What can small and medium-sized upstream oil and gas companies do to take advantage of a more digital world, if anything?
I’m presenting at ARC Financial’s CEO Summit on Tuesday (October 23) about the impacts of digital on oil and gas, with practical digital ideas for small and medium-sized oil and gas companies. ARC’s observation is that digital innovation is often portrayed as the purview of only very large oil and gas concerns, who have the big budgets, large teams and ample resources to devote to digital. It’s time to challenge that image.
WHAT IS DIGITAL?
I like the IEA definition of digital, which is the combining of three key building blocks that together create something that most people generally concede is a digital device, solution, or service.
- Data—data is the lifeblood of digital. A digital device, solution, or service produces and uses data.
- Analytics—a digital device, solution, or service has the ability to carry out calculations and computations on the data.
- Connectivity—a digital device, solution, or service uses a telecommunications network that allow digital devices to connect with one another to exchange or share data, or computations.
Something that is digital (and that something could be a physical thing, a process, or a business model) has these three basic elements operating together in some configuration.
A smartphone is an excellent example of a digital thing: it has data, such as address books, music files, and maps; analytics, which are apps that carry out calculations, such as the distance between two points; and connectivity, since a phone, by definition, can use the cell phone network and likely has multiple network connection technologies embedded within, including Wi-Fi and Bluetooth.
Real examples for oil and gas include:
- Tank gauges—Fuel tank gauges have shrunk in size, cost, and power demand while expanding in capability. Australia’s unmanned outback airports have gauges on their tanks that give fuel providers real-time visibility to tank contents, so that the tanks can be replenished when needed.
- Cars—Next-generation vehicles are packed with digital smarts to allow them to communicate with each other and with smart transportation environments. Porsche is embedding blockchain technology in its sports cars.
- Valves—With sensors and actuators falling in cost, even traditionally dumb devices like valves can be brought online, generate their own data feed, and tie into supervisory systems. The same for drill bits, flow measurement devices, motors and filters (the basic building blocks of process manufacturing).
These three building blocks (data, analytics, and connectivity) share a common foundational technology, which is the lowly computer chip. As chip technology advances, the cost of earlier generations of chips falls to zero (manufacturers basically give them away) and it becomes economically feasible to incorporate chips into almost everything. They become smaller, thinner, lighter, and, most critically, they need very little power to operate. It is the chips that store the data, provide the computations, and enable the telecommunications computers that drive the network connections.
Occurring in parallel with the exponential growth rate in capability is an exponential fall in cost. At some point, the capability of a digital thing is effectively infinite in terms of data storage and processing—and practically free as the cost approaches zero. Where the oil and gas industry has always worked in a world of constraint, digital is creating a world of abundance.
SUPER SIMPLE DIGITAL TECHNOLOGIES FOR EVERYONE
In my view, it’s no longer a digital “if”, but a digital “when”—when will your company start exploring digital ideas and solutions. The economics and capability of digital are only going in one direction, which is exponentially better, and sooner or later, one of your trading partners, suppliers or capital market advisors will ask what you’re doing about it.
Here are five key technologies that even small companies can embrace:
Cloud computing has matured sufficiently in the past 20 years that it’s no longer a novelty. There are many large and capable suppliers, and even big oil companies have concluded that the technology is now sufficiently de-risked. Cloud computing is also the base technology for just about all the other digital innovations.
Bot technology dates back to the dawn of video games, and is widely used in oil and gas, particularly in the big off shore centralized service centers that handle HR, procurement and finance. Bot technology is so efficient that it’s banned on most social media platforms like LinkedIn.
Cloud-based analytics tools have progressed to a point where they now vastly out–perform that old stalwart Excel. Of course, getting your data into a cloud computing environment enables the analytics on that data.
The interface between well owners and operators is an easy target for improved performance (think Uber for wells). Many companies have targeted this problem area, including Payload, Zayfti (now Spira), ServiceNow, SalesForce, IronSight, and Parsable. Collaboration tools take advantage of cloud computing and all those ubiquitous digital devices.
