Imperatives

In a mature industry such as oil and gas, the business imperative is to become a cost leader delivering strong results in traditional business, and to diversify investments in new sources of energy in order to explore and prepare for coming change.

INCREASE PROVEN RECOVERABLE RESERVES
Although the rate of discovery of new reserves is slowing down, there is a disagreement around the size of the existing accessible volumes of oil available, when production will peak and when reserves could run out (the rolling forecast of oil remaining has been pointing at the 40-year level for the past few decades). The reserves issue, combined with rising prices and increasing demand, make oil and gas companies increase their focus on gas, and access new sources for oil such as oil sands, sour oil, and oil in inhospitable environments like Sakhalin, deep water, and politically unstable and potentially hostile regions in the world.

OPTIMISE PRODUCTION OF CURRENT RESERVES
Given the current levels of demand and the price of crude oil, strenuous efforts are being made to optimise production rates and minimise foreseeable adverse impacts from natural and man-made events. Technology and techniques for streamlining the overall production value chain from the reservoir to the tanker, going through the wellhead, are flourishing with real-time control capabilities.

OPTIMISE DELIVERY OF PRODUCT TO END CONSUMER
The geographical allocation of demand is changing. Structural increases in demand from India and China as they increase exports, invest and expand their industries are countering stable — or even decreasing — levels of demand from other countries as price rises and rates of economic growth fall. The limited nature of storage capacity coupled with the availability and location of processing and refining capacity requires constant optimisation of assets to deliver the right quantity of the right product at the right place and the right time. The optimisation decision is becoming even more complex as these assets are undergoing extreme capacity utilisation rates to avoid overcapacity in a downstream industry with razor-thin margins.

OPTIMISE TIME-TO-MARKET AGAINST ECONOMIC CONDITIONS
When energy prices are rising, the time from initial discovery of reserves to its production onto the market is the key to financial success. When embarking upon the major capital outlay required to bring proven reserves to market, companies are combining forecasts of the value of future production with estimates of project cost and duration. In highly volatile cyclical markets these can be extremely difficult decisions. In this context, Shell has already decided to introduce its integrated floating liquefied natural gas (FLNG) concept, which enables the organisation to take advantage of medium gas reservoirs far from shore.

MITIGATE RISKS REGARDING SUBSTITUTE SOURCES OF ENERGY
With increasing scarcity of economically viable oil and gas sources, the relative economic value of alternative sources of energy will increase and provide a potential substitute source. This endangers the business model for oil and gas companies in the future. Guaranteeing a business model for the future and sustaining the strong position in the economy for the development and management of potential substitute energy sources are prime business imperatives.

MAXIMISE RETURN ON INVESTMENT FOR HUMAN AND FINANCIAL CAPITAL
These imperatives combine to form a return on investment (ROI). In addition to the technical and engineering feats required to find and extract reserves from evermore remote and hostile (both politically and ecologically) environments, the health and safety of the industry’s workers and the local population and communities remains of paramount importance. A single human or environmental catastrophe can negate many years of planning and projected returns.
To maximise their return on human and financial capital, companies must have the information at hand to formulate and execute comprehensive risk mitigation strategies.

Business trends

FINANCIAL CRISES
The financial crisis is endangering the business case of major capital investment projects required to ensure future supply within the increasing demand. The current credit crunch could have significant impact on future supply if investments are not made. This would lead to increased prices and less competition. In the short term, this financial crisis could pose financing risks even to the greatest oil and gas companies if prices fall below a rate where revenues cannot guarantee the viability of current investment decisions, which are unable to be stopped. In the long run, however, a strong fluctuation within a increasing trend channel is expected, due to continuing scarcity and increasing demand.

ENERGY AS A GEOPOLITICAL WEAPON
The Western international oil majors now control less than 10% of the world’s oil and gas resource base. The increased influence of the National Oil Companies (NOCs) and their willingness to make investment decisions based on geopolitical considerations is impacting costs and prices across the industry.

