Mid distance view of oil well on field

How to accelerate digital transformation in oil and gas

Oil and gas companies need to accelerate and leverage digital transformation to overcome demand disruption from COVID-19 and oversupply.

In brief

  • The oil and gas industry is experiencing the twin blows of demand disruption caused by the COVID-19 pandemic and oversupply in the market.
  • Pressure is mounting for oil and gas companies to accelerate digital transformation to reduce costs, increase efficiencies and remain competitive.
  • Encouraging an innovative culture, breaking down data silos, and leveraging partnerships are key to effective digital transformation.

Oil and gas companies are facing the twin blows of demand disruption caused by the COVID-19 pandemic and oversupply in the market. Access to capital will be severely restricted and producers will likely only be able to invest the cash that they generate. Consequently, drastic cost-cutting measures encompassing workforce reductions, furloughs, salary cuts, dividend cuts, withdrawal of share buybacks and facility consolidation have also been announced.

How EY can Help

The industry is not new to volatility, and what the current situation again underscores is the constant pressure for oil and gas companies to reduce costs, increase efficiencies and adapt their business models to remain competitive. These pressures are gaining greater prominence as the energy transition builds momentum and competition from alternative energy sources intensifies.
 

The current situation will accelerate strategic and operational reviews of companies, with digitalization at the heart of this process. The convergence of digital, cloud computing and the new normal in oil prices has positioned the oil and gas industry for a massive transformation. Given the scale of oil and gas operations, incremental improvements can have a tremendous impact. This has been demonstrated by oil and gas companies leveraging advances in digital technology across the value chain, and there is potential for a greater impact in the following areas.
 

Data-driven decisions

Big data, analytical platforms and artificial intelligence (AI) are converging to analyze data in ways that had not been possible until now. These more sophisticated data insights can help oil and gas businesses to increase operational efficiency by innovating the maintenance of assets, identifying better areas to drill, decreasing unplanned downtime and optimizing production.
 

Industrial Internet of Things (IIoT)

Intelligent asset management allows companies to benefit from automated monitoring and diagnostics by connecting field assets and equipment to the IIoT platform with smart sensors. Companies can build real-time insights, operations and processes, such as helping to optimize equipment utilization and maintenance planning.
 

Intelligent automation

Businesses have been using intelligent automation and robotic process automation (RPA) to automate human processing. By adding the power of AI to RPA, they can employ critical thinking, analytical models and quality improvements to automate various functions across the organization.
 

Blockchain

Blockchain solutions can help to improve accuracy and reduce governance efforts in complex processes, such as commodity trading, materials movement and the tracking of assets. Blockchain can also be used in conjunction with the IIoT platform to track the history of devices and enhance security.
 

According to the EY Oil and Gas Digital Transformation and the Workforce Survey 2020, 58% of respondents said the COVID-19 pandemic has made investing in digital technology more urgent, with a majority planning to invest a great deal (29%) or moderate amount (51%) relative to their total budget.
 

The cost savings that digital can deliver for organizations are critical for survival in today’s low-price environment, as oil and gas companies seek to gain greater operational efficiencies and drive productivity across the value chain.
 

To capture the full value of these investments, oil and gas companies need the skills to harness technology to automate processes and uncover deep operational insights. The industry needs to create an environment that attracts digitally focused talent of the future. This is an ambitious undertaking that requires a full business transformation.

HIGH ANGLE VIEW OF WORKER WORKING AT CONSTRUCTION, STAVANGER NORWAY OIL RIG
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Chapter 1

Instilling a culture of innovation

A new generation of leaders and decision-makers is needed to facilitate adoption of digital technologies for innovation.

Nearly two-thirds of respondents in the abovementioned survey consider the inability to change quickly as a major challenge to the adoption of digital technologies in their companies. Oil and gas companies are basically process-driven. From upstream to downstream, every step of the value chain is organized by rules and regulations designed to achieve a routine working environment, posing a major obstacle to effective transformation in the sector.

