Field of dreams

In an exclusive interview, IDC's Catherine Madden reveals the three vital factors in developing the next generation digital oil field.

Digital oil field technology entered the industry in the early 1960s, originally to help assist with exploration activities, particularly in the form of digital seismic technology. It wasn't until the next couple of decades that the term "digital oil field" gained prominence and began to include the use of software, hardware, instrumentation, communications, business and engineering process improvements in EMP activities. Even then, it wasn't until the mid 1990s that the term was used by the super majors who were working on cultivating strategies to further integrate technology into the business. Nonetheless, the advent of digital oilfields has had a significant impact on the way industry approaches the business of oil exploration and production. "It's changed exploration in that it's often allowed companies to leverage new or emerging technologies," explains Catherine Madden, Research Analyst for IDC's Energy Insights. "When I think of the digital oil field I'm thinking of technology that will help me achieve the ultimate goal - which I think is the same for all oil companies no matter how large or small - of the economically feasible recovery of hydrocarbons."

While the digital oil field has essentially been around for 50 years, it is only now that the fundamental objectives of the concept - enhancing reservoir recoverability and optimizing production - have evolved to a point that people are looking at the digital oil field as a way to run all operations from exploration to the refinery, incorporating standardization and process integration. "Digital oil field efforts have essentially resulted in a positive impact on reservoir recoverability, production rates and total cost of ownership and those numbers probably vary from company to company depending on their strategy and the level of investment they have made," explains Madden. "Energy Insights has done case study work as well as reports that have concluded that reductions of cost and improvements in productivity are possible, and many large oil companies such as Shell and Chevron have reported the same in relation to implementing a digital oil field strategy."

But while many of the largest oil companies in the world have a program in place to support the digital oil field, many are still looking at how to accelerate it. Madden believes that the top priority remains the same - namely, hydrocarbon extraction. However, she highlights that a critical link in the digital oil field remains the human element. "Initially there was much attention placed on technology as the means for companies to solve their problems, optimize the exploration and production processes and improve the ROI," says Madden. "There wasn't much attention paid to the role of people and processes in achieving those objectives. But now I think the top objective is to sustainably support the development of a holistic digital oil field strategy - and that includes not only technology as a tool to aid that process, but also the teams of people that do the work, as well as the different business processes that are associated with exploration and production."

In essence, companies that wish to accelerate their digital oil field will be required to understand the equation that permits the right balance between technology, people and processes. Looking at the digital oil field in 2009, Madden insists these three objectives need to be lined up together as opposed to implementing technology alone, and goes on to explain that the importance of this equation is slowly being recognized and that she sees improvement in many areas, including the degree of human involvement in the oil field process of exploration and production. "Some of the changes we're seeing include looking at workflows and what can be automated. We're talking about the integration of technology across distinct areas - so integrating more processes between exploration and production, for example. I think we're currently talking about things like project management portfolios when essentially we should be looking at the entire value chain and allowing for as much integration and as much collaboration across that value chain as possible. And when I talk about the value chain, I'm really talking about everything from the moment exploration begins, through the process of drilling until the point you finally recover it and deliver it to its refinery source."

The power of three

Madden goes on to explain that each of the three main factors - people, processes and technology - will play a major role in the next generation digital oil field. Indeed, as each facet of these factors improves, so too will the digital oil field itself. On the technology side for example, Madden expects to see an increased use of sensors, as well as a continued improvement in high performance computing. "I also think remote visualization and service orientated architecture are going to continue to grow within virtualization; communications that allow collaboration and even communications around security will be important too," she says. "Technology that aids collaboration is going to continue, and while it's already playing an important role, it's going to become critical that you can share information - not just using email, but maybe working in a virtual room together or using virtual technology to look at the same document together and make changes to it, or using a virtual whiteboard to point out certain things you want changed."

In terms of the people factor, Madden believes a significant improvement is needed in addressing the top two challenges facing the industry - the aging workforce and the need to work with geographically dispersed teams. The aging workforce will play a critical role in the number of available employees in the oil and gas industry over the next few years, and while the number may be mitigated to a certain point by the global financial crisis, the number of skilled workers available is set to shrink. In addition to a shortage of skilled workers, the increasing number of global projects impacts how these projects will be managed.

