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NOVEMBER 2015
Big Data
The power of the numbers game
2 | Power of Scotland | November 2015 | internationalinsight.co.uk
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Playing a smart numbers game Crunching the data at Accenture’s Interactive Innovation Centre in Sophia Antipolis, near Antibes, France
By Frank Simpson
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aced with low hydrocarbon prices, offshore oil and gas operators and contractors are showing greater interest in leveraging huge volumes of digital information to improve profitability. This data is generated by multiple sources including surface structures, subsea systems and oil and gas wells. One sign of this increased appetite to discover what ‘Big Data’, and more broadly analytics technologies, can do is the growing stream of industry visitors to the Innovation Room at the Union Street, Aberdeen offices of Accenture, the global strategy, consulting, digital, technology, and operations giant. “Oil prices have been a wake-up call for the industry, which is now opening up to innovation and to learning from other sectors,” said Luca Corradi, managing director in the Accenture Energy industry group. Corradi leads the company’s oil and gas-related work in Scotland from Aberdeen. The Union Street facility can link clients to Accenture Technology Labs in Sophia Antipolis, France, one of four such labs worldwide helping energy clients to maximise business benefits from digital and mobile technologies. “Our
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Low oil prices are an innovation wake-up call. How can exploiting Big Data and analytics help profits, health, safety and the environment? global coverage allows us to be aware of local needs while still offering global insights,” Corradi said. The labs identify technologies to improve enterprises’ ability to extract insight from data. This covers visualisation of data, analytics, and the architecture of data and analytics solutions. Oil and gas price challenges aside, offshore operators continue to develop fields in deeper waters, remoter locations and more hostile environments. To achieve this safely, sustainably and economically they are automating more through onshore, remote-control operation of unmanned offshore infrastructure and greater use of floating production, storage and offloading vessels. Both trends are driving sensor proliferation and creating huge volumes of digital data from production status and on equipment performance and other parameters. “Big Data will revolutionise oil and gas operations,” Corradi predicted. “It enables greater flexibility and adaptability. Facilitates better, faster decision making and can boost business efficiency, productivity and, ultimately, profitability.” Such benefits are important in an era of low oil prices, high costs and greater regulatory focus on health, safety and environment (HSE), he stressed. “These
potential advantages are arguably even more important for the United Kingdom Continental Shelf, one of the least efficient offshore oil and gas regions from which to produce hydrocarbons.” He continued: “The UKCS has a golden opportunity through Big Data to jump the industry learning curve and become Luca Corradi stresses being aware of local needs while offering global insights
extremely lean, efficient and effective. It can become a global centre of excellence in exploiting Big Data, creating new opportunities to export know-how.” It would also, he suggested, improve the economics of hydrocarbons recovery, thus helping to persuade companies to continue investing in maximising what is eventually extracted, and supporting jobs throughout the UK. Designing and implementing Big Data and analytics strategies need not be daunting, Corradi explained. “Revolutions in hardware, software and internet technology, as well as a collapse
in cloud storage costs, have created levels of optionality, functionality and usability never seen before.” Accenture has invested billions of dollars in recent years to acquire and develop the digital capabilities and assets to meet emerging demand across sectors. One example is its US$400 million investment alongside software giant Microsoft and business technology solutions provider Avanade to develop the Accenture Hybrid Cloud Solution for Microsoft’s Azure cloud computing platform. Launched in December 2014, the Accenture Hybrid Cloud Solution delivers new technologies to migrate and manage software applications between private and public clouds in a controlled, seamless and automated way – on demand, at speed and from a single console. In Accenture’s words, it provides ‘the agility and economics of cloud computing with the reliability and security of on-premise IT environments’. “Everything is transparent to customers,” Corradi said. “Clients see all storage and computing power available to them, and can vary it as required. Storage costs have fallen dramatically since 2010.” Similar investments have been made to offer services in other cloud environments such as Amazon Web Services. The greater challenges are connectivity – linking enterprise IT networks to the cloud – and in querying the large volume of data stored in the cloud then displaying it in useable ways. Accenture simplifies the analytics side for businesses through its cloud-based Accenture Insights Platform, using
best-of-breed technology to deliver a full spectrum of analytics-as-a-service capability at speed and scale. “Our competences mean we can advise on Big Data and analytics strategies, and inform customers about what they can now do,” Corradi explained. “For example, they may be able to move tasks from offshore to onshore, which could provide significant cost savings and enhance health and safety. Most of the IT enabling this can be provided as a service in a matter of days, rather than taking a year or more to design, install, test and so on.” Companies do not need in-depth IT expertise to derive benefits from Big Data, analytics and the cloud computing, he stressed. “If you define what insight you need, pre-assembled algorithms designed by data scientists can take data from the cloud and send it back displayed in ways that operatives and managers can easily understand and act quickly upon.” These can be customised to requirement, and are often presented through on-screen ‘dashboards’ providing realtime or near-real-time indications of performance and risk, based on the interrelation of multiple parameters such as temperature, pressure, drill speed and flow rates, to help optimise production. Other uses may include monitoring the condition of a physical asset, or predicting when it may need inspecting, maintaining, replacing or repairing. Preventing failures, and allowing extended intervals between inspections, can reduce the risk of costly incidents and production downtime, and help to protect HSE. In one anonymised example, an Accenture client had an intermittent problem with foam generation in an amine scrubbing tower, which would result in a loss of hydrocarbon production each time it occurred. Both data analytics and a cloud based analytics platform supplied by Accenture helped the client understand in greater detail the interrelationship between key parameters such as pressure, temperature and flow to define an optimal operating window for the tower at any given moment to avoid such loss events. “The solution was developed in weeks and will save more than 100 million dollars per annum in downtime for a minimal investment in cloud storage and analytics,” Corradi said. “The solution included a user-friendly dashboard showing the client when key indicators were moving outside optimal ranges. It enabled preventative interventions.” With many people already using cloud services for business, and privately for music and video streaming and social media, training employees in effective use of output from Big Data need not be too challenging, he added. “Using a dashboard is straightforward.” Besides, he suggested, becoming a technologically advanced workplace can help to attract and retain new talent: “Offshore oil and gas largely involves traditional mechanical and electromechanical systems. Younger people are attracted to computer and webbased work, and the industry needs to recruit a new generation as its middleaged managers prepare to retire.”
