Industry survey suggests investment will increase, but management's vision needs better alignment. JEFF WILLIAMS, EY It is not news that the energy land- [scape is ina state of disruption, driven by ‘decarbonization, electrification, decen: tralization, developing markets digitaiza tion and the need to design for efficiency. Companies can and will speculate about the future energy mix and the role of oil and gas. They will adjust their port folios accordingly. Over time though, in ‘our view, supply and demand will tend to even out and returns will be fairly robust allalong the value chain. IFyou're in anas- set for the longer-term, its probably okay to say that you can do so without regret and as long as you're prepared to do busi- jness in what will undoubtedly be a more ‘complex and competitive energy land. scape. Complexity can be an opportunity Jand digitalization is the most important ‘enabler of complesity, Energy businesses will increasingly rely on technology to gather higher vol lume data, perform more sophisticated analyses and create more precise process control. Digitalization will drive down exploration, drilling, completion, produ tion and refining costs, and the compet tion between fossil fuels and renewables will be complicated, Consider: Nearly nine in 10 respon- dents to a recent EY industry survey said their company’s investment in digital tools will increase over the next two years, with a quarter foreseeing a significant in- crease in spending. Accordingly, nota sin ale respondent said their company would spend less on digital technology over the near term, Fig, 1 ‘The nearly universal embrace of new and emerging digital technologies is, in DIGITAL TRANSFORMATION many ways, the industry's response to dramatic disruption. There is massive un- certainty in the marketplace, a8 the world transitions to a new energy future, one marked by decarbonization—inciuding ‘growth in renewables and a diversion to electric power, especially in transporta- tion—and a corresponding decline i worldwide oiland gas demand. ‘There are other factors at play, too— the growing importance of developing ‘markets, which are highly sensitive to ener {gy costs and where a lack of infrastructure ‘makes oil and gas exploration, production and transportation more complex. Distrib tuted generation is also an issue. Increas- ingly, energy doesn't need to be supplied by lage, highly integrated companies; any facility or individual can install renew. able asets that will generate all the energy needed, especially as storage becomes ‘more efficient and affordable. Ofcourse, even inthe nea future, when cil and gas demand has peaked and be- gins to decline, traditional hydrocarbons Will have a critical role to play in meeting energy needs. The industry wil still be im portant; but producing the oil and natural sas the world needs—and doing so prof- Htably, in a way that reduces carbon emis- sions—will be a major challenge. Oil and 38 companies will need to be far more ef ficient and productive than they ae today, all while executing complex, expensive, smulti-decade projects in perhaps the most ‘uncertain investment environment ever. ‘That’ where digital technologies can make a difference, by revolutionizing the entire value chain. Digital tools, deployed across the enterprise, can unleash the tech- nical and creative skills of ei and gas com- panies and enable them to do more with less while enhancing profitability, reducing their environmental footprint and improv- ing safety and operational performance. Still, we are seeing many companies struggle with thei digital strategy. Deter- ‘mining where to start, or what the next step should be, is a challenge for many organizations, Our survey found that con- Disruption and digital: Business transformation should drive technology adoption, not the other way around Fig. 1. Survey response. Source: EY RD vente, 6 nv sity Staying at fasion or uncertainty about which tech- nologies and solutions to champion is a ‘major challenge for 32% of respondents, determining how much to invest was the _major stumbling block for 20%, Is clear that even though companies can envision the benefits of a robust digi- tal platform, the effort to roll out digital tools is still seen as risky, with an uncer- tain return on investment. Yet companies feel pressure to test the waters with a patchwork of solutions, trying to deter- ‘mine the best path forward. CREATING A DIGITAL CULTURE The sticking point may be in how se- nior leaders think about digital. Too of- ten, these tools are viewed as a bolt-on to existing functions and structures rather than as a platform for deep organizational and cultural change. In other words, there is a significant difference betwreen simply implementing digital technology and ac: tually “being” digital In EY's experience, oil and gas compa- nies that focus merely on the technology it- selftend to struggle. Digital becomes a pro- urement decision; IT recommends the flavor-of-the-month tool and the company finds the best vendor withthe right price. In those cases, the technology is not ‘embedded into the organization ina way that helps make business transformation possible, The tools may be used, and can even be helpful, but they are not anchored together in a coherent fashion across the World OW” / SEPTEMBER 2019 77DIGITAL TRANSFORMATION enterprise. Over time, these tools may even be abandoned because of a lack of connectivity with legacy systems. Viewing digital as an IT issue, rather than an operating business issue, can lead to disappointment. When transforma tion is technology driven, ther is often a large disconnect between the tools imple- rented and the real day needs that impact the business Being digital, on the other hand, is about creating a culture where technol: ogy provides @ roadmap to continuous improvement, efficiency and new oppor tunities Technology itself isn'ta state- ay driver; it’s just a tool that is used by the workforce to achieve critical busi ness gains Being digital also means that the or ganization’ culture is comfortable with technology integration. The workforce continuously looks for ways that emerg- ing technologies can provide value and makes recommendations for new pro- cesses that utilize technology to speed decision-making or reduce manual steps ‘A digital culture makes it possible for employees to operate