How are Oil & Gas Companies Coping with Uncertainty?

Rus Records

Pressure on the global oil industry to find new sources of crude and imminent fear of “peak oil” is slightly lessened due to lower demand from the current global recession. However, the struggle of managing production declines in aging fields does not go away. In addition, for the first time in decades, pricing for crude oil has decoupled from natural gas making investment in gas fields even more difficult. Many companies are continuing to invest in developing new and old fields and reservoirs.

Cuts to capital budgets during a downturn could hinder the industry's ability to ramp up supply when demand returns. So, many companies, like Chevron and Shell, have maintained the same level of capital spending as last year -- citing the need to continue to invest for future demand. OPEC, super majors, and independent oil companies can continue to explore and finance production in the $65-85 range as long as the demand continues to grow with a gradual recovery in the world's economies.

Many companies are also taking advantage of lower services costs. The costs for E&P had risen substantially (about 50 percent) over the last five years, and super majors were facing high expenses for new projects that are highly

technology dependent for smaller reserves. However, companies have quietly renegotiated their service contracts with the large service providers, reducing costs to them, but putting service contractors under a big strain.

Oil field service companies must find ways to lower costs by making changes to their own supply chains - including

establishing new relationships with suppliers in Asian countries.  Above all, these companies must strive to avoid the mass layoffs that crippled the industry in past oil busts of the mid 1980s and 1990s. The operators depend on the expertise of the service companies to achieve the advances in drilling and production performance that they have enjoyed over the past ten years.

Business and IT Initiatives in Upstream Oil and Gas

In response to these economic pressures, companies have identified a number of related business initiatives, many of which have a large IT component. Under the generalized banner of the Digital Oil Field (DOF), E&P companies are cautiously investing in new processes, organizational models, and the latest IT tools that enable better and faster decision making, as well as reducing costs and risks. The fundamental idea behind the DOF is to tightly integrate a continual process of gathering and analyzing real-time field data, updating and running simulations of reservoir models, subsurface and surface facility operations, and defining a production operations plan that optimizes both short-term production and the ultimate life of the reservoir. Service companies have been an important part of these initiatives.  The technology components of DOF have already been deployed in many companies, and now they are trying to deal with workflow, cultural, and organizational change issues,

Culture and Organizational Change

As new workflows are deployed, they will bring changes in operating processes, employee interaction patterns and accountabilities, and these effects will be difficult for employees to adapt to. Every E&P company is highly dependent on the knowledge and expertise of these senior workers. Success hinges on the active participation and buy-in of this key group with the new concepts and the capture of their knowledge in a way that is easily transferable to younger workers.   As Web 2.0 and Gen Z employees continue to enter the workforce, companies must adapt their personnel management policies, career development approaches, and even the technologies they use for communication and collaboration. New college graduates need ways to rapidly access the distilled knowledge of the company. One way they do this is by finding experts and mentors that will help educate them.   Social networking tools must be adapted to enable the exchange of knowledge from mentors to the new workforce.

Management of Enterprise Data

The central problem for upstream oil and gas organizations is the effective management and use of data and information from various sources and systems. Since many of these systems have been historically based on vendor proprietary data formats, interoperability of data has been, and remains problematic.  Petro-technical

workers are frequently looking at information about a well that comes from several structured applications, such as production histories, maintenance histories, well tests, electric logs and accounting information.

Unstructured data presents another issue - making sure the engineers and managers have the latest or "right" version of the data with which to start their analysis.

The top issues in enterprise data management (EDM) for E&P are similar to the issues facing many other organizations. All enterprises are challenged by an explosion in the sheer volume of digital information of all types that they must process and store. In one major company's experience, the volume of this data doubles every year.  Master Data Management (MDM) can alleviate this problem by providing the processes and tools for managing these issues across the organization for the benefit of all business consumers of data and information.

Collaboration and Knowledge Sharing

For many years, the E&P industry has been a global leader in the development and effective use of collaboration processes, organizational models, and technology. Virtually all large E&P companies have dedicated personnel that focus on knowledge sharing. Most track the business impact of these programs to the bottom line. Beginning in 2000, CSC helped launch and then led an industry community called the Energy Knowledge Management Network.  EnKMN is now self-sustaining in the E&P industry, being led by ConocoPhillips.

Collaboration and knowledge sharing involves not just the technologies that workers use for documents, structured and unstructured data, logs, charts and graphs, but the underlying organization and definition of how people do work.  This is becoming more of a factor in separating the leaders in the industry from the followers and the laggards. 

This is a time of great challenge for oil and gas companies and the services companies that support them.  They must streamline their operations without losing key expertise in the face of uncertain energy policies. 

Learn more about CSC's Point of View on the E&P Industry here.