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David Gold
The offshore industry must seize the opportunity of North Sea decommissioning with imagination, innovation and cooperation
Decommissioning on the Mrchison Platform on a field operated by CNR International
By Brian Campbell
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s growing numbers of oil and gas fields in the North Sea near the end of their production lives, the escalating debate over decommissioning is dominated by concerns over the potential costs involved. This is hardly surprising, given that the costs are currently escalating and difficult to forecast – and that the UK North Sea is the first major production basin anywhere in the world to reach maturity and begin the transition towards decommissioning. However, looked at in a more positive light, these same factors also add up to a massive opportunity for the oil and gas industry in the UK in general, and in Scotland in particular. Put simply, by getting North Sea decommissioning right and developing proven skills, frameworks and processes for making it happen, the UK can create a worldleading pool of expertise, experience and insight with massive commercial potential as more and more oil and gasbasins reach the decommissioning stage around the globe. And the size of the prize is considerable, with upwards of £46 billion in decommissioning contracts up for grabs in the UK Continental Shelf (UKCS) alone. So, what’s needed for the UK to make the most of this opportunity? The answer lies in developing a clear strategic plan, and putting in place the building blocks to ensure this plan can be executed with pace and accuracy. In PwC’s view, the key to achieving this lies in taking a holistic and inclusive approach – one that brings together all the interested parties in a multi-stakeholder dialogue effectively amounting to a “UK Oil and Gas plc.” It’s encouraging that moves towards this kind of approach are already under way. In its recent report ‘Call to Action: Six months on,’ the Oil and Gas Authority (OGA) described how it is working closely with industry and government to develop a decommissioning strategy focused on reducing costs, increasing efficiency, and facilitating cooperation and technology development. The OGA added that it’s in dialogue with trade associations Oil & Gas UK and Decom North Sea, operators and service companies, to agree the right leadership model to deliver accountability, collaboration and action on decommissioning. There appears to be a strong commitment to creating a single board to drive innovation and efficiency. These moves are a good start. But when it comes to leading the response to North Sea decommissioning, the industry shouldn’t leave the job to the OGA – whose core role, after all, is to act as an independent industry regulator. While the OGA can help to create an overarching framework for decommissioning, what’s needed to deliver it is active involvement and cooperation among a wide array of public and private sector players. This includes
Why end-of-life projects should be a new chapter not just HM Treasury and all parts of the energy supply chain, but also other interested parties such as port authorities and Local Enterprise Partnerships (LEPs). With this high-level approach in place, we believe four components will be required to help make North Sea decommissioning a globally recognised success story. The first of these is a new approach to mergers and acquisitions (M&A), to break the logjam on deals that has been caused by the twin uncertainties over the costs of decommissioning and the forward oil price. The industry urgently needs to kickstart M&A activity in the North Sea, so assets can be moved into the ownership of companies that are more likely to invest in maximising the lifespan of the basin’s reserves. If this process doesn’t begin soon, increasing numbers of offshore production assets will start to come under pressure as mature operators find better uses for their capital elsewhere. That could mean whole areas of the North Sea being mothballed long before reserves actually run out. Getting the M&A market moving again will require an innovative approach that’s based on risk sharing and takes into account the economic value derived over the lifetime of the asset. Such deals are already happening:
we are aware of one recent transaction where the seller agreed to retain a significant proportion of the decommissioning costs because it had already enjoyed the vast majority of the asset’s implied economic value. These can represent a win-winwin for all parties. The seller gets an unwanted asset off its books. The buyer acquires an asset with economic value. And the government is happy because decommissioning is pushed as far out as possible, meaning the UK taxpayer’s potential 50% contribution to the costs is pushed further out too. The second success factor – already touched on above – is cooperation across and beyond the industry. One of the main themes of the Wood Review was that companies needed to collaborate on exploration and production (E&P) projects in order to deliver them more efficiently. The same principle applies to decommissioning projects, which at their root are just another type of capital project – albeit massive and highly complex. And it’s vital that this collaboration should extend along the entire supply chain, enabling smaller and more nimble service companies to bring their innovation and digital capabilities to bear to help create the best outcomes. The third component is scalability.
