Designing a digital transformation strategy can be easy, if firms choose the right partner and take a pragmatic approach
The oil and gas sector is making significant strides in digitisation. However, some companies are still only at a very early stage of digital development. For them, taking the first steps on a digital transformation journey—from recruiting digital strategies through to creating a culture that nurtures new ways of working—may seem daunting.
Our new report Drilling for Data takes a pragmatic perspective on how to demystify digitisation. The report, which has been produced by Strategy&, PwC’s strategy consulting business, and artificial intelligence (AI) software company Cognite, explores how digital solutions have been introduced and applied by companies.
So what should oil companies be considering when it comes to digitisation?
Key digital technologies are taking hold
Until relatively recently, there was significant hype at oil and gas industry conferences promoting digital transformation in the sector. Now the dust has settled, trends are emerging that show how digital is actually being applied. We focus on 11 technologies that we think are essential in this sector.
Energy group BP is trialing robots to inspect hydrocracker reactors in refineries as a way of improving safety and reducing inspection time, from more than 23 hours when done manually to just an hour. The group has also launched a new system of gas-cloud imaging supported by aerial drones to identify and monitor (and ultimately help reduce) methane emissions.
Equinor, a Norwegian energy group, is using sensor technology at its Johan Sverdrup field in the Norwegian North Sea to create a virtual, real-time version—a digital twin, in other words—of the whole installation. This will allow engineers to view the installation on smartphones and tablets and find relevant equipment information.
Smaller players are also digitising. Austrian energy group OMV is working on an initiative it calls DigitUP, which aims to connect and centralise data from its international rig fleet to a single location.
Aker BP, whose chief executive has described the group as more of a tech company than an oil and gas company, has developed an advanced data analytics capability that it claims could deliver annualised savings of US$100mn over the next couple of years.
These examples illustrate another evolving theme: the importance of collaborative innovation. In 2019, OMV and Aker BP announced a digitisation partnership to share learning and best practices, as well as collaborate on technology projects in operational efficiency, drilling, and subsurface. These projects will also involve agile ways of co-developing use cases and advancing new technology solutions. Both oil companies are also working with Cognite to develop technology platforms that will better capture data and use it to optimise their operations.
The larger players are also forming partnerships with technology companies to deliver digital capabilities: US energy group ExxonMobil is working with Microsoft, using cloud technology to enhance operations in the Permian Basin; Total of France is working with Google, using AI to optimise subsurface image interpretation; and the US oil services company Baker Hughes (formerly known as BHGE) has teamed up with C3.ai, an AI software provider, to use AI in order to improve productivity.
As these digital technologies mature and companies develop new ways of working, traditional value chains are being disrupted and new business models are emerging.
In Norway, digitisation has transformed the traditional maintenance activities of pump supplier Framo, and has also created new metrics for service contracts with operators.
Aker BP, working with Cognite over the past two years, has digitised the operations of its Ivar Aasen platform in the North Sea. This not only provided Framo with real-time access to data on its pumps, but also allowed the company to predict the operational status of its equipment—including the degree of wear and tear on it.
The result of this approach has been to replace unnecessary scheduled maintenance with needed maintenance only. Moreover, whereas in the past Framo’s service agreements defined hourly rates as a performance metric, they now focus on “uptime,” that is, tracking periods of smooth and uninterrupted operations.
A new focus on data analytics
In the aftermath of the oil price downturn of 2014, many companies explored digital solutions to enhance productivity. For several years, companies ran pilots experimenting with digital, but nearly always on a small scale. Recently, however, players have been scaling up solutions and trying to embed digital across their whole organisation, often as part of a broader cultural transformation.
Data analytics is at the forefront of this effort. The oil and gas industry generates an enormous amount of data: According to US software and data company Cisco, a typical offshore platform can generate between one and two terabytes of data daily. The need to process this data and generate insights from it is increasingly pressing.
Data and analytics capabilities are an important building block in enabling a data-driven approach that can transform businesses. Reliable “master data” (the core data a company holds on its operations) must underpin all data-driven initiatives, creating trust along the way. Decisions on capital expenditure; maintenance costs; mitigation of health, safety, and environmental risks; and minimisation of inventory costs all depend on reliable data.
PwC has been working with clients across the value chain to address this imperative and help generate insights from data, develop differentiating capabilities, and drive operational efficiencies. Poor data quality can undermine not only the impact of transformational efforts but also the efficacy of day-to-day operations
The road to digitisation
Despite the progress that has been made, many senior executives are unsure what the first step toward digitisation should be. In our project experience with companies beginning their digital journey, we typically see business leaders grappling with a common set of challenges:
- A business challenge has been identified, but the ability to use digital resources to address it is unclear and needs to be explored.
- The company generates a wealth of data, but there is no structure to manage the data and generate meaningful insights. In some cases, companies are not even sure what data they hold and how it can be accessed.
- The company is unclear on what digital solutions to develop in-house and how partnerships and co-innovation can be used to accelerate progress.
- The company is unsure how to manage the step between a digital proof of concept and full scale deployment. These challenges reflect the natural evolution of seven stages of digital maturity.
We suggest that companies thinking about digitising their operations should consider five key steps:
- Establish the business problem that needs to be addressed and how digitisation technology can help resolve the issue.
- Know that whatever the objective, a strategy will be required to deliver this ambition.
- Decide which part of the organisation to digitise first, and then consider how to keep track of lessons learned that can inform the broader process of enterprise-wide transformation.
- Assess how the operating model, processes, and culture of an organisation will be affected by these changes.
- Identify the partners that will support the delivery of this ambition. These partners will be critical to providing the technology, fostering innovation, designing the digital strategy, and helping implement the operating model.
By following these steps, oil companies starting out on their digital journey will be more likely to reach their destination—a destination that delivers significant business innovation and improvement.