceptics may argue that digitalisation 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 digitalise most effectively have the best chance of being that low-cost winner.
What advice then to undergraduate geologists, geophysicists and petroleum engineers puzzling where they fit into a future, digitalised upstream? Go get a Masters degree in predictive analytics. The industry will need data scientists but, better still, ones that understand how the E&P sector works.