Brian Campbell believes it is crucial to accept risk sharing to get the M&A market moving again
As decommissioning gains momentum and more and more fields reach end of life, offshore service providers need to work out how to apply their capabilities strategically as well as operationally, to ensure their offerings and expertise are applicable across multiple basins and industries. And to meet growing demand for their services, they’ll need to be able to scale their business to fit their operating environment as it expands across other geographies and sectors. The fourth success factor for the decommissioning era is the imagination and innovation to find cheaper and better alternatives to full decommissioning, by turning former oil and gasassets to productive new uses that extend their useful life. Examples might include repurposing existing offshore assets to generate wind or wave power, or using them for storage of gas or
carbon – generating benefits in both cost and environmental terms. Creating man-made reefs may be another option. With these four components in place within a sound decommissioning framework, the UK will be well positioned to become a global leader in this new area as oil and gasfields worldwide reach end of life. Looking across other sectors, there’s an analogy here with the UK’s pioneering development of public-private partnerships (PPPs) in the 1990s as a way to tap private sector funding for public infrastructure projects. With the model having been proven here, UK PPP expertise and advice saw strong demand globally as other governments sought to emulate the UK’s achievements. Success in North Sea decommissioning could see the same happen with UK decommissioning expertise. As North Sea decommissioning begins, there’s been a lot of talk about the need for stakeholders across and beyond oil and gas to come together to map out how it will happen. It’s time for the talking to stop. Let’s act now to lead the world into the era of end-of-life energy assets.
Brian Campbell is a director with PwC in Aberdeen, where he is leader for oil and gas in PwC’s capital projects.
4 | Power of Scotland | November 2015 | internationalinsight.co.uk
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Business Forum
Decision makers speak out The Business Insight forum in Aberdeen saw major figures in the industry discuss how Big Data could reshape its development. Barry McDonald was there to discover the potential impact
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HE oil and gas industry is entering a new phase of digital transformation. As asset yields become harder to access and even harder to predict, companies are increasingly relying on analytics to collect, maintain and monitor valuable data. Big Data is not only changing the way people and organisations work together, it is creating a culture in which IT and business leaders can combine their expertise to gain value from vital data. Valuable insights from Big Data can enable business leaders to make better decisions to optimise operations and identify new revenue streams. Power of Scotland brought together some of the key figures of the UK oil and gas industry for a round table forum on the benefits of Big Data and how it might be used to drive change in the industry. The lively and informative discussion took place at the Robert Gordon University in Aberdeen. What are the biggest benefits to be had from the smart use of Big Data and analytics technologies in the exploration, production and business sides of offshore oil and gas? According to Ian Phillips, the oil industry is already a leader in using data. He said: “Particularly in the exploration sphere, the seismic data sets are enormous and the interpretations built on those are even more enormous. You could probably argue that in the exploration sphere the oil industry is out on the edge of what you do with data, because for decades the oil industry has been a consumer of the latest, biggest and fastest computing power. “Related to that though, is the data you collect during real time drilling and that’s at the other end of the spectrum, as getting data from the bottom of a well to the top whilst you’re drilling is grim.” In terms of the potential benefits of analytics to the industry, the biggest opportunities, said Andy Leonard, are around cost and efficiency and practical uses like tracking spare parts. He said: “The other aspect is around the structural health of the kit. “Most of the facilities are way beyond their design life and monitoring is difficult. How can we monitor the facilities better and make sure the cost of repairing is significantly less than it is now?
These are the areas where Big Data has potential impact.” Luca Corradi agreed the maintenance sector is where the benefits could be best realised and that Big Data could help transform maintenance from a planned intervention to a predicted intervention. He said: “That means you can predict a failure of equipment and intervene sooner. That can reduce the unplanned losses.” Pamela Ogilvie highlighted the benefits of data sharing in helping to drive costs down particularly in the decommissioning sector. She said: “The challenge is getting the format of the data so it can then be interpreted by each operator. We’re trying to pioneer a Late Life Planning Portal, known as L2P2, to share as much of the data to everyone.” According to Kevin Donaldson there are two reasons Big Data is taking off: a recent massive increase in the capability of analytics technology and a huge fall in cloud costs. He said: “Simply moving seismic data into a cloud environment could save a lot of money because it’s the cheapest place to store it. It also means that where operators might have reams of seismic data on tape, that data can be digitised and available for access offering the opportunity to drive incremental insight. Some of the opportunities offered by modern analytics and technology are currently lost. However, once in a cloud environment you have the capability of combining disparate data sets from lots of different source systems. The real challenge is, as an industry, getting comfortable with this new data model to meet nay-sayers head on and try to turn traditional thinking around. The sector is, however, and for good reasons, very risk averse.” “Most companies view the cloud as the ‘wild west’, added Ian Phillips. “They store everything on propriety servers and behind firewalls, which is great job creation for the IT department but what you have is a series of separate data sets.” The main barriers to this are entrenched attitudes and practices within and between business units and asset managers. What does leadership need to do about this and are there good examples of how companies are changing this culture?