Finally, in regards to processes, Madden sees one fundamental factor to the digital oil field strategy that must be addressed: aligning the business and technology strategy as well as implementing automated workflows, improving business practices and re-engineering existing processes in order to address the workflow. "There may be great new technology out there, but IT alone can't be the driver for the implementation of the digital oil field strategy, and neither can the business; the two have to be working together," she asserts. "The business has a need to improve production and there's technology out there that can aid that."

There is no doubt that some of the super major oil companies like ExxonMobil, Chevron and BP are working towards this right now. Many of these companies have either reorganized their company or realigned their goals regarding their digital oil field strategy to include business as well as IT and improve the communication between the two groups. Indeed, companies like Chevron, for example, have invested a huge amount in emerging technologies in the oil and gas industry. The largest oil companies are certainly looking at the next generation digital oil field and accelerating it from how it was perceived in the mid-1990s.

"While it is not fully mature yet, there is a significant amount of investment happening. We've gone through the first wave of the digital oil field and learnt from that first level of implementation that it's not all about technology; now we're looking to ensure people and processes are aligned with the technology, using best practices, looking at getting a return on investment and improving production rates," says Madden. "Energy Insights' primary research indicated that in 2008, even national oil companies were looking beyond just investing in back office IT such as ERP systems; they too are looking at setting aside investment dollars for the digital oil field. And while it may not be on the same scale as some of the largest oil and gas companies, it is a priority for smaller companies too."

Information overload

However, while investment is being poured into the digital oil field, one criticism is the exponential explosion of data it generates. Implementing a tremendous amount of technology is bound to result in a wealth of information being collected, ranging from sensors that reveal how well the field is performing to different information about the reservoir. Such data floods in 24 hours a day and puts a great strain on the IT infrastructure. Madden believes this is certainly one aspect that companies are attempting to address.

"Companies are looking at their approach towards structured and unstructured data in order to understand how best to use this information and ensure that employees don't have to spend days wading through information as opposed to actually using it. It is certainly a challenge for oil and gas companies, but I think that if it is optimized in the right way it ultimately helps benefit the digital oil field. You have to address things like how to handle structured and unstructured data, using business intelligence and dashboards to indicate the performance."

Looking to the future of digital oil field, it is no surprise that the global recession has had an impact on this sector of the industry. Indeed, Madden cites the greatest risk associated with the recession is the likelihood that oil and gas companies will delay capital expenditure exploration budgets due to tight financials. "This is the area that has made the industry the most nervous," she confirms. But while businesses are focused on the short-term boost to the budget sheet, the long-term risk is that by not making an investment to explore for new sources of oil, the company is left at a significant disadvantage four or five years (or even further) down the line. And with economically accessible reserves getting increasingly hard to find, companies are required to look for reserves further offshore and deeper in the ocean.

So while Madden believes that the next generation digital oil field is in the pipeline, it is clear that the investment in people and processes - alongside the technology - must not be neglected at this crucial stage in its development.

IT spending to recover

The impact of the economic recession has not left the oil and gas industry untouched, and the spend on IT has slowed as confirmed by the latest forecast from IDC Energy Insights. Overall, the annual forecast is lower from 2009 through 2012 and, in the first look at 2013, IDC is forecasting total IT spending of $42.9 billion. Spending declines from 2008 to 2009, begins to recover in 2010, and grows annually for an overall compound annual growth rate of 4.1 percent from 2008 through 2013.

The new worldwide IT spending outlook supports the indicators that the market is taking a hit in 2009 with a recovery in IT spending in 2010, and long-term growth, but a slower pace than the previous outlook. Despite the current economic conditions, the long-term demand for oil in the global economy gives much incentive to continue pursing current IT initiatives such as mobile devices and digital oilfields, as they are critical to a competitive position in the oil and gas industry. In the short-term, a focus on optimizing production from existing reserves will play a key role in improving recovery of hydrocarbons. Information technology can serve the production process in many ways, but, in particular, technologies that permit predictive analytics and well monitoring remain critical in 2009.

[Source: idc-ei.com]