Digital Technologies in Oil and Gas: The Way Ahead

Blog Post created by sksingh on Oct 9, 2016

Over the last couple of years, the global oil and gas industry has waded through deep waters with oil prices sliding precipitously. Within a matter of months, oil companies that had made heavy investments based upon the rosy forecasts, resorted to slowing or halting operations. Quite recently, the slight price rebound has boosted optimism and efforts are under way to limit expenditure. However, it is still important to explore more strategies to boost efficiency, no matter how uncertain the long-term forecasts might be. 


Given the fact that we're living in a tech-oriented world, oil executives should consider digital technologies that have the potential to transform operations and create additional profits. Research has found that upon the effective use of digital technologies in the O&G industry, capital expenditure can be reduced by up to 20%.


O&G companies were pioneers of the first digital age in the 1980s and 1990s. Use of technologies like 3D seismic, linear program modeling of refineries and advanced process control unleashed new hydrocarbon resources and helped deliver operational efficiencies across the value chain. Thanks to the latest advancements, we are now poised for a second digital age that could further reduce costs, unleash unparalleled productivity and boost performance by a significant measure.


The visibility and clarity delivered by digital technologies and advanced analytics can yield unprecedented, granular views into operations, increase agility and support better strategic decision-making. McKinsey conducted a research on more than 100 use cases at oil and gas companies and identified three categories for the application of digital technologies:


  1. Operations of the future. While advanced analytics are being used to transform functions such as procurement and to support better decision making, the latest technologies, such as drones and equipment sensors, are also revolutionizing monitoring and maintenance. Use of advanced analytics for predictive maintenance can help reduce the maintenance costs by up to 13%. At one company, where maintenance costs accounted for 25% of operating expenses, this enabled preemptive equipment maintenance—in effect, vital equipment could be repaired before it broke down. This strategy lowered costs by up to 27% while increasing reliability and uptime. Advanced analytics for energy and yield also has the potential to increase energy efficiency by as much as 10%.
  2. Reservoir limits. By integrating digital applications, companies have been able to increase their reservoir limits significantly, resulting in a decrease of up to 20% in upstream and downstream capital expenditures. Use of 4D seismic over 3D seismic, gives the added advantage of time-lapse thus enabling companies to measure and predict fluid changes in reservoirs. This enhanced view of reservoirs typically increases the recovery rate by as much as 40% boosting upstream revenue by up to 5%..
  3. Digital-enabled marketing and distribution. In various industries, digital technologies are employed to gain a better insight into consumer habits and preferences, optimize pricing models, and manage supply chains more efficiently. Oil companies are applying these same methods, with impressive results, potentially increasing revenue by up to 1.2%. By using geospatial analytics, for instance, executives are increasing the efficiency of their supply and distribution networks through location planning and route optimization. Collectively, efforts in this category have lowered costs by up to 10% and increased revenue by 3%.

Keeping in mind the current scenario of the global oil and gas industry, companies need to reinvent themselves to improve productivity. While capital expenditures or acquisitions might result in pauses, investing in digital technologies is a no-regrets move that could increase production from existing operations. Moreover, these technologies are readily available and have proved their value in the form of reduced operating costs, increased efficiency, and revenue generation. Hence, oil companies should move quickly to embrace digital for it could be the difference between leading the next wave of industry innovation and being left behind.


Source: McKinsey and Company