A Grand Challenge: Digital Transformation for the Upstream Oil and Gas Industry

Abstract

This is the fourth in a series of six articles on SPE’s Grand Challenges in Energy, formulated as the output of a 2023 workshop held by the SPE Research and Development Technical Section in Austin, Texas. Described in a JPT article last year, each of the challenges will be discussed separately in this series: geothermal energy; net-zero operations; improving recovery from tight/shale resources; digital transformation; carbon capture, utilization, and storage; and education and advocacy. The interval from the oil price decline of 2014–2015 through the global COVID-19 pandemic of 2020–2022 was a difficult period for the upstream oil and gas business. The industry has responded, as so many times before, by seeking to reduce structural costs with the minimum impact to required new investments, including those in nondiscretionary domains (security, including cybersecurity, and safety, health, and environmental performance) as well as those required to appropriately hedge against the emergence of new, more sustainable energy sources. Digital transformation is one of the key opportunities for the industry to systematically reduce costs across multiple business domains. While there has been active discussion of the “digital oil field” for several decades, the economic shock of the past decade revived interest in the application of digital technologies across the enterprise to improve the cost structure of businesses. Of course, at the same time, entirely new industries, such as social media, have emerged exploiting new digital technologies, including machine learning, web software and connectivity, and cloud storage and computing. These technologies have also transformed traditional industries such as retail and manufacturing. But taking the same path in the upstream industry has some special challenges and opportunities. This review focuses on digital transformation opportunities that are, to a greater or lesser degree, unique to the special data and operating environment of the modern petroleum industry. There are many valuable opportunities, including business process automations, that can and should be adopted by upstream companies, but are not different in kind from such innovations in other industries. One challenge is the sheer mass and heterogeneity of upstream data. The upstream oil and gas industry is an old industry, with both business and technical records stretching back for many companies to the 19th century. These can be in paper form or a variety of digital forms reflecting the different methods of storing data since computers became a standard business and scientific tool in the 1950s. Conversion of this data to more modern formats suitable for cloud storage, for example, is not cost-free. Thus, a key principle in digital transformation is that it must be value-driven. A frequently used phrase, “data is the new oil,” is, at least for the oil and gas business itself, deeply misleading. Most of the data held by any enterprise, be it in libraries, shared data servers, or personal hard drives, is not economically useful. Much other data, while potentially valuable, requires such substantial spending on quality assurance, data curation, data transfer to points of computation, and use of (highly paid) domain experts to interpret data analysis and make business decisions that there is no pathway to reliable value based on the data.