Around the table The Business Forum was chaired by John Hatfield, director of Second City Creative, who was joined by: ❚❚ Ian Phillips, Oil and Gas Innovation Centre ❚❚ Ken Robertson, Centrica ❚❚ Pamela Ogilvie, Decom North Sea ❚❚ Luca Corradi, Accenture Energy ❚❚ Kevin Donaldson, Accenture UK Digital ❚❚ Andy Leonard, Oil and Gas UK
Aside from the actual and perceived legal and technological barriers, argued Ian Phillips, one of the key barriers is the industry structure which incentivises people’s behaviour. He said: “An awful lot of technology falls flat on its backside because when push comes to shove the people who are responsible for the day-to-day production are reluctant to jeopardise revenue because the perceived cost of failure is way higher than any perceived benefit. So there is a massive reluctance to take the risk. “While Big Data has been ably demonstrated in many sectors it’s still a hard one to quantify. The individuals who are buying it have active disincentives because their personal bonus is dependant upon that production target being met.” Ken Robertson questioned why the oil and gas industry is so slow to adapt to new technologies. He said: “It’s perhaps a mixture of factors but it’s also about what occupies our day, and if I think back to when I was an asset manager it was very much a focus on safe,
reliable production and the opportunity to reinvent how you achieve that was very limited.” Part of the problem, said Kevin Donaldson, is the relationship between engineers and IT in oil companies. “IT has unfortunately always been the poor cousin that’s seen as the necessary evil
and not the driver of the business. It’s been a mindset challenge in the industry to put IT technology in the co-pilot if not driving seat as has happened in other sectors.” “What I’ve seen in my years in the oil and gas industry is an inward-looking culture,” argued Luca Corradi. “If some-
John Hatfield appraises the responses as Luca Corradi of Accenture Energy makes a point
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t on transformation Pictures: Abermedia/Michal Wachucik
The fact that oil and gas is so behind is paradoxically an opportunity costs and improve efficiencies by harnessing the power of the digital sphere would give the UK industry a competitive advantage. He said: “The fact that oil and gas is so behind compared to other industries is paradoxically an opportunity for the North Sea.” It’s also a major opportunity, suggested Ian Phillips, for supply chain companies. “Ninety-five per cent of companies in Aberdeen are supply chain companies, so for those companies Big Data will mean many different things, but there is huge potential for them to offer innovative or dramatically improved services. If you can prove that using Big Data is faster, more efficient and more reliable then you have a competitive advantage in the marketplace.” “If I were an investor,” countered Andy Leonard, “am I going to think about digital technology? Well, no, not as a starting point. It’s about the resource base and the operating cost and efficiency. If digital technologies can show that you can radically change that, then you’ll get the interest from the investor. If we can show the North Sea can be transformed through digital technologies then inevitably there will be more investment.”
Front row left to right: Ian Phillips, Oil and Gas Innovation Centre; Ken Robertson, Centrica. Second row: Pamela Ogilvie, Decom North Sea; John Hatfield, chair, Second City Creative; Kevin Donaldson, Accenture UK Energy Digital practice in the UK. Back row: Luca Corradi, Accenture Energy; Andy Leonard, Oil and Gas UK
thing hasn’t been done previously in the oil and gas industry then people don’t even want to talk about it.” However, that attitude appears to be changing. He added: “In the past six months I’ve seen more interest by the industry to look into the possibility of the digital revolution and Big Data, analytics and mobile technology. We are beginning to ask what can be done differently and what is being done in other industries. There is a mindset change that I hope will stay.” Andy Leonard explained some of the rationale behind a reluctance to be an early adopter of new technology. He explained: “If you interrupt a production stream the cost impact is huge, so you can understand why the business leaders are reluctant to try something that might not work and perhaps put that guaranteed revenue stream at risk. Also, the IT department is separate from your operation or technology department and is usually seen as a cost. We need to reward the innovators and that’s something we tend not to do.”
The UKCS is a mature, high cost oil and gas region. How could it exploit Big Data and analytics to improve its appeal to companies deciding where to invest? Luca Corradi pointed out the harsh global competition for investment and suggested that being able to reduce
The UKCS has world class excellence in subsea engineering. What products and services might it export more of, or for the first time, if it became a leader in knowing how to exploit Big Data and analytics to maximum advantage in both offshore oil and gas E&P and decommissioning? Ken Robertson believed the opportunities lie in mature base and end-of-life management, while Andy Leonard agreed the North Sea should be marketing itself as the global centre for mature base and exploitation. “If you think about analytics,” added Kevin Donaldson. It’s all about data and if anybody’s got
Pamela Ogilvie of Decom North Sea highlighted the importance of data sharing to drive down costs
Data Lab flags up potential for sector
a lot of it, it should be the North Sea.” Pamela Ogilvie highlighted the potential in the decommissioning sector and the global interest it has attracted. She said: “In the last few months we’ve noticed the global interest in Aberdeen and the UK in decommissioning. We’ve had overseas visitors wanting to find out as much data and info on Decom because of the maturity of the industry and the diversification. There are huge opportunities here.”
