Technology: The 2006 Fuel Additive

Scott Weir, EDS Oil and Gas Industry Leader

The oil and gas industry faces a conundrum. Soaring oil prices, driven by a dramatic increase in demand, are helping generate record profits. But that is creating immense pressure on the industry to not only meet that demand but replenish reserves. Producers are struggling to gain access to existing reserves and find new ways to increase current portfolio productivity levels while facing increased scrutiny brought on in part by record gasoline prices at the pump and the shifting political landscape of the Middle East.

With oil prices at a high and cash surpluses at record levels, the industry is poised to make important business investments to guarantee success in the long term. While E&P and merger and acquisition investments get the most attention, investments in information technology (IT) infrastructure can go far beyond cost savings. IT infrastructure is the software and hardware that make up what some call the “digital nervous system of the business.” It includes everything from networks and servers to the operating systems and the applications used to store, capture, and translate the data required to efficiently produce petroleum and petroleum products.

But first, IT must be viewed as an enabler of business success vs. simply an overhead cost to be minimized. The key to successful IT investments is to draw a correlation between the investment impact of technology and the bottom line. Unfortunately, the relationships between IT investments and profit per barrel are not always clear to the business units that can benefit most from the investment. That can be attributed to a number of factors, including organizational inertia and reluctance to change, a low tolerance for technologies that may be perceived as risky, difficulty relating infrastructure technologies to production and business metrics, and the mass of hype and vague promises from the IT market.

Which technologies will yield the biggest results for oil and gas companies this year? It is hard to say, but any of the following, applied appropriately with the associated behavioral and process changes and effective adoption by the end users, could enable huge bottom-line returns.

Upstream Information Management—Platform automation, or the “digital oil field,” has created industry buzz for the past few years. This approach, likened to the fully automated vehicle-production line, could result in billion-dollar annual cost reductions, enhanced recovery rates in the 100 billion bbl range, 2–6% production-rate increases, and 10–20% capital cost reductions (Cambridge Energy Research Assocs., 2003). These benefits will come through increased access to real-time data distributed to those who need it to make faster, better decisions. This also involves automation of many oilfield operations, thus enabling improvements in health, safety, and evironment measures and the opportunity to better leverage and retain key knowledge workers in centralized, onshore sites. As demonstrated by the hurricanes that devastated the U.S. Gulf Coast last year, the ability to manage and run platform operations remotely is an important tool in overall oilfield management strategy.

But are oil and gas companies prepared to move toward the digital oil field? Too often, the end-use technology becomes the focus, but the core infrastructure to enable these technologies may not be appropriately considered. Assessing and preparing IT infrastructure will be a key requirement for successful implementation of upstream information management. In addition, these strategies may be able to leverage existing technology tool sets through legacy renewal instead of engaging in a wholesale “rip and replace” approach.

The process of moving a legacy application to an agile architecture or platform generally includes several important tasks. Determining where applications reside along the legacy-system life cycle is a critical first step: Does the functionality still match business requirements, and will the applications still be supported?

Applications must then be rationalized based on a deep analysis of current business strategy and the value of current systems. It is likely that there are multiple applications performing the same fundamental task in the organization. This is usually the result of isolated decision making driven by decentralized organizational structures. Rationalization involves the analysis to standardize tool sets and, in turn, an opportunity to standardize business processes and data. This, then, becomes a key enabler of broader information sharing and access. This rationalization effort should present an actionable plan for the company’s applications portfolio—which applications should be retired, rehosted, rebuilt, reinterfaced, or replaced. Only then will the IT systems be ready to effectively implement an upstream information management program.

Data Explosion—New technologies have paved the way for oil and gas companies to collect an increasing amount of information about subsurface assets. For example, real-time drilling presents the capability to remotely monitor and control drilling activities. However, this involves a tremendous increase in data volumes and communication requirements. This influx of new data has many IT executives looking for ways to manage it all. Data must be catalogued, stored, backed up, and made easily accessible, which means that many companies will have to re-evaluate their core infrastructure, including hard-drive space, processor capacity, security applications, and even disaster-recovery plans.