Energy is becoming a political weapon. The EU has expressed concern at its dependence on Russian oil and gas and there may be moves to create an EU-wide energy policy if the situation deteriorates again.
Businesses are reorganising and restructuring to reflect the new political and economic realities. Portfolios of the NOCs and International Oil Companies (IOCs) and second-tier oil and gas companies are continuously being reviewed to maximise the benefits of existing assets, new fields, and new growth markets.

Regulatory requirements are increasing and oil companies are being closely scrutinised for safety and environmental issues.
Disruption is undermining the position of oil-and-gas incumbent companies.

EMERGING MARKETS AND PRODUCTION
The rapidly developing economies of China and India will continue to impact global energy demand.
As Western countries pursue the limitation of their carbon emissions, emerging markets are demanding more fossil energy, although they don’t benefit from sufficient refining capabilities. Global demand and traditional markets are shifting to Asia and strongly impacting the long-established global oil and gas supply chain.

The staff base in emerging markets, as well as from the Western oil and gas companies, is being drawn more and more from local populations because of costs, leading to increased knowledge bases within these countries and political requirements for companies to acquire a licence to operate as a result.

knowledge retention and transfer is important as much of the hands-on experience in the sector is found in older generations. Staff in western countries are retiring and cannot be replaced, and so remote working and management will have an increased importance. Real-time capture of geophysical and drilling operations will facilitate the capture and retention of additional knowledge that is critical to future operations.

RENEWABLE SOURCES AND NUCLEAR ENERGY
In the short- to medium-term, natural gas, renewable resources, and new environmentally friendly energy sources are not economically viable to a sufficient degree to directly affect overall industry economics.
Nuclear energy is back on the agenda of governments as an acceptable, clean alternative but there is resistance from the ecological lobby.
The number of coal-fired power stations is increasing in India and China, while the Western world is continuing to build power stations in order to meet global energy demands.

The role of oil and gas companies in the durability debate is increasing. The companies are given the responsibility, and are requested to take the lead, in developing sustainable and durable sources of energy and production. Social and ecological responsibility is therefore climbing up corporate agenda. Companies that do not comply with this movement will be punished from both legal and marketing perspectives.

POINT SOLUTIONS IN THE VALUE CHAIN
Most of the profits derived from high prices go to specialised professional services companies. Oil and gas producers must again invest to develop proprietary upstream technology.

In the refining business, new blender companies that blend waste oil products are eroding the incumbent margins. Incumbents should, therefore, look into the possibility of purchasing these blender companies rather than selling waste oil products to them.

At the pumps, the brand is quite important in the developing markets, and is losing its importance in the developed markets where consumers are not willing to pay more for differentiated products as competition from price- fighters is increasing. Incumbents must reinforce brand loyalty and build petrol stations in cheap locations to compete on price against low-cost players or foreign oil companies. They are also winning tenders for lucrative highway petrol station points. This is being countered by increasing the customer buy-in by providing single-brand fuel cards to large corporate customers.

OPERATIONAL EXCELLENCE
Political risks, required financial transparency, and health, safety, and security legislation are all forcing companies to increase the excellence of their operations.

Fit-for-purpose asset monitoring is key to balancing asset performance against cost (to maximise uptime across the equipment lifecycle, as well as to optimise oil and gas output throughout the life of the reservoir). This includes refineries, pipelines, tankers, and particularly workers who need to be kept safe, often in remote and difficult environments.
Decision-making based on real-time information and intelligence is vital across many business areas — for example, oil and emissions trading, and volume supply from upstream to downstream, and drilling and production in remote and / or hostile environments.
M&A and de-mergers have left a wealth of legacy systems that need to be advanced to a more flexible, accessible solution.

Impact technologies

Oil and gas businesses need to be able to take an educated view of future requirements and balance them against available resources, in a number of areas including oil and emissions trading, and downstream volume and type requirements — Business Intelligence in the form of predictive analytics and dashboards is of great value here.

A single view of information across all the business’s data sources using Enterprise Information Integration will give the business the on-demand intelligence that is required. Most companies have significantly advanced their information integration by domains, thanks to Enterprise Resource Planning and Enterprise Application Integration solutions. The critical points remain data standardisation and harmonisation, and their administration on a global scale (chiefly through Master Data Management).

