[12/6/2005 4:16:50 PM]
Oil and gas companies are moving toward greater centralization of information technology for better coordination, standardization, and consolidation of their equipment, processes and technologies. By Rick Nicholson and Sekhar Venkat, Energy Insights (an IDC company)
Energy Insights recently conducted a study of 33 oil and gas companies from around the world (see Figure 1) to determine the trends and directions of their respective IT organizations. The annual revenue of the companies studied ranged from $0.19 billion to $264 billion (average $18.5 billion), and the size of the workforce ranged from 141 to 105,200 employees (average 14,841). The majority of respondents were IT directors of their company; four were corporate CIOs. The survey covered topics related to IT centralization, internal and external IT spending, and key IT initiatives for the near future. Key findings from the study include:
The application portfolio of oil and gas companies is shifting from custom applications to packaged applications to allow for better cross-company communication and to provide the foundation for integration to support merger and acquisition activity.
There is an increased focus on enterprise resource planning (ERP), security, upstream applications and data management, and business intelligence (BI), especially to support digital oil field initiatives.
IT Departments More Centralized. Centralization enables the creation and execution of a collective vision of how IT should support and guide market opportunities and growth. According to our research, 71.4% of the respondents are rapidly moving toward centralization of their IT organizations. This trend is helping companies:
- Create a more strategic vision and approach to IT infrastructure, establishing a foundation for service-oriented architecture for the enterprise as a whole.
- Standardize data models and processes across the organization to create greater consistency, more accurate reporting, and efficient information processing.
- Streamline IT operations across the enterprise through elimination of staffing redundancies and reduction in the costs of licensing, maintenance and internal IT support by consolidating and rationalizing applications.
- Establish enterprise-wide visibility into a consistent set of data across business units and companies while improving the ease of use of IT systems by removing complexities from the end user. Integration, standardization and consolidation of IT systems are the basis for a successful, centralized IT model. For example, integration of application and data warehousing allows oil and gas companies to capture wellhead production information and make that information seamlessly available to multiple applications and users. Integration can also support many business processes, such as execution of royalty payments through matching production data with ownership details.
An immediate consequence of IT centralization and integration is the growing role of systems infrastructure and security. As more companies centralize their IT organizations, data access, backup, security and recovery of relevant data stored in non-centralized locations will become areas of significant challenge.
Internal vs. External IT Spend
Survey respondents reported that external and internal IT spending was split almost equally, with external expenditures averaging 56% and internal expenditures averaging 44%. This comparable spending metric reflects the lack of automation and integration of current IT solutions. The labor-intensive nature of today's software requires a host of personnel to acquire, manage and process data. The high internal spending is a strong motivating factor for companies to outsource their enterprise resource planning applications, software development, and IT infrastructure support and networking. In some instances, another motivating factor for outsourcing was the lack of manpower.
Focus on Productivity, Workloads
Employees of oil and gas companies are often so overwhelmed with just managing today's problems that they do not have any time to research better ways of doing things to optimize their productivity and reduce their workloads. Therefore it is critical to keep sight of new and important initiatives that allow for a more productive and satisfied work force. Respondents from the survey were asked to comment on their top five IT initiatives for the period 2006-2009. In addition to a continued focus on enterprise resource planning, there will be an increased role for upstream applications and data acquisition and management, as well as a growing importance of business intelligence and data warehousing. Since economic scarcity of hydrocarbons is top of mind, it is not surprising that oil and gas companies see upstream applications and business intelligence as top IT initiatives (see Figure 2). Taken together, these initiatives support the digital oil field concept, which we define as the complete automation and integration of the acquisition, processing and management of all data that describes and influences hydrocarbon production from well completion to production accounting and final handoff to midstream and downstream segments. Many of the super-majors have been investigating what investments in this area can do to improve production and reduce labor costs. In fact, nearly 5% of the respondents named digital oil fields as an IT initiative over the next 3 to 4 years.
What They Are NOT Investing In
Despite the widely held belief that liquefied natural gas (LNG) is going to be an increased source of fuel in the energy sector in the near future, a vast majority of survey respondents are not making IT investments to support LNG infrastructure, production or transportation. Only 15% of survey respondents indicated an investment in IT for LNG production. LNG requires sophisticated risk management, distribution management and terminal management systems. The information life cycle for LNG would be very similar to that of crude oil shipped in oil tankers to terminals. Gas production measurements will need to be made at the wellhead, with additional liquid measurements made at each point of custody transfer. Actual LNG volumes would get allocated back to the wells, and based on operating party and ownership agreements, payments would need to be made. Energy Insights believes this represents an opportunity for new software applications.
Guidance for IT Vendors
Vendors of IT solutions are aggressively entering the oil and gas market because of sustained high levels of hydrocarbon prices. Based on our study's results, Energy Insights has the following recommendations for vendors:
- Actively pursue viable partnerships to provide more integrated solutions, i.e., integrating upstream and ERP applications.
- Be cautious of increased competition because of the spate of current and future mergers and acquisitions (M&A) in the oil and gas industry.
- Focus on providing specific and improved solutions in the areas of computing, simulation and visualization, data capture, analysis and management.
- Build custom solutions around the specific needs of the oil and gas business, as opposed to trying to apply solutions across industry verticals without relevant modifications.
Although IT solution providers worldwide are seeing the oil and gas industry as the next hot place to do business, the oil and gas companies themselves remain committed to reducing costs, enhancing recovery from existing and new hydrocarbon reservoirs, and managing demand pressures creatively. Energy Insights recommends that operators:
- Focus on centralization initiatives to reduce the cost of operations through standardization of IT vision and to eliminate workforce redundancies.
- Look at ways to bring about consistency in business processes and IT solutions within and across organizations. This will ease consolidation efforts and assist with M&A activities.
- Take a leadership role in defining suitable IT solutions and encourage partnerships between leading vendors of different IT technologies to provide mature and integrated solutions.
The overall move toward centralization and the focus on the top IT initiatives will enable cost savings, improved hydrocarbon productivity, and effective supply chain management. Also, CIOs should seriously consider how the increased importance of LNG as a commodity will affect their corporation's IT needs in the near future.