Mobility—The idea of an office-based work environment is giving way to a decentralized model to provide organizations with greater flexibility in operations. Companies need reliable communications for onshore and offshore locations, and even the smallest delay can potentially cost a company millions of dollars. Wireless platform phones, personal digital assistants, and machine-to-machine communications using radio frequency identification (RFID) are a few of the devices transforming wireless communication. Now there are wireless broadband networks that can immediately transfer critical data and establish secure communications with remote teams. As boundaries blur, integration of desktop, network system, applications, help desk, and asset management with related configuration management tools will become essential.

Security—The increased use of digital systems will require oil and gas companies to closely examine security on all levels, including electronic data and communications. The increased use of remote-access technologies and influx of competitively sensitive data will prompt firms to strengthen IT-related security to protect intellectual and information assets. Physical security also is a concern in operations. Implementing electronic-access control systems and other integrated security systems will eliminate the need for paper credentials, which can be altered. In addition, RFID tags, electromagnetic locking systems, and biometrics systems will be used to ensure that only appropriate personnel gain access.

Outsourcing—Outsourcing in its broadest terms is not new to the upstream industry. How many major operators still actually perform their own seismic runs or drill their own wells? Thus, a tremendous amount of value has been created in partnership with the oilfield services industry. But many integrated oil company IT departments are only now beginning to give consideration to outsourcing. Reduced costs and improved efficiency in noncore, noncompetitive support processes and technologies will continue to be an imperative for oil and gas companies.

Global IT Infrastructure—With emerging markets creating more demand for oil, many companies are acquiring companies in other parts of the world. However, the demand for rapid return on these investments has prevented proper integration of IT systems. In addition, organizations continue to evolve and, while a business may have worked well under a decentralized, profit-center model in the past, this model has also yielded multiple systems, processes, and cultures. The IT infrastructures of the past are no longer agile enough to support the new demands of the market. Oil and gas companies must find ways to effectively retool their infrastructure during one of the most rapid growth periods the business has ever known.

Business Continuity and Disaster Recovery—Recent hurricanes and the subsequent damage to oil platforms have caused oil and gas companies to re-evaluate their business-continuity and disaster-recovery plans. Plans should be tailored and tested under all potential circumstances—natural disasters, terrorist attacks, power outages, labor disputes, and more. If an oil well is damaged, companies need to determine how and when they can bring it back into production. As operations are increasingly digitized, companies also need to ensure that information assets associated with the well also can be protected and recovered.

Refocus on Human Resources—Companies realize they must focus on their core business. The primary goals of finding new oil, developing new platforms, and securing reserves are leading them to investigate the benefits of outsourcing components or all of their human resources functions. The workforce weighted with individuals on the verge of retirement also is raising concerns. Employee recruitment, retention, training, and knowledge management are imperative for future success.

The Technology Additive

Increasing demand for oil combined with new global players entering a competitive marketplace is forcing oil and gas com-panies to transform the way they do business. IT is an important part of the transformation process, but the key will be to find and apply the right technologies to the appropriate areas of the business to impact the bottom line. Historically, technology has shown its ability to revolutionize industry operations, but now it must be viewed as an imperative for business success. In the coming years, the pace of change will continue to increase. The question is, will your company be agile enough to keep pace?

Reference

Cambridge Energy Research Assocs. 2003. The Digital Oil Field of the Future: Enabling Next Generation Reservoir Performance. Cambridge, Mass.

Scott Weir is the Oil and Gas Industry Leader for EDS, a global technology services company. He is responsible for setting EDS’ strategy and market plans for EDS oil and gas industry client services across the globe. With an 18-year career in consulting and business process improvement, Weir has extensive industry knowledge and experience in business transformation, strategy, change management, and technology design and implementation.