Digitalization In the Upstream Oil and Gas Industry
Although leading Digital transformation in the predominantly old school Oil and Gas Industry, Schlumberger is still fighting its internal battles.
Pioneering Digitalization
2015 marked the worst recession in the Oil and Gas Industry since World War II. Crude oil was traded as low as $30/bbl[1] in the third quarter of 2015. Often during the time of crisis Operator companies such as Shell, Exxon Mobile, ENI, ADNOC, ARAMCO etc. look towards cutting cost, slashing jobs and requesting heavy discounts prices from the service providing companies such as Schlumberger, Haliburton, Baker Hughes. Schlumberger, in order to address this downturn in the oil prices, decided to adopt a different approach towards ensuring profitability and growth.[2]
As large operating companies started looking for integrated projects that would provide bundled services at a fixed lump sum price, Schlumberger agreed to adopt a risk-sharing model with its clients. Majority of the Projects negotiated by Schlumberger with its clients were classified as the Lump Sum Turn Key (LSTK) projects.[3] According to which the client agrees to pay a fixed price (Lump Sum) to Schlumberger for delivering a complete well within a fixed number of days and pays a bonus for each day saved by delivering the well earlier. Further, these projects were long-term project i.e. at least a 30+ wells over a period of 2-3 years. Under these projects, Schlumberger took all the operational risks of drilling the well from designing the well to the execution of the operations to completion of the well. The key to sustainability in this environment and delivering results in a cost-effective manner for Schlumberger was through “Digital transformation, data analytics, and machine learning.” – answered by Ashok Belani, Executive Vice President of Technology, Schlumberger. [4]
The drilling operation is one area in which the early application of digitization was seen. During the drilling process, large volumes of data are collected from multiple sources, including sensors and control units on the rig, downhole technologies, surface instrumentation and the enterprise resource planning systems that drive logistics and planning-related information. Gathering all of the data into a single environment fully enabled collaborative domain workflows that are then executed in accordance with the digital well plan.[5] An exceptional management process is the one that provides risk management when there are deviations from the actual plan. Schlumberger was able to achieve automation in this process by leveraging its historical database and expertise and developing processes and standards which were eventually digitalized. As more wells were drilled, intelligent automation, machine learning, and data analytics were integrated into these workflows to ensure continuous improvement, leading to sustainably lower development costs.[6]
Schlumberger Digitalizing Well Construction [7]
Some other benefits experienced by digitalization were also centralization and remote operation support. Schlumberger was able to reduce the headcount of engineers per well by centralizing the engineering teams. Prior to digitalization engineers were forced to be based out of the locations where engineers from other domains were located. Through digitalization, they were able to get inputs from across domains on the digital platform.[8]
Schlumberger is currently developing cognitive drilling rig,“rig of the future,” that will incorporate this new software platform with newly designed, digitally enabled hardware that connects to an integrated control system. Beyond the software platform, the Schlumberger rig of the future combines advanced mechanization with drilling automation applications. As a complete system, that will deliver disruptive drilling performance.[9]
Is this all too good to be true?
Although, Schlumberger has found a way to make digitalization part of its core values there is a long way for the company to fully achieve digitalization. The biggest challenge for Schlumberger is in truly integrating the newly acquired companies. Schlumberger acquired Cameron for $14.8bn in 2016. [10] Not to mention Cameron is just one of the 50 small and big sized companies that Schlumberger has acquired to date. Each of these companies come in with their individual control systems and work culture leading to heterogeneity across the processes and standards for doing work.
One of the most important attributes of a successful transformation is having the right mindset. Majority of the company employees are “blue-blooded” i.e. have stayed with the company long enough to engrave its core values, work ethics, and culture but there are quite a lot who have still not truly integrated with the Schlumberger culture. Not to mention Schlumberger recently had to let go (~ 30,000 employees)[11] extremely experienced and senior petroleum technocrats who contributed to Schlumberger’s vision of leading digital transformation during the oil price crisis.
For Schlumberger to truly qualify as a pioneer in leading digital transformation in the Oil and Gas Industry, it will first need to attain the homogeneity in processes and controls across the acquired companies and respective domains/segments. Schlumberger although off to a great start is yet far from reaching the pinnacle.
Resources:
[1] Why oil could go as low as $30/barrel
[2] Schlumberger Integrated Drilling Services
[5] Drilling in a digital world, Catherine MacGregor, Schlumberger, E&P NewsletterDigital transformation Initiative, Oil and gas Industry, World Economic forum
[6] Schlumberger Talks Harvesting collaboration with Digital Technology. E&P Newsletter
[7] Drilling Software – www.youtube.com
[10] Schlumberger completes Cameron acquisition for $14.8bn, April 3 2016 , news on Timeline
[11] Schlumberger cuts 10,000 jobs amid oil price rout
[12] Will Schlumberger Continue to be an Industry Leader in 2017? forbes.com
(774 words)
Hi Khush, thank you for your article. I wonder if Schlumberger’s integrated drill technology is specific to onshore drilling or if it can be applied to offshore as well. My understanding is that the North American offshore market has taken the biggest hit. It stands to reason that this market has the most to gain from cost reductions. Thus it appears that digitalization is a critical path toward profitability, particularly for the large, deepwater Gulf of Mexico rigs. Thanks again for your article.
Hi Khush- very well written article. Rig of the future is an interesting concept. From what I understood, rig of the future is primarily focused on the drilling aspect of a well. Given how for shale wells majority of the costs reside in the completions, do you think an automated drilling rig would lead to significant economic improvements for shale wells?
On the offshore front, in the post deepwater horizon world do you think operators will be hesitant in deploying a fully automated rig?
Hi Khush – i really like your article. In the light of what we are seeing in today’s world of data, i’m wondering if there is a much broader value of having these data that only in improving the drilling. Do you think that sharing some of these data could improve the overall understanding of drilling risk and therefore change also their pricing strategy to clients such as ENI and ARAMCO? Would you sell these data to other companies or do you think this could reduce Schlumberger competitive advantage?