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Power of Scotland consistently highlights the recruitment and skills challenge facing the industry. How might the spread of digital technologies and analytics change the way younger people view career opportunities and job satisfaction in oil and gas? With a global shortfall in data scientists, a real challenge, argued Kevin Donaldson, is making the sector attractive to this scarse human resource. He said: “Data science is very industry agnostic and that talent tends to be relatively young, work differently and be drawn to ‘sexy’ innovative projects. Data scientists want to work on the most up to date analytics tech to solve high impact business issues. It should be a match made in heaven as what the oil and gas industry does is in fact really cool, it’s amazing. If I was a data scientist I’d rather build a predictive model to optimise a highly complex production asset that’s 150 miles offshore and doing very clever stuff subsea and subsurface than try to optimise the predictive propensity model that sits behind your buying behaviour on an online e-comm website.” The consensus, however, is that the oil and gas industry suffers from an image problem and it’s an issue which needs addressed if it is to attract a new generation. Ian Phillips said: “There is no doubt the oil industry has a perception problem, and I find it jaw-dropping that for an industry which supplies more than 80% of the ability to do pretty much everything we regard as civilisation today, it has such a lousy reputation. “Some of it is self-inflicted but lots of young people who get into the industry love it. My view is that digital technology is no different from any other technology areas, it’s a matter of getting out there and telling the young people what’s really involved.” “I spent 20 years recruiting for BP and generally with one or two exceptions there was not a problem finding the skills that were needed,” added Andy Leonard. “The problem could be one of perception. I remember going to careers fairs at Cambridge and we were put in the naughty corner with the nuclear industry and the banks. But the industry has done a very poor job of portraying itself. But I agree with Iain, once you get people through the door there isn’t a problem of getting people interested.” Ken Robertson, however, believes the attractiveness of the industry is something of an urban myth. He said: “If you look at both the onshore and offshore population in the oil and gas industry, demographics have improved dramatically over the past 10 years. The attractiveness isn’t such a big issue if we can make data and analytics a more fundamental part of it.”
Laurence Howells is Chief Executive of the Scottish Funding Council
By Laurence Howells
ow do you make innovation possible when your core business is ensuring ‘business as usual’ and mak ing sure the nation’s lights stay on? In the energy industry, deviating from the status quo, experimenting on the fringes is not possible in the same way it is in, for example, in online businesses where innovation with data is commonplace. One way experimentation and innovation are being made possible in the sector is through analysing the Big Data held by companies like ScottishPower. The company is the industrial partner in one of the first projects to get under way at The Data Lab, one of eight Scottish Innovation Centres funded as part of a £124 million investment by the Scottish Funding Council and supported in partnership with Scottish Enterprise and Highlands and Islands Enterprise. It’s early days for The Data Lab but the potential for the energy industry is exciting. In energy, as elsewhere, companies are only just starting to nderstand the opportunities that come with the smart management and analysis of data to support decision-making. For example, in an industry where assets can cost millions of pounds, using data for predictive maintenance has the potential to produce economic benefits for operators and consumers. One crucial question the Data Lab will be helping to answer is how to exploit all the data the industry collects. Scottish Innovation Centres are focused on industry challenges. They are unique in their ability to bring together research teams that combine sector knowledge with specialist expertise in areas like data science. At a time when research and development departments are often getting smaller, real innovation needs the combined efforts of an ever-larger number of disciplines; it’s an approach in which other countries are taking a big interest. As Scotland’s energy industry, from oil and gas to renewables, responds to the challenges of the 21st century, the data it collects – now and in the future – and sometimes takes for granted may prove to be one of its greatest assets. The race is now on to exploit that asset in a way that gives Scottish businesses and companies operating in Scotland a competitive advantage.
6 | Power of Scotland | November 2015 | internationalinsight.co.uk
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Big Data crucial to survival of North Sea Smart use of digital oilfield approaches can help to sustain North Sea activity beyond the current challenges. Grasping the digital opportunities requires leadership and a shift in mind-set By Rob Stokes
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IGITAL technologies and the collection and advanced analysis of large volumes of data – aka ‘Big Data – could play vital roles in sustaining North Sea oil and gas activity An array of remote sensing and monitoring technologies coupled with IT hardware, software and wireless/mobile communications networks is enabling the spread of the so-called ‘digital oilfield’ (DOF). “The appetite for these technologies is set to grow quickly,” said Tom Ortiz, product manager with Halliburton Landmark, part of oilfield services giant Halliburton, which provides data and analytics, science, software, and services. One big emerging trend offshore is the move toward pervasive subsea electrification, boosting, fluid treatment and injection. Moving offshore operations from platform to seabed enabled operators to more safely and economically tie back new discoveries in remote, hostile environments to existing processing and export centres. “New information and communication technologies, including process automation, analytics for failure prediction, and intelligent sensors, will be prerequisites for enabling this new generation of advanced subsea production systems,” Ortiz added. From about 2001, companies such as BP, Shell and Chevron began taking a holistic view of how automation, IT and other technologies might be integrated. “They saw the advantage of leading the concept at a corporate level rather than it developing organically within individual business units,” said Judson Jacobs, senior director – upstream for IHS, a leading provider of global market, industry and technical expertise to industries including oil and gas. The digital oilfield (DOF) approach has
had mixed results, he added. “It has succeeded for some, but less so where it met resistance within individual business units.” Still, he said, great value has been realised for the industry since 2005. “In many cases, that has been within discrete, individual projects. The real prize is embedding the concept more broadly across companies’ portfolios of assets.” IHS has tracked the value of DOF approaches in key areas that operators target for improvement: maximising recovery of hydrocarbons; accelerating production; and reducing operating and capital expenditure (opex and capex). Judson Jacobs sees evidence of reduced manning levels, streamlined logistics and more efficient use of consumables