An army of international gig workers are standing by to execute the kinds of tasks that the expensive domestic workforce finds unfulfilling to do. Using VPN tools and cloud services, you can outsource many tasks that need to get done but are not worth the trouble to automate (like updating some kinds of spreadsheets, for example).
TACTICS TO GET INVOLVED
Return on investment should drive digital decisions. But sometimes it’s not clear which ideas will unlock value the fastest. And cost is always the big challenge for small companies. No one will spend money unless there’s a clear path to revenue growth, cost reduction, productivity improvement or asset utilization (and ideally, all of the above). I get that — I own a small company too.
Here are four ways that small companies can participate in digital innovation to both identify the best ideas and tackle them at the lowest cost.
Incubators and accelerators
Since digital innovation is no longer trapped in Silicon Valley, thanks to cloud computing and widespread digital education, most big cities have facilities that serve as incubators (where new digital solutions are shaped and trialed), and accelerators (where solutions access resources to propel their growth). Calgary has a handful of these now, including Zone Startups, Nucleus and ATBx. I’ve met with all of them and Calgary’s small and medium sized oil companies are nowhere to be seen.
What the start ups need most of all is data to work with, which oil companies have in abundance, and opportunity to run some trials. I would attend some of the meet ups (the AI meet up, the blockchain consortium, Lunchalytics) to meet the innovators, identify some promising ideas, and arrange some trials.
It took a near crisis around water, but the oil sands industry formed COSIA to cooperate within the sector on water issues. COSIA is a great model for all industries to emulate, and it is held up globally as a leading example for industrial cooperation. The oil sands companies like it enough that they kicked off a separate initiative to chase down other savings ideas.
The Alberta beer industry is another great example. The big local craft brewer opened up its beer making facilities to allow smaller craft beer makers to experiment with recipes and ingredients. Amazon did the same with Borders, allowing Borders to sell books on the Amazon platform.
A handful of upstream oil and gas companies, perhaps with common ownership or board members, would be well placed to organize a mini-COSIA to jointly invest in innovations for broader use.
Sometimes, problems to be solved require specialized math or statistical skills that are unavailable in the local market or would be too costly to consider. I would try using crowd-sourcing as a way to access deep technical assistance. For example, Kaggle, an Australian company, runs science-based competitions, offering up a kind of x-prize for the best result. Companies provide some data and current analytics (a formula or algorithm) to a global competition to improve the quality of the analytics. Prize money might be just $25k but to a lowly-paid international mathematician, $25k could be her annual wage.
A UK-based oil company ran trials using crowd-sourcing of analytics and concluded that the crowd was as good as their internal interpretation services.
Some digital innovations require the collaboration of several companies to realize the benefits. For example, NAL Resources has unlocked dramatically better ways of working that involve bots, artificial intelligence and distributed ledgers (or blockchain). These innovations depend on key business partners agreeing to work together to change how business transactions are carried out (in their case, royalty payments).
There are now dozens of consortiums in a variety of industries, including oil and gas, that are actively working to transform some mature business processes that have not experienced any meaningful change in decades. Small companies would be welcome to get involved with these consortiums, or to form their own to target low value processes that suck up too much energy and resources.
A handful of digital technologies are now sufficiently low cost and risk that they are within reach of smaller organizations, and the mechanisms to access these innovations at low cost are also fully accessible
Geoffrey Cann is a former senior partner of one of the big 4 consulting firms. He has a deep passion for the impacts that digital technology and innovation are having on oil and gas. His career in the industry, spanning nearly 30 years, has taken him to oil and gas companies in Australia, China, and his home base in Canada, to help drive digital transformation. You can follow him on Twitter (@geoffreycann or @digitaloilgas), visit his website at www.geoffreycann.com, listen to his podcast (search for “Digital Oil and Gas on your favourite platform), or simply connect with him on LinkedIn.
The views expressed herein are those of the author and do not constitute professional advice. Readers should not rely on any predictions and should ensure that before they make any decisions they contact their own independent professional advisor.