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As human resource, economic, and technological changes sweep the Oil & Gas industry, success in this volatile environment requires a pragmatic openness to recognizing what technologies exist to help drive profitability. The industry has been beset with profit margin erosion after low oil prices of the recent past forced companies to slash spending in exploration and production.
That traumatic price drop had the positive effect of forcing companies to streamline operations and improve efficiencies with more urgency. However, that hard-earned discipline should not be allowed to lapse as oil prices begin to rebound. With most analysts predicting an average price of $55 a barrel in 2018 (nowhere near June 2014’s $107, but far better than the $26 barrel of February 2016), it is important that high efficiency is maintained while new technologies are brought in to provide the modernization required to sustain high profitability.
Below are five key technology-driven influencers that impact profitability and that bear watching in 2018:
Influencer #1: Low cost and ubiquitous connected sensors – Today’s sensors act as data gatherers. This increased data collection and associated analytics then leads to more informed decision making–allowing enterprises to act on all the data in a more strategic manner for more streamlined operations and greater profitability. One area where sensors are providing value is predictive maintenance. Using real-time data gathered from sensors to predict and prevent breakdowns can reduce downtime by 50 percent.[1]
Influencer #2: Connectivity-driven big data – Today, about 36% of Oil and Gas companies are already investing in big data and analytics. However, only 13% use the insights from this technology to drive their approach towards market growth and for generating competitive advantage.[2] Thus, the potential for using big data to drive profits and lower costs remains largely untapped (although momentum in this area is quickly building).
Influencer #3: Digitalization and related initiates – Digitalization implies a high degree of connectivity and analysis of data. This technology trend represents a vast acceleration in the ability to quickly assess fluid business situations and to make accurate predictions and decisions. The amount of time and degree of investment required in the past to perform such work was prohibitive. Today, acquiring such abilities is both affordable and a prerequisite for remaining competitive. According to the World Economic Forum, digitalization and related initiatives have the potential to create around $1 trillion of value for Oil and Gas firms.[3]
Influencer #4: Cybersecurity management – As more companies digitize, cybersecurity threats grow. Investment in robust cybersecurity precautionary measures generates business value through avoided costs. Some estimates put the average energy company’s annualized cost of cybercrime at only around $15 million. But those costs are quickly increasing and a major incident could easily incur costs running into hundreds of millions of dollars and, more importantly, risk people’s lives and threaten the environment.
Influencer #5: Tracking and linking process dynamics to market dynamics – Operational silos and lack of alignment costs Oil & Gas enterprises tens of millions of dollars annually. By using a cloud-based approach to implement a unified supply chain management solution linked to outside Oil and Gas marketplace conditions, collaboration can be enabled across the entire supply chain to help traders, planners, and schedulers make reliable decisions, manage risks, and increase profitability. Visualization dashboards make accurate, up-to-date information available.
To learn more about how new technology trends and modernization are driving increases in oil company profitability, download the our new white paper “Oil & Gas / Petrochemical Industry Digitalization: Driving Profitability in a Low-Price Commodity Environment.”
[1] Ibid.
[2] World Economic Forum, “Digital Transformation Initiative: Oil and Gas Industry”, January 2017
[3] McKinsey Global Institute, “The Internet of Things: Mapping the Value Beyond the Hype”, June 2015
