Digital Dilemma: Overcoming The Perceived High Cost Barrier For Cost-Saving Technology

At a time when the plunging price of oil, combined with the long-term weakness in the price of natural gas, has shifted the focus of energy companies from maximizing production to cutting costs, the efficiency gains that can be attained through adoption of digital oilfield technologies might seem to be a no-brainer.

Initially applied to the most costly projects, like complex offshore production facilities, digital oilfield technologies such as remote asset monitoring and control, automation, predictive maintenance and biometric monitoring are becoming increasingly mainstream throughout the industry. And the benefits of adopting digital technologies, where appropriately applied, have been borne out in many case studies and reports.

The consultancy IHS CERA has followed the digital oilfield closely since the early 2000s. “We have been tracking metrics for a while, and we see production increases of two to eight per cent, operating expense reductions of five to 25 per cent and capex reductions from one to 10 per cent, depending on the project,” Judson Jacobs, research director of upstream technology for IHS CERA, told New Technology Magazine recently.

Yet they remain a hard sell at a time when oil and gas companies are seeing revenues tumble, postponing and cancelling major projects and cutting staff to survive the downturn brought on by low commodity prices.

In a survey of Canadian oil and gas industry professionals for their opinions about the digital oilfield, conducted by JuneWarren-Nickle’s Energy Group, GE and Accenture, budget constraints was the most cited barrier to adoption of digital oilfield technologies. Almost one in five respondents listed it as their number one obstacle to adoption. Organizational barriers and cybersecurity concerns were the next most commonly cited barriers, at 14 per cent each.

Notably, technological readiness was not considered a major barrier, and respondents were bullish on the potential return on investment generated by the technology, and its unique ability to solve problems—just two per cent pointed to the availability of superior alternatives.

If budgetary constraint is the biggest hurdle companies must overcome for implementation of digital oilfield technologies, there is an opportunity for service and supply companies and technology vendors to make clear the business case for the technology adoption, as well as to pursue joint industry projects, pilot projects and field trials to help move new technology into the field.

“Speaking as a vendor, I think we need to translate the power of the enabling technology into impact on financial metrics and key performance indicator dashboards that matter most to C-level executives in producers,” said James Freeman, chief technology officer, Zedi.

“We need to show that we understand the pain points and sell a solution to those problems. We can also facilitate the buying process through trials and pilots, and we’ve found smaller producers in particular are willing to engage in these sorts of ‘try-before-you-buy’ engagements,” Freeman said.

One of the often-stated benefits of the digital revolution and emergence of the Internet of Things is the new business models that can be created. Often, this means technologies offered as a service, where the vendor can offer a certain level of performance rather than selling the product outright. Service companies can take on some of the financial risk of adopting new technologies, and take on a greater role in service delivery by, for example, bundling services to simplify implementation and cut costs.

In order to promote their emerging refracturing techniques, both Schlumberger and Halliburton are essentially offering “frac now, pay later” plans. Schlumberger has offered to take a portion of the well profits in return for helping to cover up-front costs, while Halliburton will act as banker to help fund refrac jobs.

After receiving an infusion of funding from asset manager BlackRock earlier this year, Halliburton's chief executive Dave Lesar told analysts the money would allow Halliburton to "look at additional ways of doing business with our customers, different business models, push beyond where we have been today."

With Schlumberger’s recently announced purchase of Cameron, it said it is also moving to a vertically integrated “pore-to-pipeline” products and services offering. “We believe that the next industry technical breakthrough will be achieved through integration of Schlumberger’s reservoir and well technologies with Cameron’s leadership in surface, drilling, processing and flow control technologies. Deep reservoir knowledge further enabled by instrumentation, software and automation, will launch a new era of complete drilling and production system performance,” Paal Kibsgaard, chairman and chief executive officer of Schlumberger, said after announcing the Cameron acquisition in August.

The company is also developing a proprietary operating system that will bring all the disparate parts of the oil and gas value chain onto a single technology platform, Fortune reported in September. It would act as an operating system similar to Google’s Android or Apple’s iOS, serving to lock customers into a single ecosystem, and act as an incentive to use Schlumberger services and equipment for all their drilling needs.

Increasingly, the digital-physical blur is turning industrial companies into customer service companies, says Accenture. For example, GE’s aircraft engine maintenance business is now moving to preventative maintenance and expanding into aircraft fleet optimization, creating a new market segment.

Product-service hybrids—connected, intelligent physical goods capable of producing data for use in digital services—enable companies to create hybrid business models that combine product sales and leasing with recurring income streams from digital services, Accenture says in the report Driving Unconventional Growth through the Industrial Internet of Things. “These digital services will also enable firms in resource-extraction and process industries to make better decisions, enjoy better visibility along the value chain and improve productivity in other ways,” it states.

To learn more about digital oil, plan to attend the Canadian Energy Technology Forum (CETF), a unique industry event that explores the technological and operational foundation of the digital oilfield. The forum features innovation leaders who have increased revenue, improved operating margins and enhanced asset efficiencies by leveraging digital oilfield technology. CETF takes place October 27 at the BMO Centre in Calgary. Visit for more information.


You are here: Home Arrow Internet of Things Arrow Digital Dilemma: Overcoming The Perceived High Cost Barrier For Cost-Saving Technology

  • Twitter Feed

  • Blog

New Twitter Updates

msmith Digital Oilfield Market Expected To Be Reach $30.78 Billion By 2020 oilandgas IoT
Less than a minute ago
msmith GDS International Implements GE’s Equipment Insight Solution To Optimize Top Drive Equipment Performance oilandgas
About 5 hours ago
msmith Sand Lab Breaks Ground In Oil And Gas Industry oilandgas
About 5 hours ago
msmith Ziebel Celebrates Milestone With 100th Z-Rod Intervention oilandgas
About 5 hours ago
msmith Two New Ways For The Pipeline Industry To Cut Costs And Complexity oilandgas
About 5 hours ago