7 minute read 15 Oct 2020
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How COVID-19 could accelerate digital in oil and gas

Low prices and the COVID-19 demand slump make embracing and integrating technology a necessity.

This article is part of our crisis response for oil and gas series.

Three questions to ask
  • Does the rapidly evolving digital technology offer a viable solution for oil and gas?
  • As companies look to expand their digital infrastructure, how should they proceed to capture maximum value?
  • Will the next 12–18 months promise to be especially rocky as the oil and gas industry adjusts to a new normal — or is it an opportunity for transformation?

The worldwide crude oil glut that caused prices to fall by nearly fifty percent in the last three months of 2014 ushered in a new era for the industry.

Gone were the days of covering expensive exploration and production costs with price cycle peaks. The new marketplace — created by vast unconventional production and weakening demand — meant prices would likely remain low for a long time. The industry would need to find ways to reduce its costs for the foreseeable future.

Rapidly evolving digital technology offered a viable solution. But many companies believed they had a substantial window of time to develop and implement a digital strategy. The competitive advantage of being a first mover was unclear; most companies thought it was advantageous to go slowly and learn from others’ mistakes.

That was then. Today, downward pressure on commodity prices continues to be a significant issue, and a post-COVID-19 decline in demand has made the situation worse. To be successful despite these current market conditions, oil and gas companies recognize the necessity of digital technology.

In fact, 90% of oil and gas executives that participated in EY's Digital Transformation and the Workforce Survey, conducted in June 2020, either agreed or strongly agreed that their companies need to invest in technology and the workforce right now, though investment levels varied.

Investment in digital technology

80%

plan to invest at least a moderate amount, and 29% plan to invest a great deal in digital technologies.

Ultimately, companies that haven’t yet embraced digital implementation throughout the organization can no longer afford a cautious approach; the value digital tools deliver is critical for survival in today’s price environment.

The value digital tools deliver is critical for survival in today’s price environment.

New paradigm, new opportunities

All companies in the oil and gas industry have some digital technology in place, with some fully committed to digital transformation. But many others have yet to take a substantial step forward, especially in critical functions such as well planning, drilling and operations. Oil and gas companies have faced several challenges around digital technology adoption. 

Interestingly, the COVID-19 environment and resulting work-from-home policies have the potential to expedite some of the change necessary to support full integration of digital technology across an entire organization. Digital technology supports social distancing, allowing employees to work efficiently from remote locations, which will likely be a necessity throughout 2020 and beyond.

The last several months have proven that oil and gas companies can operate successfully in digital platforms, supported by cloud computing. These tools work — and it’s clear they can reduce costs.

That paradigm shift is a sign of significant changes in the industry.

Digital tools do more than enable communication and collaboration. They allow engineers and operators to plan and monitor operations remotely, automate manual tasks and streamline processes, and support operational integrity and process safety.

Digital tools do more than enable communication and collaboration. They allow engineers and operators to plan and monitor operations remotely, automate manual tasks and streamline processes, and support operational integrity and process safety.

Given that digital technology has proven itself across the industry — during a time when cost reduction is critical — consider what should happen next. Do companies need multiple regional offices and a large headquarters staff? Digital tools shift where talent is located, enabling companies to deploy financial and human capital more efficiently.

A strong digital backbone makes it possible for companies to take advantage of different national and regional tax and expense structures, eliminate legacy computing systems, reduce corporate overhead; and much more.

There are challenges. Data security is an issue, especially with employees logging in from home. And not all remote locations have strong bandwidth capabilities.

Cultural change will be necessary, too. The adoption and proper use of new tools will require time and training. And new employees will likely still require some form of onsite, hands-on orientation and onboarding. But these issues are solvable.

Moving quickly to capture value

The biggest obstacle to implementing a complete upstream digital strategy is determining where to begin. As companies look to expand their infrastructure, how should they proceed to capture maximum value?

There are four critical elements to the rapid and thorough adoption of digital:

  1. Implement a digital infrastructure that people can quickly and easily transition to — tools to help employees keep pace with the current environment. Usability is critical, and technology tied to existing user experiences is always easier to implement.
  2. Put rigorous processes in place to ensure new tools deliver real value and involve key end-users in development. Companies can’t cut corners in design and implementation. Employees will embrace new technology if it works correctly, enhances their ability to do their jobs and if they feel they had a hand in its development.
  3. Be transparent about communicating results and make a concerted effort to share lessons from implementation across the business. How are functions using the tools and what can others learn from those experiences? Digital tools can’t just be “turned on” like a light switch; there must be communication and education about their uses and benefits.
  4. Create quick wins to build trust. Engineers must feel confident they can trust digital sensors and automated platforms. Is the data correct? Can I believe what that dashboard is telling me? Creating a level of trust is one of the most challenging elements of digital adoption, and critical digital tools must work correctly from the first day.

Unlocking value from the data

Companies generate tremendous amounts of data throughout the process of oil and gas exploration, development and production. Currently, much of that data resides in digital silos or worse, on paper.

Multiple business units and numerous teams all along the oil and gas value chain are creating and leveraging data in isolation. As a result, employees spend a lot of time finding and validating data manually.

This not only creates delays, but data also isn’t being leveraged across the organization, potentially missing out on critical analysis and key insights. Oil and gas operations are highly complex, large scale and capital intensive, which means even small errors and inefficiencies cost millions of dollars and cause months of delays.

Our estimates show that an oil and gas company could potentially unlock more than US$145 million of value annually by integrating its key processes across the upstream oil and gas value chain with a common data model.

Bringing together numerous applications and creating a unified data stream could create tremendous impact across the industry. Effectively integrating and deploying digital technology across oil and gas has the potential to reduce costs and drive efficiencies, both critical to navigating both the immediate effects of the COVID-19 crisis and the long-term implications of the energy transition.

Summary

The COVID-19 crisis has exacerbated existing challenges for the oil and gas industry. Eroding demand is putting pressure on companies to reduce costs and increase efficiencies to deliver adequate returns. To prepare for the energy transition, it is critical that companies accelerate not just adoption, but more importantly, integration of digital technology throughout the oil and gas value chain.

The next 12–18 months promises to be especially rocky as the oil and gas industry adjusts to a new normal. It is imperative that companies take the necessary steps to absorb the shocks and create a leaner, more competitive organization for the future.

About this article

By EY Global

Ernst & Young Global Ltd.