Digital Transformation: The Next Frontier in Oil & Gas

Even before the pandemic and the crash in prices, the oil and gas industry had started to recognise that digitalisation would be the next big transformation in the sector notorious for its boom-and-bust cycles. Companies had started to adopt various innovative digital solutions such as virtual reality, data analytics, and predictive maintenance analytics to boost efficiency and reduce costs.

This year’s COVID-19 crisis made digitalisation efforts even more urgent, from work-from-home for many office staff to remote monitoring of oil and gas infrastructure where possible. The oil and gas industry is now more than ever convinced that it needs to invest in technology and in upskilling the workforce and hiring digital-savvy talent, to survive the current downturn, recent surveys showed.

Some oil and gas majors, especially in Europe, pledge to focus on low-carbon energy investments in the future, seeing the energy transition as the major transformation and challenge for the industry. But virtually all companies in the sector have scaled up technology deployment in recent years and all see digital transformation as part of the future transformation of oil and gas, as well as a means to remain relevant in the energy transition.

COVID-19 Has Made Digitalisation Drive More Urgent

The coronavirus crisis and the downturn in oil and gas has made digitalisation efforts more urgent than before the pandemic, most oil and gas executives say in a recent survey by EY.

“The COVID-19 pandemic has accelerated the timeline for some digital technology adoption from five years to three months,” Andy Brogan, EY Global Oil & Gas Leader said in a statement.

“The cost savings digital can deliver is critical for survival in today’s low-price environment, as oil and gas companies look to gain greater operational efficiencies and drive productivity across the value chain.

However, to capture the full value of these investments, oil and gas companies need the skills to harness and use the technology to its maximum potential,” Brogan noted.

According to the survey, carried out in June, 90% of oil and gas executives agree that investment in technology and workforce are essential to surviving current market conditions. A total of 58% of executives said the pandemic has made investing in digital technology more urgent, with a majority planning to invest a great deal (29%) or moderate amount (51%) relative to their total budget.

The top 5 digital technologies currently in use within oil and gas companies are remote monitoring, used by 93% of firms, mobile platforms and apps with 92%, cloud computing – 90%, operational technology - 89%, and advanced analytics currently used by 85% of companies.

An overwhelming 92% of executives agreed their organisation would have to change the way it operates coming out of the current downturn, according to EY’s survey. A total of 43% identified the increasing availability of big data analytics and insights as one of the top three trends that will positively impact their company’s business growth in the next three years.

Skills Gap Could Be A Hurdle To Digital Transformation

The key challenge to a digital oil and gas company that would successfully transform through technology and emerge stronger from the crisis appears to be a skills gap.

A significant share of executives say in EY’s survey that their company does not have the skills necessary to realise the technology’s investment value.

According to the survey, nearly half, or 46% of companies, on average, do not have the skills within their current workforce to realise the investment on their adopted technologies. Oil and gas firms also face a lack of maturity in many skills in technologies they have identified as critical — on average, the gap between importance and maturity is 36%, EY’s survey showed. 

“It’s not enough to simply spend more on digital technology. Oil and gas companies must also understand where they have knowledge gaps and invest significantly in addressing those. The ability to incorporate an intentional skills strategy into digital implementation plans will be a core driver of value realisation,” said EY.

As much as 92% of executives say the ability to reskill workforce quickly will be crucial to digital transformation. Nearly 60% of the workforce needs to be reskilled or upskilled, 43% of the workforce will be reskilled or upskilled, and it will take 10 months to reskill the average worker, according to the survey.

The oil and gas industry will face stiff competition from other sectors in attracting data science talent, especially considering the young people’s negative perception of the fossil fuels industry, according to Tim Haskell, US Oil & Gas People Advisory Services Leader at EY US.

“Oil and gas will encounter stiff competition for talent and will have to overcome negative perceptions among younger generations who tend to favour careers in technology and other industries. This makes reskilling and upskilling even more critical for oil and gas companies,” Haskell says.

Still, digitalisation, combined with net-zero ambitions of some energy companies, could attract graduates to the industry, Deloitte said in a report in early October. The future of work in oil, gas, and chemicals will be defined by people and transformation, including digital transformation and remote working, Deloitte said.

“While extremely challenging, this downturn presents an opportunity for companies to reposition. This is the time for strategists to make bold choices today that affect the work of tomorrow; and to adopt redesigned, cyber-physical teams and embrace a digital workplace culture as a basis for future innovation,” Kate Hardin, executive director, Deloitte Research Center for Energy & Industrials, Deloitte Services, said in a statement.

Digital Maturity in the UK oil & gas sector

In a recent report, UKCS Data & Digital Maturity Survey 2020, OGUK and its partners in the survey found that the oil and gas industry is still relatively immature in its digital transformation journey, based on the age of digital transformation programmes. Although the value of technologies is widely recognised, and the digital journey is well underway for most, 73% of practitioners say they are yet to see a positive impact, according to the survey.

“Although many organisations have many years’ experience in deploying digital technology, full digital transformation requires a holistic approach that also encompasses data, innovation, people and culture,” the report said.

While operational processes have been prioritised for digital investment so far, the low oil prices have now made non-operational, or ‘back office’ process improvement financially important, according to the report.

Organisations need to focus not only on data and technology, but also on innovation and culture, in order to make progress in digital transformation with a largely sceptical workforce, the survey showed.

Read the latest issue of the OGV Energy magazine HERE.