A new generation of leaders and decision-makers is needed to move the needle on progress toward instilling a culture of innovation that supports the adoption of digital technologies. However, disruptive thinking does not necessarily come naturally to large, process-driven companies. Company-wide communication and training programs are ways to enable staff of all levels to better understand how these tools can help to improve individual and collective performance in the long run.

High angle view of modern buildings
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Chapter 2

Breaking down data silos to create value

Data consolidation is key to optimizing the potential of data insights.

How EY can Help

Oil and gas companies, especially large and integrated ones, generate reams of data, much of which gets siloed within different business lines, geographies, or even single operating units. By not consolidating this data, next-generation digital solutions will fail to deliver maximum value. Fortunately, many companies are seeking to break down data silos. For example, some oil and gas companies have expanded their collaboration with technology firms to consolidate data on custom AI platforms, such as a “data lake” that holds data from the entire downstream portfolio, making it easily accessible and sharable.

business woman in meeting with laptop
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Chapter 3

Developing internal resources and leveraging partnerships

Partnerships and developing internal resources will be key to fostering a culture of innovation.

There still appears to be a lack of confidence among senior oil and gas executives on how to define and execute their digital vision. Developing internal resources can be a valuable opportunity to foster a culture of innovation. Partnerships will also be key to developing digital capabilities, and we are starting to see steps in this direction.

For example, an international oil company (IOC) has formed a joint venture with a Chinese NOC to develop an automated well manufacturing system, and with an aerospace company to enable the use of fiber optics for oil and gas production monitoring. The larger players are also forming partnerships with technology companies to deliver digital capabilities. For instance, a Europe-based IOC is working with a large software company to optimize subsurface image interpretation using AI.

The energy landscape of the future will be vastly different from that of today. AI and digital technologies are poised to transform the oil and gas sector to unlock new insights and breathe new life into old processes. Realizing this value will mean answering key questions around data, talent and culture.

Realizing the value of AI and digital technologies in transforming the oil and gas sector to unlock new insights and enhance processes will mean answering key questions around data, talent and culture.

The demand for digital skills continues to grow across every industry, and those with AI and data science capabilities will remain some of the most sought-after talents in the coming years. The oil and gas industry will encounter stiff competition for talent and will have to overcome negative perceptions among younger generations who tend to favor careers in technology and other sectors. This makes reskilling and upskilling a greater priority for oil and gas companies.

It is no coincidence that the best leaders are those who manage the greatest transformations in trying times. Executives should ask the following key questions to move toward concrete, systemic solutions:

  1. To what extent is our business strategy reliant on digital technologies to get through the pandemic and make growth gains in subsequent years?
  2. Do we have an accurate assessment of our employees, and their current skills and development potential, as well as a sense of how many workers can be reskilled or upskilled?
  3. What are the current maturity, availability and access levels of critical skills within our organization and the local market, and which systems are in place to consistently and accurately measure those levels?
  4. Which tools, partnerships and resources are available to aid in digital transformation, and which still need to be identified, forged or acquired?
  5. Do we have a comprehensive view of organizational needs and resources to strategically prioritize our efforts and find the balance needed to position our organization for success now and in the aftermath of the pandemic?

Summary

Oil and gas companies are under significant pressure to remain competitive as they face a disruption in demand from COVID-19 and oversupply. The resulting convergence of digital, cloud computing and the new normal in oil prices underscores the potential for a massive transformation in the industry.

By instilling a culture of innovation, breaking down data silos, developing internal resources and leveraging partnerships, oil and gas companies can better position themselves for success through digital transformation.

About this article

Photographic portrait of Sanjeev Gupta
Sanjeev Gupta
EY Asia-Pacific Oil & Gas Leader
Thought leader working with stakeholders in the energy sector. Passionate about client’s journey toward improved capital efficiency, transformation and digitalization.
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