Point of View

Dealing with “Lower for Longer” in Oil and Gas

September 28, 2017

The oil and gas industry is facing rising social and political pressure in conjunction with technology advances and economic shifts to address the energy transition to lower carbon emissions, one of the biggest challenges of the coming decades. This energy transition will have a tremendous impact on the oil and gas industry, and the impact is felt today and will be amplified over the next decades.

 

Overview

Third-party service providers can play a role in oil and gas industry transformation. The objective of this report is to address the question: how can clients of oil and gas operation services better leverage their third-party providers to get their operations to the next level? We have interviewed 17 oil and gas clients and 18 partners (original equipment manufacturers, oilfield services companies, software vendors) of service providers.

Dealing with “Lower for Longer”

The downturn in oil and gas in conjunction with a sustained lower price environment has forced oil and gas companies to introduce drastically different operating models. There is no more room for complacency; the time to act is now.

 

Here are the five big trends that are shaping the future of oil and gas:

  • The rise of natural gas: Natural gas has replaced coal as the cheapest source for power generation. It’s not only much cleaner, it’s now also cheaper. Solar and wind have become economically competitive alternatives, with many wind and solar projects now cheaper than generating power from coal, oil, and even natural gas. In any case, the demand for natural gas continues to grow; it is a bridge fuel in the energy transition and a big driver behind the North American shale revolution.
  • Renewable energy is a game changer: As renewable energy and storage technology is gaining traction and prices are falling rapidly, combined with countries (France, UK, India) announcing bans on cars with internal combustion engines by 2040, the race to remain relevant is heating up for oil and gas companies. Expect big investments in renewable energy, storage, and infrastructure for electric vehicles. 

  • Scale and speed of digital transformation: Digital transformation is top of mind for every oil and gas executive; particularly, scaling beyond the smaller projects and proof of concepts is the main concern we see now. Service providers need to offer end-to-end digital transformation services that can scale and guaranteed speed to value. 

  • Further integration of information and operational technology: The digital oilfield, Internet of Things, and IT/OT integration will ramp up quickly in the next two to three years. The digital footprint will increase in energy operations. 

  • Change agent Blockchain: Blockchain enters the energy arena and becomes an integral part of the future of energy trading and wider energy operations. Investments in use cases of Blockchain like smart contracts, joint venture accounting, and hydrocarbon accounting will soar. There are many hurdles to take, from regulatory to tax challenges, but Blockchain technology holds the promise to underpin a new era of energy supply and consumption.

Recommendations for Energy Operations Service Buyers

We have five recommendations to help clients of energy operations services to get the most out of their relationships with service providers and to co-create answers to the mega-trends.

 

“Our partnership is hyper-focused on creating additional value for customers. This customer focus, joint, co-located teams, and solid C-level relationship are key ingredients of the partnership’s success.”

– SVP at Oil Field Services company


1 – Look for providers with strong partner ecosystems: 
Providers’ partnerships with industry-specific companies, technology vendors, and equipment manufacturers are a source of innovation and value for buyers and an indication of their ability to play an integral role in areas like IT/OT integration and broader business transformation. 
We have five recommendations to help clients of energy operations services to get the most out of their relationships with service providers and to co-create answers to the mega-trends.

 

2 – Focus and invest in Holistic Security: The oil and gas industry harbors a lot of critical infrastructure. Securing this infrastructure is only getting more important as it is the target of cyber-attacks and risks increase with the IT/OT integration and growth of networks of connected assets. Ask your service providers for their vision and strategy for Holistic Security. The service provider’s culture and infrastructure of security are critical for their ability to keep your operations secure. 


 

“Our provider has evolved into a strategic partner that shows a willingness to listen and learn and is nimble, dynamic, and hungry. This results in co-creation and co-investment in our IT/OT integration efforts.”

– IT Manager at petrochemical company

 

3 –Take a co-investment and partnership approach to IoT: Internet of Things technology can underpin major transformations across the energy operations value chain. While IoT is a very important imperative for oil and gas, we don’t see widespread or large-scale projects yet. No service provider has all the pieces of the Internet of Things puzzle. Look for service providers who can partner with you, act as Brokers of Capability, and have a good partnership strategy. 


 

4 – Insist on collaboration to achieve your strategy: Push your service providers to be more collaborative, more visionary, and more inclusive, and to share with you. In turn, provide that same approach to the service providers. Discuss the business challenges you have like close partners and invite a proactive role from your service provider to come up with ideas to create the business outcomes you need. 


 

5 – Focus on making data work for your organization: Data, and more specifically insights from your data, will hugely impact your ability to compete. Analytics, insights, and better understanding enable superior decision making, influencing economic viability of energy operations and competitive advantage. Select service providers based on their ability to provide you with deep expertise and capabilities in data management, information management, and advanced analytics and the ability to translate your data into actionable and accessible insights supporting your entire organization. 


 

Bottom Line: Collaboration, partnerships, co-investment, and mastery of new technologies are critical tenets for energy operations engagements in an age of extreme disruption and whirlwind transformation.  

 

HfS Premium Subscribers can access the 2017 HfS Blueprint report on Energy Operations here.

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