Opinion

Digital Transformation in Oil and Gas Industry

Posted by Skilfinity Pte

03-Dec-2018


Oil and gas companies are investing in digital to become more agile. Unfortunately, for many, the digital promise remains unfulfilled. The right approach can make all the difference—producing an EBITDA improvement of 30-35%.

We believe Digital orchestration allows companies to rethink traditional domains, redefine boundaries and redesign their operating models for sustainable success.

To elaborate further, digital solutions offer oil and gas companies everything from integrated views of operations to new platforms that streamline processes, cost models and organizational structures. Yet, 82% of oil and gas players still rely on legacy systems to improve their business agility.

58% of energy company leaders admit they don't know how to keep pace with technology innovations. As a result, they are failing to extract digital's full potential.

In fact, less than a quarter of companies that embark on a digital transformation achieve superior financial results versus their peers.

Orchestrating the digital transformation

To get the most from their digital investments, oil and gas companies need to follow a defined cadence and three-step transformation process when introducing, sequencing and integrating their digital enablers.

  • Rethink six domains—exploration, development, production, midstream operations, refining and marketing—with a clear understanding of each one's desired future-state, constraints and sphere of influence. Be aware of key decisions made in each domain and the time horizons they are based on.
  • Redefine connections between and across domains. Think systemically and identify issues that cannot be resolved within traditional domain boundaries. Understand that accelerated decision-making in one area will cascade to others, thereby making end-to-end processes and the entire operation run faster.
  • Redesign the organization. The process of digital transformation culminates with re-imagined workflows across the organization. In this stage of transformation, new operating models and implementation roadmaps are crafted that take cost/value trade-offs, risk, incentives, governance structures, employee roles, technology and data into consideration.

Infographic: Digital Agility in Oil and Gas

So what is the Value of digital technology and agile business model enablement?

30-35% - EBITDA improvement is possible

10%-25% - EBITDA improvement from unlocking digital

10%-15% - CAPEX reductions in upstream activities from digital investments

15% - EBITDA improvement in capital employed in downstream activities

Agility starts here and it starts now!

To create agile business models that take advantage of digital's full value, companies should keep four things in mind:

  • Walk before you run. Start small, using digital to improve efficiencies, performance or productivity in specific domains. Then think holistically and develop a roadmap that will lead to the agile cross-domain target state.
  • Rethink. Redefine. Redesign. Reimagine how work is executed and business objectives are achieved across the value chain. Aim to solve complex problems that cut across traditional organizational silos.
  • Run lean. Think big. Embrace analytics to understand how causal relationships influence decision-making and organizational agility. Establish small teams that can work at speed to drive digital outcomes.
  • Make change stick. Couple digital investments with investments in people, culture, tools and training to create an environment of collaboration and experimentation.
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