O&G –Development, Projects and Industry 4.0

In an earlier post [link] I introduced four areas of the Oil and Gas value chain that would change because of Industry 4.0 (I4.0). In this post I am going to present some ideas about what might change the activities occurring between finding a deposit of oil and gas and going into production.

There are four widely recognised phases during this period I’ll label these: Concept, Design, Construction and Commissioning.

There are many interacting functions contributing to this process besides engineering. These include: Project Controls, Stakeholder Management, Finance, Legal, Risk, Marketing, Contracting & Procurement. Because oil projects tend to range from 100’s of millions to 10’s of billions of dollars these activities can have more impact on a project’s viability than the engineering.

In this post I am not going to consider the changes that I4.0 will bring to the underlying technology deployed in a field (such as intelligent completions, sub-sea completion systems etc.) but rather will concentrate on the operator process of bringing a field from discovery to on-line production and how this may change.


Concept selection involves generating options for ways to develop a field – such as what type of platform, how many wells, where to sell the product, how to transport it etc. This involves assessing various trade-off’s between cost, production profile, technical risk and time to market.

This area is one where experience and networks count. Advisors add value here. Unless an operator is a super major, the number of concept selections processes undertaken during their development teams’ career can be low.

Concepts rely on relationships and contracts with external parties such as governments, partners and financiers. The goal of selection is to examine possibilities and choose the most promising to work up in more detail. Detailed work-up of ideas costs a lot and takes time, so it’s best to avoid re-doing it. Selecting the best concept is important.

Selection is through an assessment of feasibility and creation of valuable approaches for external parties aligned to their appetite to participate. Better modelling of risk/reward profiles and the ability of AI and machine learning to help with option generation and assessment will create change here.

To generate viable options and to make introductions to partners requires wide experience, a diverse set of skills and set of external relationships. Companies like io oil and gas consulting, Genesis and Xodus and others are go-to companies for serious operators.

I4.0 will likely impact the work of these companies in three ways:

  1. Technologies will be adopted that enable better collaboration between parties and facilitate the exchange of information. This, by itself, will result in faster turnaround, reduced waste and lower cost.
  2. The value of networks and relationships cultivated by consultants to both source work and to introduce in related parties may reduce. Part of the value captured is because of “knowledge gaps” where players do not know all the parties who may be interested or how to contact them. It is likely that some of this role will be augmented with the introduction of automated agents. Reputation and relationships will still matter and will become a differentiator but it is likely that the ability to command premium pricing will be reduced.
  3. The value of experience will almost be wiped out. As an anology, consider how an app on a smart phone has given Uber drivers the ability to use the backroads of London like a black cab driver with 30 years personal experience. In concept generation, a system that constantly learns all the options that have been considered before around the world, combines them and add twists will provide novel approaches. This will mean the creative aspects of concept design will become increasingly automated. There is the potential for a google-like winner-takes all first mover advantage. Captured experience will lead to more opportunities for work and hence generate more experience. Perhaps we will see one consultancy decide that the value of knowledge will be higher than the cost of acquiring it and will start to work under cost price for the chance to become the first mover?

For concept selection, the differentiation will not only come from the depth of the accumulated knowledge-base but also from the ability to deploy emotional intelligence and maintain the confidence of stakeholders. Like many I4.0 opportunities value will be generated from blending human soft-skills with an ability to harness the power of the new machines and ways of working.


There are various iterations of design and “stage-gates” on the way from Front-End Engineering Design (FEED) to Detailed Design. For the sake of this piece I’m going to be broad brush in my approach, so apologies in advance to my engineering friends for the lack of detail.

There are four main areas within the Design phase that need to be addressed

  1. The engineering of components and systems
  2. The co-ordination of the design activity
  3. Developing the commerciality of design
  4. Maintaining the consistency to the original concept

Engineering of Components and systems

The engineering process has already been revolutionised by computational power and the transportability of information. No longer are drawings done on dye-line blue prints and red-lined in pen. The computation revolution included things like reservoir simulations, process simulation, CAD drawings and automated parts lists.

I4.0 will enhance the process by enabling more simulation – such as simulation of construction, operations and maintenance. The type of output that will be required is likely to change. As operations move towards more “digital twin” enabled processes the as-designed, as-built and as-operated models will require more detail and will contain more information. Therefore, I4.0 approaches will need to enable this by, for instance during design, automatically populating tags for equipment, and providing normal operating ranges for instrumentation alarms – all pulled directly from manufacturers information.

AI systems in the future may even make suggestions for more efficient ways to plan pipe-runs, or help by making suggestions concerning process engineering or instrumentation. For an example of this type of guidance look at MS Word. As I type I get underlining in blue when I misspell a word and in red when my grammar is off. This is accompanied with helpful suggestions should I want them. Engineering design systems in the future may do similar tasks alongside engineers.

We will see an ever-expanding repository of re-usable design components which will continue the progression towards modularisation and re-use of designs. Standardised design and construction (where appropriate) will reduce costs. Couple this with additive manufacture for specialist parts and design work may move away from run-of-the mill towards assembly of modules and the design of very specialised be-spoke components.

Co-ordination of design activity

Anyone who has worked in a large-scale engineering design office will say that much of the work (and most of the errors, and most of the wasted cost) is incurred in the co-ordination of work between engineering teams, subcontractors and clients.

