Increased digital technology application to grow upstream operators bottom-line

As dip in crude oil price force a revaluation of upstream investments, experts say increased application of digital technology will reduce capital expenditure, cut operating costs, improve efficiency and help upstream operators manage through a turbulent time.

They are now urging upstream operators to increase capacity in digital technologies since research findings show it has huge potentials to transform operations and create additional profits from existing capacity.

“Our research finds that the effective use of digital technologies in the oil and gas sector could reduce capital expenditures by up to 20 percent; it could cut operating costs in upstream by 3 to 5 percent and by about half that in downstream,” says Harsh Choudhry, a consultant in McKinsey’sSingapore office.

While the application of digital technology in the sector is not novel, as evidenced by the use of 3-D seismic, linear program modelling of refineries, and advanced process control for operations but latest technological advancements offer opportunity to further reduce costs, unleash unparalleled productivity and boost performance.

A recent 2016 Upstream Oil and Gas digital and technology trends survey sponsored by Accenture and Microsoft indicates that 91% of upstream operators say they were already getting value from their digital initiatives and cost reduction was identified as the most important business challenge that digital technologies can help them address

“Over the next three to five years respondents expect the focus to shift to areas that deliver greater long-term value, such as helping them make better and faster decisions. Digital can help upstream companies re-wire themselves to thrive in the new volatile market that we live in today,” said Choudhry.

In the last Society for Petroleum Engineers conference held in Lagos, several technical sessions attended by BusinessDay showed that upstream operators were keen on applying digital technology to deepen recovery in oil fields, using advanced technology for seismic studies and to explore for oil in abandoned oil wells.

Analysts at McKinsey opine that making a better use of these existing technologies can deliver serious returns: up to $1 billion in cost savings or production increases and executives that make their organizations more digital will be well positioned to pursue new growth opportunities.

Choudhry elaborated on three key areas increased application of digital technology is being applied: use of drones, equipment sensors and analytics predictive maintenance; integrating digital applications to increase reservoir limits; use of digital-enabled marketing distribution like geospatial analytics to increase the efficiency of their supply and distribution networks through location planning and route optimisation.

To create long-term value, upstream companies are taking lessons from lean start-ups and from digital native companies, and redesigning their operating models to be radically low cost and significantly agile analysts at Accenture Consulting said.

“Many are moving to “as-a-service” cloud models to reduce IT infrastructure costs; many are adding more mobility in field operations to increase worker productivity and reduces costs; and many are implementing cognitive computing robots in back-office operations to reduce costs and increase efficiency.  In addition, some are deploying low-cost Internet of Things (IoT) technologies with analytics in field assets to optimize asset operations and reduce costs,” said Rich Holsman, managing director Accenture global energy digital and technological business.

Experts say current upstream operating models have served them well over the past few decades, but today there are more efficient models available. If upstream companies can move to this next generation of operation models, they will be able to manage through current challenging times and create the agility and new capabilities to better thrive in the industry’s future challenging times.

“With the current oil and gas market, companies need to reinvent themselves to improve productivity. While capital expenditures or acquisitions might give executives pause, investing in digital technologies is a no-regrets move that could increase production from existing operations,” said Harsh Choudhry.

ISAAC ANYAOGU