INNOVATION

Oil firms must seize the opportunity presented by the Covid-19 pandemic to grasp the nettle and embrace digital technology and data analysis, industry experts have said.

They are convinced these tools can help operators and suppliers lower costs and achieve the sector’s net-zero ambitions.

But they are also worried that companies will soon slip back into old habits, wasting another downturn.

The wider adoption of remote working practices must surely emerge as one of the pandemic’s few positives.

Many energy companies and employees will have found the reality of abandoning the office less frightening than the concept.

The key thing now will be for businesses to carry on the momentum and make digital technology core, rather than paying it lip service.

While there are no hard numbers to call upon yet, early analysis does suggest progress on digitalisation may remain “relatively robust”, despite the current focus on “cash conservation” in the sector, according to Rystad’s Daniel Holmedal.

In recent earnings calls, both Schlumberger and Halliburton said the downturn could accelerate the uptake of digital technologies, especially those which facilitate remote operations.

Indeed, Covid-related travel restrictions have made that a necessity, rather than a choice.

Schlumberger pledged to “double down” on its digital strategy in the years ahead, while Halliburton said demand for its cloud infrastructure services improved in April.

Holmedal said decision-makers who were apprehensive pre-Covid will have gained more experience with digital tools and should be more willing to roll them out.

However, there are dark clouds on the horizon as other elements required for a fully-fledged, digital revolution may stall.

Industry-wide cost-cutting is bound to dent spending on technology before long – some service companies have already furloughed research and development staff. “Despite being positive news for suppliers offering digital technologies, spending by operators may have been accelerated as a result of Covid-19 instead of actual business needs,” Holmedal said.

“Growth seems to have mostly centred around remote work, while technologies focusing on optimisation of drilling and production seem to have hit some speed bumps.”

Clearly, it’s too early to draw conclusions on the impacts of Covid, but oil industry veterans are already concerned that history will repeat itself.

Greg Herrera, senior partner at EV Private Equity, in Aberdeen, said: “What’s going to happen in our industry is what happens every time.”

Namely, companies take out the survival playbook, which tells them to cut costs, get out of certain contracts and projects, lay people off and send letters to suppliers chiding them for not lowering their prices sufficiently. At some point consolidation takes place.

R&D budgets and teams also get downsized, but that’s exactly what the oil and gas industry shouldn’t do. What it really needs is continued investment in “new stuff”, Herrera said.

He recalled a conversation which took place “a couple of downturns ago” with an operator that had just chopped its vendor list of 800 IT suppliers in half.

“All of a sudden, 400 people who used to get work get canned,” Herrera said. “Often these are the more innovative organisations capable of adding value.

“I worry history will repeat itself. “What we need now is to look at those smaller companies who are capable of scaling up and making a more meaningful impact on profit.”

He is adamant that the oil and gas industry must get better at wielding digital and remote solutions.

“We can’t continue to rely on sending someone from Aberdeen to other parts of world,” he said.

“Making that transition to more digital technology will pay dividends for those who can do it.

“It will mean less complex logistics, less travel and more efficient operations, which should result in lower costs for companies and clients.”

Reducing costs is not the only driver for making working-fromhome (WFH) the rule rather than the exception.

Environmental, social and governance (ESG) considerations have become a major theme in the oil industry, and with executives’ pay linked to emissions targets, the continuation of that trend will be “relentless”, Herrera said.

Suppliers will increasingly have to demonstrate to customers, particularly major operators, that they are making progress in reducing their own carbon footprints. If they can’t do that, they will struggle to win contracts and can forget about their margins returning.

That leads right back to digitalisation and efficiency, according to Herrera. What’s going to matter to customers is not only what you provide and your costs, but also ESG policies and how you impact your community, he said.

“If you used to send five guys around the world, there’s a huge ESG impact, lots of fuel burning and risks.”

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