Oil and Gas Companies Turn to Digital Technology as Low Energy Prices Pressure Business
Two operators on the Ramadan production platform bridge, which is located in the Gulf of Suez off the coast of Egypt. BP Images
Oil and gas companies are turning to digital technologies to lower costs and improve efficiency as the industry struggles with low energy prices.
Information technology budgets have decreased by 10% or more at oil and gas companies during the slump, according to IDC. Analysts say companies still are strategically spending in areas such as analytics, mobile, and cloud that can lower costs and, in some cases, help improve well production.
Oil prices started to fall after a peak of $114.81 a barrel on June 20, 2014. The global Brent benchmark on the ICE Futures Europe exchange has dropped 61.2% over the last 22 months to $44.53 on April 21. During the same period average gas prices in the U.S. fell to $2.09 a gallon from about $3.70 a gallon. Plunging oil and gas has spurred cutbacks with 84,000 jobs lost in Texas, according to the Texas Alliance of Energy Producers.
The global digital oilfield market, the incorporation of advanced software and data analysis techniques designed to improve profitability from operations, is expected to reach $30.78 billion by 2020, with compound annual growth of 4.31% from 2015, according to a November 2015 report by Research and Markets.
“We continue to develop technology that can improve operations as this is what gives us the competitive edge in this downturn,” said Manish Kapoor, CIO and senior vice president of information systems at terminal and pipeline company NuStar Energy LP, in an email.
NuStar Energy is focusing its efforts in part by equipping field employees with mobile technology to collect critical field data. The idea is to get rid of paper in the field, said Mr. Kapoor. The company is also continuing efforts to use digital sensors in its pipeline supervisory control and data acquisition operation to be able to better remotely monitor pressure and other metrics.
The challenge for Mr. Kapoor, and other energy CIOs, is figuring out how to reduce costs, make faster and better decisions and increase workforce productivity. CIOs selectively are investing in technologies that help optimize processes, increase productivity, improve security and reduce costs, according to a February 2016 report from IDC Energy Insights. CIOs said they are investing in mobility, business intelligence and analytics, cloud and application modernization to help them deal with lower oil prices, according to the report.
“Most companies are waiting to drill and to frack as soon as prices go up but right now they’re maximizing their production,” Chris Niven, research director for Oil & Gas at IDC Energy Insights, told CIO Journal. Companies are trying to figure out how to produce more from the wells they already have. “If oil is at $45 a barrel and production is at $25 a barrel, they can make money,” he said.
Analytics may help companies figure out how to eke out even small cost savings or incremental production improvements. Over the last 10 years, oil companies have gathered lots of data such as well head pressure, temperature and production rate.
In July 2015, for example, BP PLC said it began a new production optimization project to connect all of its oil wells globally to the Industrial Internet using software from General Electric Corp. With GE’s data management software, BP field engineers have real-time access to operational data sets across all wells, giving them information to make better decisions to improve efficiency, prevent failures and minimize downtime.
GE has estimated that for each week a subsea well is out of commission, operators lose more than $3 million. Avoiding those outages is even more important in a low-price oil environment, according to GE. The production optimization project will initially be deployed across 650 of BP’s wells, expanding to 4,000 wells around the world over the next few years.
Digital technologies have the potential by 2050 to increase production volumes by 4% and reduce costs by 13%, according to a report released by BP last year. “At a time of lower prices, revenues and capital spending, digital technologies – including sensors, data analytics and automated systems – stand out as the leading contributors for reducing costs,” according to the report.
Some oil and gas companies are using analytics to optimize chemical usage, according to Brian Richards, senior manager and energy innovation lead at Accenture PLC.
Monitoring chemical tanks and pumps has conventionally been a manual process. Technicians drive to each well site to check the status of the treatment and can find problems such as leaks and inoperable pumps. WellAware, a data analytics company for the oil industry, offers a service to automate that task by collecting data from wells using sensors. It aggregates that information and can help operators remotely monitor chemical usage and receive alarms when problems arise. Production chemicals are typically one of the three highest expenditures for an operator, according to the company.
Digitization in the oil industry has been going on for more than a decade but industry CIOs say that the slump has accelerated the process.
“I definitely think the current downturn has caused us to start to look at doing things differently,” Archana Deskus, vice president and chief information officer for Baker Hughes Inc. told CIO Journal.
Baker Hughes is an oilfield services company that sells supplies and advice to energy producers and services such as drilling and hydraulic fracturing. In addition, Baker Hughes has begun to sell IT services combined with its operational services to energy producers in the last four years or so, said Ms. Deskus.
For example, one of Baker Hughes’ customers had a disparate application portfolio in various data centers. “They really needed to bring their cost structure down,” said Ms. Deskus. So Baker Hughes helped them develop a production suite of applications that they moved to a private cloud.
Baker Hughes has also begun to use the cloud internally for certain applications. The company uses the public cloud for non-critical services in support functions and mostly the private cloud where Baker Hughes has privacy and security concerns, according to a spokesperson.
Today, Ms. Deskus said she’s seeing more workloads move to the cloud although there’s still some hesitation concerning data protection. “We’re getting comfortable with certain types of workloads,” she said. “Every year we’re pushing the limits a bit more.”
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