The shortage of skilled labor in the oil industry has already led to some unusual detours. In one case, a major Canadian oil and gas company decided to pass up a significant acquisition with attractive opportunities for exploration and production. This happened, in part, because the company was uncertain that it could find the necessary people to manage it.
Such stories may soon be the norm. With demand for oil on the rise and prices at record highs, oil companies have reason to invest in oil fields that once would have seemed too expensive and too difficult to access. But to run these vast, remote operations, the industry may need 500,000 more employees than it currently has — a deficit that could reach 1.7 million by 2030.
Closing this labor gap will be almost impossible. Fewer people want to work in boom-and-bust businesses, and the average oil worker is older than 50, suggesting that replacing retirees could be just as challenging as filling new positions. Faced with this situation, oil companies are beginning to choose a radically different strategy: transforming traditionally labor-intensive, down-and-dirty oil operations into modern, technology-driven “digital oil fields,” in which a handful of skilled people can accomplish what required a few hundred in the past.
Every major private-sector oil company has a digital oil field initiative in place — Shell’s Smart Fields, BP’s Field of the Future, and Chevron’s iFields, for example — as do most large national oil companies, including Saudi Aramco, Petrobras, and Kuwait Oil Company. The industry is projected to spend more than US$1 billion over the next five years on digital oil field investments, including hardware, software, and services. In fact, before 2013, one large oil company plans to spend approximately $100 million on its digital oil field program in just a single geographic area before expanding elements of the program to four more regions.
The digital oil field is a suite of interactive and complementary technologies that let companies gather and analyze data throughout the job site. It includes “intelligent wells,” which have fiber-optic sensors buried in the drilling apparatus, controlled manually by operators on the surface or automatically through closed-loop information systems. These sensors transmit a constant stream of data about the well and its environment, enabling operators to respond to shifting circumstances in real time. For instance, they can adjust fluid pressure or valve settings as the drilling surface becomes more or less permeable. Digital oil fields also have “advance alarming” systems, which predict performance levels and warn of potential equipment failure.
Digital oil field data is fed into automated workflow and knowledge-management systems, which deliver it to those workers who need the information to make timely decisions. Both historical and current information can also be linked to company-wide knowledge exchanges — in essence, global corporate wikis — that can be tapped at any time. In an industry in which field data was, not that long ago, kept on clipboards or in Excel spreadsheets in the local field office, such shared information is a bonanza.
Oversight of these systems requires a new breed of engineer and technician — one who has not only significant operational experience, but also the analytical skills to compare data coming from multiple sources and discern the relationships among these pieces of information quickly and accurately. Many of these workers are located in distant facilities, perhaps miles from the oil wells themselves; they use video equipment to synchronize collaboration with on-site operations.
These types of operations may get a jump start from policymakers who want to reduce the risk of workplace injury. Norway, for instance, is mandating that all companies planning new offshore oil and gas developments first consider a complete subsea infrastructure that is monitored from land using advanced command centers with minimal direct human intervention. A storm on a drilling platform at sea is much less dangerous if many of the well operators work hundreds of miles away.
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.
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.