Recently a lot has been written about the state of upstream Oil and Gas sector and associated costs of production. The curves for cost of production seem to indicate a large amount of unprofitable oil extraction areas. One such area close to home is the North Sea. So as I was completing my MBA in oil and gas management I was tasked with trying to understand some of the intricacies of the North Sea oil and gas area, seeing what improvements can be applied here and then taken further afield.
My course looked at various aspects of oil and gas management, from strategic management environments and leadership through to digital innovation and its commercialization. One thing that struck me was that the North Sea is a truly global center of excellence for sub-sea. It has leading universities and expert technology and innovation centers. Yet it appears to be behind the curve in digitalization.
In terms of digitalization I don't mean individual companies pursuing autonomous operations; we know that this is happening as we are working with leaders in this field. I mean in terms of collaboration and the sharing of data. If you look at the Gulf of Mexico, for example, there is a wide network of production data sharing happening between all of the parties. This greatly benefits each of the joint venture partners that have equity stakes in projects, even if these are minority positions.
The main driver of data sharing in the Gulf of Mexico is economic, in terms of the cost savings associated with avoiding manual data gathering, manipulation and distribution. One client put the cost at $450k per year just for answering all of the ad-hoc enquiries they were receiving from their partners – an expensive “friendship”. However, the value opportunity of production data being shared is far greater than just moving data around.
If I look closer at the Norwegian sector of the North Sea, they have created a centralized licensed system for data collection and sharing between respective parties. For regulated “friendships”. So why hasn't the UK's North Sea done something similar?
I think it comes down to the fact of timing; in particular the time when digitalization was taking off and data sharing was becoming the norm in the United States. At that time the majors who had controlling stakes in UK North Sea assets were looking to divest and funding for the newer smaller players to take over those assets was tight; they needed to stay lean. As a result, it seems no one took a step back to create a means of putting in place a system that could benefit everyone.
Is it too late for the UK North Sea? Trying to do it now will require a culture shift. But change is needed if the UK North Sea is to overcome its serious economic challenge and flourish as it once did. My research showed me that even in mature and economically challenged basins with higher costs of production, businesses set up with the correct business model will succeed.
There is plenty of life in the UK North Sea and energy demand is still rising. However, operators must control cost, optimize their assets, focus on core activities and become more nimble. This means more reliance on connecting with your partners and supply chains, using technology and making digitalization generate economic growth. Having real time data available will help everybody make better decisions, faster, at the right time. As more and more of the industry address risk through joint ventures, then each party has an investment to protect.
So why as a survivor would you not want to have access to your data in real time?