Going with the Flow

Digitizing upstream oil and gas

Digitization has been a buzzword across industries for the better part of the 21^st century, leading to increased efficiency and profits for a wide variety of companies. Yet, when it comes to upstream oil and gas — the stage of production that includes identifying deposits, drilling for raw materials, and extracting them — digitization has not been widely adopted.

Part of the resistance to digitization comes from the desire to save jobs and protect the image of the roughneck oil worker, and part comes from the fact that it can be a major undertaking for a business to undergo a digital transformation. However, with oil prices remaining relatively low, upstream oil and gas is beginning to embrace digitization in a move that the International Energy Agency believes could lead to as much as 20 percent savings in costs.

Digitizing Exploration

Reservoir modeling and simulation aided by machine learning that collects and interprets data during exploration stands to streamline the process and provide greater insight into where to drill. Software such as ECLIPSE Industry-Reference Reservoir Simulator from Schlumberger provides simulation and data-driven predictions to inform planning and anticipate the flow and availability of oil and gas.

Using advanced modeling and simulation methods in upstream oil and gas requires not only an investment in new software, but a coordinated effort by operators, oilfield service (OFS) companies, and engineering, procurement, and construction (EPC) companies. As operators invest in newer software and increased automation, OFS companies need to be able to support the analytic capabilities operators require. OFS Portal is a growing network that facilitates compliance by connecting suppliers, operators, and IT support within upstream oil and gas according to their specific needs.

EPCs stand to benefit from digitization due to the collaboration and flexibility it affords. Software such as FieldAP™ and FieldTwin™ from FutureOn® allow team members to collaborate quickly on designs and make changes on the fly. This is increasingly important as data is being shared more extensively and operators are developing a better idea of specifically what they want for their project.

Drilling and OEMs

OEMs and rig owners are also at a crossroads as upstream oil and gas faces digitization. The biggest changes will be automated drilling technology, such as that being developed by Rockwell Automation, and predictive maintenance, like the solution offered by MapR and Mtell. Both aforementioned advantages of digitization are particularly useful in offshore drilling or operations in remote locations.

Predictive maintenance and IoT requires OEMs and rig owners to stop being simply hardware suppliers and start embracing the software side of the business. Their equipment will need to be upgraded with technology such as Honeywell sensors and switches as well as devices allowing for connectivity. Ultimately, digitizing will result in more efficient recovery for operators in the upstream oil and gas sector who will have no choice but to choose companies who offer such an advantage.

Hurdles in Digitization

In any industry the primary hurdle to digitization has been upfront cost, and upstream oil and gas is certainly no exception. In fact, upstream faces an even more difficult time in overcoming the costs of digitization than most other fields. EPCs and operators see digitization as a way to increase efficiency, thereby lowering overhead costs and boosting profits.

However, increased efficiency does not equal profits for rig owners and OEMs. Boston Consulting Group (BCG) suggests, “… OEMs will need to undertake two significant changes: They must shift from a hardware sales mindset to one that is service oriented, and, in turn, they must develop the ability to produce, manage, support, and correctly price software-centric solutions.” This requires a massive change in the business model for many of the companies — one which, by and large, they have not been quick to embrace.

Additionally, rig owners are typically paid by the length of the project, so speeding up the recovery process is actually harmful to their business. BCG also offers a solution to this issue, suggesting that the payment model be revised such that it becomes an outcome-based model that incentivizes performance. Not only would this encourage rig owners and OEMs to digitize their machinery, it would promote collaboration and communication among all pieces of the upstream oil and gas process.

Although there are certainly a few kinks to be worked out in the digitization of upstream oil and gas, the potential savings will surely entice a switch — beginning with the operators. Once one domino falls, it won’t be long before the rest of the sector follows suit and upstream becomes a more efficient, safer, and profitable business.