“Until 2013, almost all the projects focused on increasing production, achieving gains of 2%-8%,” Jacobs said. “In some cases, there was a real increase; others stemmed declining production a little.” Lower oil prices are shifting the emphasis a little, he added. Companies reducing capex for new field developments are focusing on sustaining production from existing assets, and on reducing opex. “We see evidence of reduced manning levels, streamlined logistics, and more efficient use of consumables – particularly in some regions, mainly onshore, of high production-growth with a high well-count,” Jacobs added. Even companies seeing growth in well numbers, facilities and rigs recognise that they cannot grow their workforce
proportionately, he observed. “That has led them to realise efficiency gains through digital technologies.” Technology enables, but leadership is key to exploiting digital opportunities. “If companies are truly deploying DOFs, Big Data and advanced analytics, it becomes embedded in field development and operating models,” he said. Change requires leadership from the right level, including asset and operations managers. A classic example of how problems can arise from gaps in communication between functional units is when a production engineer improves performance of a well, but creates unanticipated problems for the facility or reservoir engineer. “Functional silos are quite strong in the industry, and hinder the ability to find more holistic solutions to challenges in operational excellence and efficiency,” observed Alastair Geddes, consulting director at advisors and auditors PwC, Edinburgh, with specialisms in energy, utilities and mining. “Industry leaders talk about needing to cut UKCS costs by 30% to 40% to make the industry sustainable. To do this, leadership needs to not just enable but be zealous in wanting to transform the way things work.” Indeed, leadership and managing the operation of strategic assets are fundamental to securing that long-term future, according to a recent cross-
Insights from data can assist with integrating offshore oil and gas supply chains
sector efficiency report from PwC in co-operation with the Oil & Gas Industry Council, the industry group which advises the UK government on industrial strategy for oil and gas. Other fundamentals identified in the PwC study were innovation and change; optimising process and IT architectures; knowing and building the company’s core; optimising organisation and getting the best out of and for people; and performance management. Digital solutions can assist in a number of these areas, Geddes added. “Insights from data help organisations to break down functional silos. They Alastair Geddes says Big Data applications establish more control and insights around large capital projects
can assist with integrating offshore oil and gas supply chains, and help to build trust and increasing efficiency within these. I have seen suppliers suggest fresh ideas on maintenance and inspection, only to find operators open to technical but not necessarily business innovation.” He cited the anonymised example of a Tier-1 contractor who invented and invested in a digital app to speed up maintenance and reduce the cost. “They could not get a hearing among operators to discuss the possibility of deploying the app,” Geddes said. PwC has seen Big Data applications establish more control and insights around big capital projects. “We were involved in establishing ‘mission control’ capability for multiyear construction of a very large vessel
involving multi-party contractors.” Geddes said. “The multi-party nature of the project made it hard to get clear insight into the potential for sophisticated ways of saving costs. They hoped to save hundreds of millions of dollars, and a digital app provided the means.” Geddes suggested that co-operation on data analysis between the UKCS industry and its regulator, the Oil and Gas Authority (OGA) could help to promote exploitation of digital technologies to sustain North Sea exploration and production. “A huge volume of production data flows through the OGA,” he said. “It is pondering how, as a progressive regulator, to generate insights to help the industry. It will be important, for example, to learn lessons from decommissioning of obsolete oil and gas structures, for which the taxpayer will foot part of the bill.” Big Data presents UKCS companies with “a golden opportunity” to become a world leader in exploiting digital technologies to create lean, efficient and effective operations, according to Luca Corradi, managing director of the energy industry group within Accenture, the global strategy, consulting, digital, technology, and operations giant (See page 2). Alongside opportunities, the DOF potentially heightens the risk of cyberattacks, not just from ‘hacker’ tools but also social engineering and softer attack channels. This risk increase stems from increased connectivity; from more ‘things’ being connected to networks and convergence of thinking over Enterprise and Operational IT. “Trends such as de-manning, automation and Big Data demand greater focus on risk management,” said Colin Slater, cyber security partner at PwC, who leads its regional cyber team based in Edinburgh. PwC has a particular focus on providing industry-based, experienced
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Colin Slater emphasises taking care over mixing different classifications of data on the same networks
practical advice on preparing for, and responding to, cyber incidents. It positions itself as the only organisation with a law firm within its cyber security business, allowing it to identify rapidly the legal implications of an incident. “Cyber security is a form of risk management,” Slater explained. “As operational and information/enterprise technologies merge on the same IT platforms, companies should take care about mixing different classifications of data and systems on the same networks,” he advised. “Mission-critical data for operations and production differs from that for enterprise technology. The risk profiles differ, but applying risk-management principles flags up what could be catastrophic for the business.” Oil and gas can learn from other industries’ experiences, Slater added. “Electricity utilities, particularly in distribution, have faced the cyber security challenge in moving towards smart grids and smart sub-stations. They use drones for line inspections, and high-definition cameras for switch site-inspection, to prevent
accidents and change the risk profile.” PwC’s Global State of Information Security Survey 2016 grouped recommended actions under two basic theme headings. “The first is cyber hygiene,” Slater said. “Do the basics well. Manage access to networks, for example by removing ex-employees’ credentials. Keep systems up-to-date technically, acknowledging that operational and enterprise systems will need different cadences of change. Get good visibility of what is happening on your systems and networks to establish your baseline position. Understand how risk profiles of operational and enterprise networks are different, and ensure good segregation between them, then manage your systems tightly.” The second basic is governance. “A trend is underway to appoint Chief Security Officers (CSOs) as top level executives alongside chief financial, technology and operating officers,” Slater said. “You need someone in the boardroom to talk about this as a business-risk challenge rather than a technical one; they also need to have sufficient leverage and status to effect change.” Another aspect of governance is challenging different mind-sets in engineering and information/enterprise IT departments. “The CSO must bring the operational excellence and engineering mind-set into thinking on IT convergence to take advantage of technical investment while understanding risks and countering them,” Slater explained.