at their most pro issues and yg Some Peete ote are ect eer) rene aeenir) ee eee Intense Quality Control ee kenety Rigging Up on Location Pucca Near Wellbore Tortuosity Cee Penis! ring al ductive —with a laser focus on high-value tasks—while technology handles ever thing else, fom the most mundane, re- petitive obs to the most dangerous. In short, being digital is about the joumey. It's about business needs—and business ideas—pushing the demand for technology, rather than technology be ing inserted into the workspace because a committee recommends it. Changing the culture—from one in which technol- ‘ay is solely 11's purview to one in which business operations are digitally savvy— iscritical In addition, being digital requires a leadership team that is comfortable with technology and recognizes the industry’ need to advance in order to overcome the challenges of disruption. Without that recognition, buy-in and support, digital initiatives are destined to wither away without much impact. Leadership teams must be aligned on a Vision for digital investments, too, Fig. 2 Neatly 20% of respondents to E's survey said senior management a their company was either not very aligned or somewhat not aligned. Just 319% said their senior ee eee eer Customize a class around YOUR WELL AVAILABLE SCHOOL DATES: September 25-27 & October 9-11 78 SEPTEMBER 2019 / WorldOilcom leadership was highly aligned around a digital strategy. Resolving those internal conflicts must be an early priority Even at companies where there is ‘complete agreement, the necessary shift in perspective, organizational structure ‘and employee mindset won't happen ‘overnight. Being digital requires a long. term commitment. THINKING RIGHT TO LEFT Acquiring new technology is easy. The challenge is understanding where and how technology can help, and successfully inte grating it into business operations. Asking the right questions at the stat ofthe jour- neyis vital; your company’s digital strategy ‘must support a business transformation that will enable you to compete in a trans tioning world, The best way to do that isto begin with the end in mind, and then find the technology that can make it possible, First, what does the future look like for your company, as wellas forthe indus try? Given that, what should your compa- ry look like? How should it be organized? How should its core functions work? What strengths should be nurtured? 5| DAY ELY HYDRAULIC FRACTURING SCHOOLS ieee!What weaknesses should be shored up? Do you have the internal resources and talent necessary to succeed in a vastly dif ferent market environment, one where digital technology is ubiquitous? Envision your company operating at its peak potential. What does that look like? Be specific. How long should it take to design a new well? Develop alternative drilling strategies? Process accounts pay: able? Implement safety best practices? ‘his “best case scenario” is important because it helps senior leaders see the end. inmind. These objectives are what should be driving your company’s digital strate- 8 not the technologies themselves. The next steps determining, function by-function, where your organization's pain points are, and the obstacles they create for achieving short- and long.term business objectives. What mission-criti- cal processes require the most staff ime? Where are the major project design and development bottlenecks? Where are the systemic breakdowns that cost the most in time and resources? What's standing in the way of achieving peak performance? These types of insights are typically found best on the front lines of the func. tion—the field staff, engineers, accoun- tants, and countless other employees who understand where the day-to-day chal Tenges of the business reside Together, leadership’ vision for the that your employees identify—give you a roadmap for understanding where your dligital strategy needs to take you, and the hurdles you'll encounter along the way. CUSTOMIZATION WILL WIN Our survey found that most oil and 28 companies are seeking value from Fig. 2. Survey response, Source: EY every aged, 2% Dentin, 15 Sone Vf, nape iy alone, ly ’ fature—and the real-world opportunities | five major digital technologies: advanced analytics; robotics process automation (RPA); cloud-based computing; industri al internet of things (MoT); and artifical intelligence (Al) and machine learning. Each of those digital tools is powerful by itself. But the companies that have the ‘most success in the digital evolution will recognize that each individual business problem will likely require a holistic ap. proach; that i, stitching together unique technologies for each challenge will de liver more value than trying to make one tool work in every application, In most cases, the right answer is likely to be a combination of tools. Integration of the fall spectrum of technology—in a man- ner that enables both the business process and the full capabilities of employees— will make the biggest impact. EY’ extensive oil and gas digital sur vey shows that the industry is beginning to comprehend the truly world-changing Possibilities this new wave of technolo- But our research also suggests that ex ecutives may be limiting the seope oftheir strategies too narrowly. DIGITAL TRANSFORMATION There's temptation for members of technology teams to focus exclusively fon one tool at a time. As the complex- ity of the digital space grows, integrated solutions—designed specifically to help companies overcome the obstacles to a complete business transformation—will ‘win the day. And the companies that use technology to achieve their vision will be the most successful. JEFF WILLIAMS i EY slobal advisory servis lange for oi Yoors of axcerence providing nterorise business and ‘chemical and utdlty companves. around the wore He focuses on tends one industry anc the dssruotive capabilites of lata innovation onthe various segments of the value chain Me Willams as worked with upstream downstream, cherncalcifeld {and technology changes, dita ter and customer engagement. He hots » BBecholors degre n Business Admristraon from Texas AGM University, orn PIN A SINGLE RUN Biciae 4 World oi / SEPTEMBER 2019 79The future of energy HERE In New Orleans, LA LAGCOE 2019 connect+explore+discover Mintek ly. clece) Bole) [: (oo) 200 miu: Ue eae q ecu’ 1 Cele Sa al ROO October 9-11, 20 LAGCOE.com/e: