Recently, I was fortunate to support a Digital Energy conference in Houston hosted by the Financial Times. One of my favorite quotes from the meeting was, “Digital transformation is all about the “crack spread.”
For those of you not familiar with the “crack spread” term, it simply means the dollar margin difference between the cost to produce a barrel of oil vs. what the refined products sell for. In general, a higher crack spread margin implies more efficient production processes. Digital transformation is what can deliver a better crack spread - through greater equipment uptime, lower unplanned service disruptions, greater operational efficiencies and safer environments for employees and community stakeholders.
With this in mind, here is how I predict digital transformation will impact the oil and gas sector in 2019:
- It is What it is
An increased cost of capital will drive consolidation.
“It is what it is” - a famous banking quote to reflect the spirit of not letting problematic facts interfere with getting a deal consummated. One simply needs to factor in the problematic elements into the economics of the deal. For 2019, “It is what it is,” feels like the right motto. From raucous political landscapes, inverted yield curves and government deficit spending, the cost of doing business will rise. Historically, this has translated into more mergers and acquisitions (M&A), as operators pursue scale to reduce operational and financing cost. Independent of whether one is the acquirer or the acquiree, it will be imperative that organizations have a thorough understanding of not just the cost and capabilities of their IT environments, but also an assessment of their baseline and projected digital transformation roadmap.
- Service with a Smile
Self-service data science will move to the front of the line.
For an industry that is awash in data, the struggle to create data models that can be operationalized into production environments remains a massive challenge. What to do? Traditionally, this meant creating data science teams that are staffed by AI experts and and/or subject matter experts (SME). In 2019, I forecast that the majority of operators will adopt self-service data science platforms as a foundational capability. These platforms easily integrate into Operational Technology (SCADA) environments and allow process engineers to quickly and intuitively build predictive event models based on historical operational data.
- Not a Trivial Pursuit
More attention will be on the conversion of data science models.
Putting aside the complexity of developing a high integrity and reliable data model, the key value of the model is operationalizing the process workflows that deliver the value within operations, maintenance and third-party oil field service teams. This is not a trivial exercise and more and more digital transformation projects will be focused on putting rails around the IT delivery architecture that operationalize these models. Think open, scalable and secure.
- I Believe I can Fly
Use of the Internet of Things to go beyond SCADA will take off.
SCADA environments are hard and costly to scale. An IoT overlay on top of your supervisory control and data acquisition system (SCADA) will help you gain control to maximize asset optimization, providing the ability to inform and automate workflow processes. I can spend lots of time on this one, but if you want to learn to fly using SCADA, take a look at my previous blog.
- Now Hiring
There will be increased focus on hiring digital transformation experts.
2019 will see an acceleration of hiring digital transformation talent in oil & gas, and critical to the success of these teams will be the ability to bring on board “digital first” staffers. This is often a tertiary consideration when building digital transformation strategies, but it should be at the top of the list.