Global lessons for digital growth
The Kuwait Oil Company is an example of the power of DOF technology to maximise potential
THE UK oil and gas industry can learn from digital oilfield (DOF) experiences elsewhere in the world. Much “excellent work” has already been done in bringing DOF technologies to mature fields globally, said Tom Ortiz, product manager with Halliburton Landmark, part of oilfield services giant Halliburton. “This success has the potential to deliver substantial additional value worldwide,” he said, citing the example of the Kuwait Oil Company (KOC), an early adopter of digital oilfield systems. “The Kuwait Integrated
Digital Field (KwIDF) project has long been a great example of the power of DOF oilfield technology to maximize producing asset potential.” In March this year, a presentation made by KOC and Halliburton experts at the Society of Petroleum Engineers’ Digital Energy Conference in Texas, US, revealed how KwIDF’s multidimensional surveillance workflow has been expanded, from 133 wells to an additional projected 500 wells in 2015, in order to maximise and sustain oil rates while controlling well decline.
Efficiency at the core of technology An energy-focused business consultancy is helping clients to streamline their products, improve communication and enhance profits By Barry McDonald
O
ONE of the biggest challenges facing the oil and gas sector is the adoption of a consumer attitude to leading edge technology. While we all expect to be able to check in for a flight or live stream movies on a mobile device, how can we make the successful transition for businesses in energy to adopt technologies which change the industry in the same way that the consumer model has? According to Aberdeen-based business consultancy Core29 it’s about the systemising of primary processes which change the way customers and vendors interact with organisations. In just over three years, Core29 has earned its stripes in the oil and gas sector, and become one of the fastestgrowing project consultancy firms working across the supply chain. From its launch in 2012, the firm, which prides itself on being at the very core of the energy efficiency revolution is on track to record turnover of £0.5m. The rapid rise is due to a number of new contracts with supply chain firms including international energy logistics provider Peterson, specialist well intervention company Qinterra Technologies, energy equipment rental provider Ashtead Technology, and oil-
field completions specialist PD&MS Group. The bespoke consultancy, established by Sarah Forbes, helps organisations boost profit margins by improving operational efficiency through digitisation of primary processes. By working closely with clients from large oil and gas companies to SMEs in the supply chain, Core29 evaluates existing processes and systems and recommends improvements which will make organisations much more profitable. Sarah Forbes said: “With the industry focused on efficiency there are huge opportunities for companies like us who can demonstrate immediate, tangible results.” Core 29 sets about implementing systems to allow businesses to make data driven decisions. Identifying key metrics and trends within organisations and the supply chain as a whole could lead to organisations making fact based decisions about which regions to send equipment, which resource levels they need to plan for, and to allow for longer term planning. Ms Forbes added: “Oil & Gas UK is taking the lead on pan-industry initiatives to make the sector more competitive and its efficiency task force has identified business process as a key theme. This chimes with what we have been doing with clients for
Jaye Deighton, left, and Sarah Forbes, stress a track record of delivering returns above the initial investment
the last couple of years: reviewing day to day operations to see how they can be done much more efficiently and then design the IT systems and processes to achieve the efficiencies or savings. “IT departments are already under pressure to ensure existing infrastructure, software and processes remain functional, and often do not have the time or resources available to look at potential improvements to the overall system.” She added: “We now have a track record of delivering improvements achieving returns up to and exceeding three times the initial investment, through process optimisation and effi-
ciency gains – this is very appealing to oilfield services companies looking to deliver efficiency and add value.” Projects which Core29 has delivered include the creation of a paperless cargo management and reporting application for shipping handling in offshore logistics, online customer service portals, and transitioning between outdated data and communications processes to more efficient, easier-to-manage systems. Core29’s senior project manager, Jaye Deighton, who leads on project management activities for clients said: “IT systems and process management are treated like some kind of dark art. For SMEs, the big-name systems pro-
viders offer packages which are often too complex and expensive for what they need to do – when what they already have could simply be re-evaluated and tweaked to work better for them. “Rather than asking them to completely rebuild their systems at huge expense, it’s key that we collaborate with our clients to develop new processes, train the team and then hand over to them. “We know the efficiency improvements we’ve achieved will improve profitability, and facilitate growth where they may have previously found they had ground to a halt just keeping their existing services running.”
