Is Your Upstream Digital Strategy Up to Par?

We all know that the landscape of digital transformations in the upstream oil and gas sector is evolving rapidly. Companies must ensure their digital portfolio is comprehensive and aligned with organizational goals to stay competitive.

Upstream oil and gas companies are at a pivotal moment in the industry’s transformation. To remain competitive, these companies must achieve greater capital efficiency, a goal digitalization can facilitate by enhancing operational effectiveness. Despite widespread adoption of digital initiatives, there is no unified, industry-wide strategy for digitalization. Instead, companies employ various approaches, with some well-established initiatives offering limited value and others untested but potentially beneficial. In this context, it’s crucial for companies to assess their portfolio of initiatives to ensure a comprehensive and balanced approach.

While evaluating their digital portfolio, Upstream players must grasp the full array of available digital initiatives, ensure a well-rounded collection, and identify opportunities to broaden these initiatives beyond their primary business sectors. Key stakeholders should establish a structured repository of essential digital initiatives being adopted across the industry, illustrating a comprehensive picture and how these initiatives connect to value drivers.

Instead of focusing on a single initiative, they should adopt a portfolio perspective, examining various digital initiatives alongside their value potential and development stage. Developing a framework that offers upstream O&G companies a selection of options and assists them in prioritizing based on the potential value and maturity of each digital initiative. Ultimately, the choices made by each Upstream player will hinge on their specific needs. With this framework in place, the management team can determine how to allocate resources and capital: they can explore the available options and acknowledge the value trade-offs before committing personnel, funds, and time.

Industrywide, executives are building the business case for digital transformation by ensuring that the work has a positive return on investment. While no single digital portfolio of initiatives dominates, these initiatives align with common value levers at their core. Emerging digital technology helps companies elevate these value levers by uncovering useful insights buried in the data. Within each value lever across the well lifecycle, there are both proven and emerging digital initiatives. Notable cases include:

 Value Levers & Types of Digital Initiatives

Exploration: Historically a leader in data and digitization, exploration now benefits from advanced statistical methods and optimization algorithms that improve the speed and accuracy of reservoir interpretation and characterization. New algorithms help cope with uncertainty and process vast volumes of data more efficiently. Greater integration of seismic and reservoir data sources improves decision-making for exploratory drilling, reservoir modeling, and development.

Development: The focus on digitizing drilling aims to reduce the number of drilling days and costs while maintaining or improving safety. Service providers and producers deploy initiatives that impact the drilling process, from the drill bit to the rig top. Automation of drilling processes, such as drilling floors, increases productivity and reduces worker exposure to risks. Machine learning (ML) algorithms predict drill-bit location and turn-rate, driving safer and faster rates of penetration (ROP) while drilling. ML also improves maintenance programs, with high-value use cases for predictive maintenance. Beyond drilling, digital workflows enhance well development. Companies use well software for standardization and modularization initiatives, implementing rules-based design and uniform engineering standards. Grouping wells into common segments yields significant supply-chain cost improvements by optimizing and aggregating equipment and services sourcing, logistics, and more.

Production: The greatest number of digital initiatives focus on production. Sensors in wells and production equipment are widespread, with growing pilots for asset digital twins and robots for safer operations. ML algorithms optimize artificial lift technologies, such as rod lift pumps, electric submersible pumps, and gas lift, improving performance and reducing downtime. Anticipating failures in rod lift pump parts with ML reduces downtime, and early use of ML in well life optimizes performance and reduces total ownership cost.

Support Functions: While support functions are increasingly digitized, Upstream companies are still learning supply-chain best practices from mature industries like manufacturing. Demand forecasting for parts and equipment and inventory management have yet to adopt advanced digital and analytical techniques for cost-effective and efficient operations. Tools for logistics and transportation in Upstream are less advanced than those in other industries. In addition to supply chain, digital technologies focus on worker safety. Innovations like personal gas detectors monitor remote workers’ location, hazards exposure, and health, reducing reported incidents by 10-15%. Vendors of mobility devices standardize routine work through digital apps, connect field workers with remote experts, and enhance worker productivity.

From publicly available information, it’s clear that many upstream companies have digital programs, but they might not fully understand how balanced their portfolios are in terms of creating value and using mature technology. This can cause uncertainty about whether they are getting the most out of their digital initiatives. Here’s a high-level view of the value areas these companies are focusing on however the potential benefits may vary based on their current efficiency.

Prioritizing Portfolio for Value Drivers

• Identify Strong Areas: Enhance high-performing areas quickly with digital improvements; start with basic tools for lagging areas.
• Balance Risk and Reward: Combine proven digital initiatives with high-potential, emerging technologies, understanding the risks and learning from failures.
• Link to Value Drivers: Connect digital initiatives to tangible value drivers (growth, efficiency, safety) to clarify monetization and support the business case.

Digital transformations are progressing among almost every upstream oil and gas companies. While some are leading the way, others are more cautious in their approach. I think all upstream companies, IT solution providers, startups & scaleups should evaluate their portfolio of digital initiatives & offerings, test them for completeness and see how they fit with the organization, and assess their risk-adjusted value. Their is no doubt embracing digital technologies will lead to higher returns, although the core business of upstream O&G companies remains producing profitable barrels of oil.

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EndNote
- S&P Capital IQ and Deloitte analysis.                        - Michael Mullany, “8 lessons from 20 years of hype cycles,”
- OE Digital, “Shell joins digital twin JIP,”                      - ExxonMobil, “Seismic imaging overview,”
- Accenture,                                                            - GeoExpro                                        - Oliver Wayman,