Oil and gas companies digitizing to combat low energy prices

In the face of decreasing energy prices, Oil and gas companies are turning to digital technology to lower costs and improve efficiency. Though IT budgets decreased by more than 10 percent during the slump, according to International Data Corporation (IDC), analysts say companies are strategically spending in areas such as analytics, mobile, and cloud that can lower costs and, in some cases, help improve well production.

The global digital oil field market, the incorporation of advanced software and data analysis techniques designed to improve profitability from operations, is expected to reach $30.78 billion by 2020, with compound annual growth of 4.31 percent from 2015, according to a November 2015 report by Research and Markets.

Oil prices have witnessed a fall after a peak of $114.81 a barrel on June 20, 2014, to $44.53 this April 21. During the same period, average gas prices in the U.S. fell to $2.09 a gallon from about $3.70 a gallon. Plunging oil and gas has also spurred massive job cutbacks.

“We continue to develop technology that can improve operations as this is what gives us the competitive edge in this downturn,” says Manish Kapoor, CIO and senior vice president of information systems at terminal and pipeline company NuStar Energy LP.

NuStar Energy is working on providing field employees with mobile technology to collect critical field data and get rid of paper completely. The company is also continuing efforts to use digital sensors in its pipeline supervisory control and data acquisition operation to be able to better remotely monitor pressure and other metrics.

The pivot point for all CIOs is basically to figure out how to reduce costs, make faster and better decisions and increase workforce productivity. According to a February 2016 report from IDC Energy Insights, CIOs are selectively investing in technologies like mobility, business intelligence, and analytics, cloud and application modernization that help optimize processes, increase productivity, improve security and reduce costs

“Most companies are waiting to drill and to track as soon as prices go up but right now they’re maximizing their production,” Chris Niven, research director for Oil & Gas at IDC Energy Insights, told CIO Journal. Companies are trying to figure out how to produce more from the wells they already have. “If oil is at $45 a barrel and production is at $25 a barrel, they can make money,” he said.

Analytics holds the key here. It has the potential to help companies figure out how to eke out even small cost savings or incremental production improvements. Over the last 10 years, oil companies have gathered lots of data such as well head pressure, temperature, and production rate.​

Last July, BP PLC began a new production optimization project to connect all of its oil wells globally to the Industrial Internet using software from General Electric Corp. With GE’s data management software, BP field engineers have real-time access to operational data sets across all wells, giving them information to make better decisions to improve efficiency, prevent failures and minimize downtime.

GE has estimated that for each week a subsea well is out of commission, operators lose more than $3 million. Avoiding those outages is even more important in a low-price oil environment, according to GE. The production optimization project will initially be deployed across 650 of BP’s wells, expanding to 4,000 wells around the world over the next few years.

A BP report released last year had said that Digital technologies have the potential by 2050 to increase production volumes by 4 percent and reduce costs by 13 percent. “At a time of lower prices, revenues and capital spending, digital technologies – including sensors, data analytics, and automated systems – stand out as the leading contributors for reducing costs,” according to the report.

Digitization in the oil industry has been going on for more than a decade but industry CIOs say that the slump has accelerated the process.“I definitely think the current downturn has caused us to start to look at doing things differently,” Archana Deskus, vice president and chief information officer for Baker Hughes Inc. told CIO Journal.

Baker Hughes is an oilfield services company that sells supplies and advice to energy producers and services such as drilling and hydraulic fracturing. In addition, Baker Hughes has begun to sell IT services combined with its operational services to energy producers in the last four years or so, said Ms. Deskus.

Baker Hughes has also begun to use the cloud internally for certain applications. The company uses the public cloud for non-critical services in support functions and mostly the private cloud where Baker Hughes has privacy and security concerns, according to a spokesperson.