8 | Power of Scotland | November 2015 | internationalinsight.co.uk
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Industry should be more open to new working methods – the outlook is far from negative
Adopting innovative technology at a faster pace will help companies apply their experience internationally
driving down contractor rates will not address the fundamental cost issues in the industry. They require new ways of working and new technologies, which is creating opportunities in the market. “Industry should be more open to new working methods, willing to try more imaginative contracting models and may even adopt innovative technologies at a faster pace. The outlook is far from negative and the strong, adaptable businesses in the UK-based supply chain can make this work for them in the long term and apply their experience internationally,” said Mr Welsh. “We believe that efficiency will be a major driver of the next wave of M&A activity as companies seek to enhance their IP, product and service offerings. In an industry desperate to reduce costs and increase productivity, companies will be actively seeking to acquire competitive advantage and market share through the quality and depth of the efficiencies that they can offer to the market. “Sustainable cost reduction in E&P activity will be vitally important to the industry’s future prospects and technology and innovation will be central to achieving this,” he added.
Technology set to drive the next wave of deals By Frank Simpson
O
ilfield services related mergers and acquisitions have experienced a hiatus in 2015 as the market adjusts to the new dynamics resulting from a sustained drop in the oil price but efficiency will be the key factor in the next round of deals, according to leading energy specialist corporate advisory firm Simmons & Company International Limited. Despite the significantly reduced deal flow in the industry to date in 2015, there is a lot of activity behind the scenes on both the buy and sell sides with completions anticipated to pick up into 2016 as businesses adjust to the current industry conditions. The time it has taken for buyers and sellers to recalibrate their respective pricing expectations and uncertainty over where the price of crude might settle are two factors that have extended this period of taking sock. Colin Welsh, chief executive at Simmons & Company International Limited, said: “M&A deal activity has been stalled by the oil price collapse. The deals that have completed have generally taken longer to do so than in previous years and have often been more volatile, in that they are subject to factors that can change quite quickly.
Despite the reduced deal flow in the North Sea oil and gas industry there is still much activity behind the scenes on both the mergers and acquisitions fronts “There has been an 11-month hiatus as sellers and buyers have adjusted to the new market dynamics. Uncertainty over bank lending parameters has also fed into the slower deal pipeline making it harder to gauge the degree of leverage that can be applied in transactions. “However, I think we are beginning to see a convergence in terms of pricing expectations with the value gap closing, which should result in more deals completing from now on into 2016,” said Mr Welsh. Despite the challenges in the industry, Mr Welsh believes that this is a time of significant opportunity. If you are at, Colin Welsh believes that despite challenges, this is a time of opportunity
or near, the bottom it is a good time to invest. “We see the industry adjusting its mind-set and accepting that we are going to be in a low crude price environment for the foreseeable future. This enables businesses to plan accordingly and we can expect an increase in M&A activity as corporates work through their strategies to consolidate or expand their capabilities. This will include larger parent companies divesting noncore assets and companies seeking to enhance their service and technology offerings to the market through acquisitions,” said Mr Welsh. “For buyers there are interesting opportunities in this market and on the sell side there are still opportunities to exit businesses at the right terms. Rental-based businesses, integrity inspection services, subsea products and services, and well services businesses continue to represent good investment prospects.” The change in market conditions has been reflected in the type of investors
who have been most active this year. “We have seen a reduction in the level of private equity backed purchases as many generalists have again grown wary of the factor that historically deterred them from oil and gas – the industry’s cyclical nature. Trade buyers have been more evident and now really is a time for trade buyers to behave strategically, rather than opportunistically, when they have an opportunity to acquire at multiples of a lower EBITDA than that delivered in previous years,” said Mr Welsh. “Here lies the real M&A challenge. Buyers who believe in the sector in the medium to long term can see the value in the apparent short term financial risk of paying a higher multiple of earnings because they are acquiring the right technology or services that they know will benefit them for years to come. “So far, we have probably seen only a few trade buyers behaving strategically by looking through the cycle to make deals happen but there are opportunities for those with the will and means to make investment. Those expecting to pay subnormal multiples of subnormal earnings are less likely to realise their ambitions.” At a strategic level, the oil price is forcing the industry to reappraise how it works and address its capex and opex costs, which is creating new opportunities within the supply chain. Operators
Acquisition ‘a vote of confidence’ in subsea sector In early September, Proserv, a leading energy services company, acquired Nautronix, a leader in the supply of subsea digital acoustic communication products and positioning services to the oil and gas industry, based in Aberdeen. Proserv is a portfolio company of Riverstone Holdings LLC, an energy-focused private equity firm based in New York. Simmons & Company International acted as corporate finance advisors to Nautronix on the deal. Employing 120 people, Nautronix is headquartered in Aberdeen where the main research and development, and manufacturing facilities are located. The company is internationally recognised for its through-water digital acoustic wireless communications and positioning systems, diver communications and vessel systems whilst also providing survey services. The transaction heightens Proserv’s position as a leading player in the controls and communications market and presents the company with the opportunity to expand its offering by providing fully integrated subsea controls, communications, positioning and survey services. Mike Beveridge, co-head of eastern hemisphere corporate finance at Simmons & Company International, said: “Proserv’s acquisition of Nautronix is a clear vote of confidence in the long term prospects for the subsea sector. Nautronix is a well-regarded brand with a strong suite of technology and services, which makes for an excellent industrial fit with Proserv’s complimentary offering. The winners in the subsea sector going forward are going to be the businesses that can provide E&P companies with lower cost solutions and technology will be key to achieving this.”