Global oil and gas executives are preparing to accelerate investment in digital technologies, primarily with an objective of doubling down on their cost-saving ambitions, as the market volatility of 2018 spills over into 2019, fresh market evidence suggests.
The third quarter of last year saw Brent futures touch levels as high as $85 per barrel. But the very next quarter ensured the year ended on a firmly bearish note as the global proxy benchmark plummeted below $55 at one point, before mounting a January recovery.
In the light of the volatility, albeit accompanied by somewhat range-bound crude prices, the oil and gas sector is going all out for efficiency savings underpinned by digital drives, according to a survey conducted by EY. The global financial advisory firm’s poll of 100 senior oil and gas executives saw 42% of respondents cite efficiency as the main investment driver in the current price environment.
Almost 90% of those surveyed said their investment in digital will increase over the next two years. Around three-fourths said their companies had already started implementing robotic process automation (RPA), and 87% indicated that they are using advanced analytics as they look to use data to increase productivity.
While over half (55%) unsurprisingly said their digital drive was focused on operational improvement, a smaller segment (23%) of respondents sounded more ambitious indicating that their main impetus for investment is to expand their suite of digital capabilities.
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Jeff Williams, Global Oil & Gas Advisory Leader at EY, believes companies are subjecting their investments to far more intensive scrutiny, and they are looking for solutions to slim down the cost-per-barrel, aid recovery rates and reduce non-productive time.
“There is now broad recognition across the industry, however, that short-term cost-cutting is not the answer, and that digitization has the potential to significantly improve efficiency. If businesses can think holistically about technology, they can go further to unlock ambitious growth opportunities and emerge as industry leaders.”
Yet, the EY survey also reveals its not all plain sailing, for despite there being much chatter of Industrial Internet of Things (IIoT) strategy implementation by oil and gas companies, only 19% of respondents confirmed such a pathway. While 70% said they plan to adopt IIoT in the next 18 months, 20% of respondents flagged the popular concern about cybersecurity threats holding them back.
The report further highlighted significant obstacles faced by the industry in embedding digital technologies and overcoming silo mentalities.
Less than a third of respondents (31%) said their digital investment vision is “highly aligned” with the views of other senior management colleagues. And 41% said reaching agreement on a digital road map from executive teams and the board of directors is a key strategic problem.
“There still appears to be a lack of confidence among senior oil and gas executives about how to define and execute their digital vision, and the scope of many businesses’ strategies is still too narrow,” Williams added.
The challenge of re-skilling and best utilization of human resource continues to persist. “The human factor remains crucial to digitization, and companies need to address the organizational challenges that inevitably arise when adopting a more ambitious digital strategy.”
Additionally, finding the right balance between outsourcing and in-sourcing also remains problematic for the industry. For instance, EY survey respondents, on average allocated just 17% of their digital spend to in-house capabilities, opting instead to outsource.
“While outsourcing can be beneficial at the outset, ultimately, we believe the winners will build integrated, in-house capabilities that embrace the transformative potential of new technologies,” Williams concluded.