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 / Spring 2008 / Issue 50(originally published by Booz & Company)


The Digital Oil Field Advantage

The digital oil field can also bring direct benefits to the bottom line. One oil and gas company has completely integrated its production operations with its daily gas marketing and trading organization, allowing it to take advantage of intraday price changes. To make this transition, the company standardized its processes, including the management of production volume in the front office and the determination of contract details for the allocation of natural gas in the back office, across all of its geographic markets. Using this integrated approach, the company determined regional gas field output based on the ramifications for its portfolio as a whole, allocating resources and making production decisions in response to minute-to-minute market conditions. The company calculates that it has saved more than $10 million in labor costs under this system, money that it has used to hire more engineers and expand into new areas of exploration and production. The company’s net performance from overall portfolio production has improved by 10 percent, representing an annual return of more than 30 percent on its investment in the technology.

Although many digital oil field technologies are specific to the oil industry, this data-rich approach could be valuable in any engineering-driven sector, especially those experiencing a similar labor crunch. However, although bringing a new level of automation and insight into the plant operation yields enormous benefits, such a change is not without challenges. Getting employees to embrace a new operating method is one of the biggest hurdles in implementing the digital oil field or any similar system. As companies revamp their processes to make the best use of new technology, the responsibilities of highly technical and analytical people change.

Powerful tools exist that can help people embrace their new roles and the fresh technology: process simulations (computer-based renditions of the new technology that people can practice on in advance); “learning through building” (allowing operators to contribute to prototypes of the system and thus help design how it will be used); and wargaming (bringing people together in computer-driven role-playing of the new operating methods). Finally, concepts like lean manufacturing and Six Sigma — honed in other mature manufacturing industries such as aerospace and automotive — are being used in the oil and gas business both to remove organizational waste through better technology and techniques and to help overcome talent shortages by enhancing productivity. For instance, the automation of routine tasks and alerts that help engineers perform analyses is allowing energy companies to more efficiently deploy scant human resources.

The digital oil field is a needed catalyst for the industry. Without these advances, oil and gas companies will find themselves caught between the conflicting pressures of a shrinking labor force and a growing demand for oil. The new system is not a panacea, but it can be an avenue to new areas of innovation, helping companies reach previously off-limits reserves, inexpensively and safely, to meet the global need for carbon.

Author Profiles:

Andrew Steinhubl ([email protected]) is a senior executive advisor with Booz Allen Hamilton in Houston. He heads Booz Allen’s North American work in upstream oil and gas, and has worked with many clients on process, organization, and technology issues, as well as the integration of these issues to achieve an overall agenda.

Glenn Klimchuk ([email protected]) is a principal with Booz Allen in Houston. He specializes in helping oil and gas companies manage the convergence of people, processes, and leading-edge technologies into new operating models and overcoming such models’ inherent adoption challenges.
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