Players in the sector will also deploy Enhanced smart field technology to allow the management of drilling assets and production facilities (including downhole sensors and monitors) via transmission of real-time data in an easily actionable format.

Enterprise Asset Management (EAM) tools that provide the condition and location of assets and staff in remote and hostile environments will enhance safety and reduce exposure to risk.

Staff safety will benefit greatly from the new mobile applications that will give them vital remote access to real-time information from anywhere and on any device without requiring workers to be in close proximity of hazardous environments.

The agile business will require real-time access to content information from any location through Enterprise Content Management. This can ensure faster design review by engineers around the globe to meet strict deadlines, enhance safety through ensuring controlled documents are read, and minimise downtime through ensuring correct versions of design documents are used, to geophysical decisions and drilling / production requirements to ordering spare parts.

New Web 2.0 technologies can facilitate knowledge transfer, collaboration, and internal processes optimisation.

UPSTREAM
The top-tier Exploration and Production (E&P) companies are focused on variations of the 'digital oilfield' or 'smart field' approach. This is where huge quantities of data are collected, often on a real-time basis, and assimilated into actionable information for making decisions. The raw data may come from manned operations facilities or from sensors strategically placed to allow monitoring of critical operational parameters in remote or hostile environments that is transmitted to secure central control rooms.

The challenge facing the upstream industry is to make the best business decisions from these mountains of data. To do so requires that the data from a number of different disciplines within the organisation is brought together quickly and viewed holistically prior to a decision being made.

These decisions range from selecting where to spud a specific well, optimising wellbore design during drilling, accessing hydrocarbons that were previously considered as non-recoverable, improving asset utilisation during production, to maximising the total production from a reservoir. For this, the industry will look to data mining and analytics, predictive dashboards and collaborative technologies to improve its knowledge of the reservoir, hence increasing the ROI from these huge capital projects. While secondary to capital project ROI, they expect an acceptable level of return for the costs incurred on remote sensors, mobile applications, Near Field Communications (NFC), collaboration software, and decision dashboard implementations.

MIDSTREAM
Midstream activities are characterised by very high utilisation of existing assets coupled with relatively low short-term returns on large capital projects. With refining capacity being a critical bottleneck in the oil and gas value chain, optimising each step of these processes is critical.
To maximise profits, facilities must be managed by utilising a wide range of data. The use of transportation systems (pipelines, etc.) must be continually monitored for optimal performance. Existing refinery capacity and capabilities must be matched to specific crude streams to maximise the output of finished product on a seasonal demand basis. This requires matching the available crude streams, driven by cost-per-barrel through to trading operations, with specific refineries and flexible real-time logistical support for incoming and outgoing products.
Predictive dashboards, real-time inventory management and Enterprise Asset Management demand the more focused use of RFID (radio-frequency identification), remote monitors and geographical information systems (GIS) in maintaining maximum throughput
and productivity.

DOWNSTREAM
With razor-thin margins and increasing costs, customer satisfaction and brand loyalty are key to market share, and therefore success, in downstream oil and gas. This involves many aspects of the general retail industry, which are best encapsulated in the phrase Customer Relationship Management (CRM). Agility to react to, or better still, accurately predict and meet customers’ changing needs, combined with continuous efforts to improve the buying experience, will differentiate one company from another.

CRM, NFC, and real-time inventory management coupled with flexible logistics and enterprise portals are focused on improving the buying experience. Fraud detection technologies, mobile applications, and web technologies will improve companies’ ability to have a real-time view of their assets and focus on improved profitability.

GENERAL
Across the global oil and gas industry, the effort and cost required to keep pace in the following areas will continue to increase:

• Need to provide safe working conditions for employees and customers
• Environmental responsibility
• Compliance with federal, state, and local regulations
• Statutory and audit compliance
• Identification and mitigation of terrorist threats.

Adaptations of existing technologies, and to a lesser extent the implementation of emerging technologies, in Corporate Performance Management, Identity and Access Management, mobile applications, and Green IT will play an ever-increasing role in the industry’s portfolio of tools to ensure that overall corporate objectives are met.