Firstly, there is the problem of controlling the internal integrity of the design. For instance engineers need to know things like flow-rates, reservoir pressures numbers of wells etc. I have seen examples where the reservoir group and the engineering team will progress for quite some time when their assumptions have diverged. Same goes for all upstream-downstream processing, topside weights, fire-systems and instrumentation. This is an information co-ordination problem. I4.0 will help because there will be fewer engineers required to work on design due to automation (therefore less co-ordination will be required) and where it is by “compiling” the individual designs into an evolving a digital-twin, techniques from software engineering used to co-ordinate source code, apply updates. automate error checking and run-test can be used.

Sign-off between clients and contractors means document trails can be an immense source of frustration. The control of versions and reviews often needs a whole department of people dedicated to it. Contracts are tied to sign-offs and all have time-limits that must be observed. I4.0 has the potential to apply block-chain audit trails, digital twins, version control & roll-back. Block chains can even be used to automatically transfer value between parties to settle contracts.

Managing Interfaces is a whole discipline. Different teams – sometimes different companies – design parts of the plant and it’s important that pipes and wires all match up when the modules are constructed and delivered. Again, design component submission into a digital twin from the start can detect problems and eliminate this type of error from propagating.

There is schedule and cost management activity required. Normally this is either a P6 or MS-Project based process with email reporting of progress required from all parties and manual co-ordination to provide an approximation of current progress. This tries to highlight any dependency busts that have blocked the project and provide forecasts to management. Designing within a digital twin, where the design process can be simulated, will enable a risk-based approach to schedule and cost management to occur automatically providing visibility and risk-control.

Developing the commerciality of the design

I4.0 will require changes to decision process here so it may take a while for things to change. Good design provides both construction-dividends and operation-dividends. Designing a plant in a way that eases construction currently increases the cost of the design work. I4.0 automation may reduce or eliminate this extra cost, but the types of material or module may be more expensive to buy but cheaper to construct – balancing those trade-offs are difficult both because the information and the consequence of decisions are not visible to everyone, and procurement rules may favour a least-cost approach. I4.0 may help to present more transparent business cases and enable more informed decisions to be made.

Operation-Dividend is a hard one to address. Even today there are information, models and design files that can be created and could be of great value to operations. They may never be created or delivered to clients because of cost pressure. Many Oil and Gas project procurement processes are based on lowest cost supply – this drives out added extras which are not strictly necessary during design, but would have produced dividends later in the life-cyle of the project.

It is my belief that as I4.0 techniques become established and drive efficiency in the design process there will be a natural tendency for these dividends to arrive, however by forcing the issue now – operators could accelerate the adoption of I4.0 techniques among their suppliers. This they should do.

Maintaining Integrity of the Concept

It is a phenomenon that design decisions are taken for good reasons in the depths of the project and these can, unintentionally, add up to a fundamental change in the economics of the concept. These decisions are taken for good reason, but without the impact being fully understood.

A forward-thinking operator may employ representatives from the concept team to assure that, during design, no decisions are taken that alter the concept economics without due care and attention. Even then, however, it may be very difficult to detect all the small changes that may add up to a problem later on.

I4.0 means not only will this process be built into the “compiler” checks for the design but also it will have knowledge of the assumptions underlying the concept. The project owner will be able to track real-time fit between as-designed facility and the expected concept value. This means also that the validity of the concept economics can be monitored as external events challenge the assumptions made. By setting appropriate risk-tolerances actions can be taken to steer the design of a project faster the normal stage-gate system.


This is a huge topic with lots of interaction between subcontractors, yards, welders, steel producers, component suppliers, machinery vendors, site logistics etc. etc.

The order in which construction happens can be crucial. it’s an involved problem to solve because sometimes something can’t be built until a large piece of equipment has been manoeuvred into place. Sometimes there are contingencies such as road access or camp construction or constraints on access to lifting equipment time. These types of scheduling problems, full of constraints, dependencies, lead-times and uncertainties interact with physical layout. This type of problem is one that AI based simulation and machine learning has demonstrated value. I expect that the planning of construction work packages and sequencing will become much more efficient with I4.0.

I4.0 is likely to deliver technology in terms of sensors, autonomous survey vehicles and 3D model population that provide accurate tracking of progress against schedule. There are likely to be wireless condition sensors provided with equipment (such as rotating machinery) to ensure that it is properly maintained in the time before delivery and installation. This will save pre-installation maintenance and avoid delays.

We are likely to see technologies such as automated reporting of equipment positon on the way to site meaning that schedules and daily work-plans can be optimised to the prevailing circumstances.  Block chain style transactions are likely to reduce the formidable overhead associated with contractors and their execution of work. The same technology that can provide better than ISO-9001 trail of supply, fitting etc.

I expect to see more automated construction, on-site manufacture of parts (3D printing) and more just-in-time manufacture and delivery of equipment. All of this is going to combine with better visibility of progress to lead to faster construction, with less waste (and hence less cost) and deliver much higher quality and predictability.


Commissioning of new plant as it starts up and before it is presented to operations is likely to change too. Simulation and machine learning will mean understand that different parts of the plant need to be brought on-line and in sequence. Experience and learning will shine a light on areas most likely to fail and their failure modes. Some potential failures will be detected and ironed out prior to attempted start-up.

As plant is brought on-line equipment settings will be noted in their “tags” and can be automatically compared to the as-designed expectation and the manufacturer’s recommendations. Equipment performance can be tracked through sensors from day-one, this will help with predicting failures in the future. Intelligent software can be used to highlight unexpected situations.

The automated learning and recording of the start-up procedure and equipment settings can be used by operations for plant re-start and for comparing as-operated settings to as-commissioned to track where, when and why parts of the plant are being changed.


Industry 4.0 has the potential to provide substantial benefits to the development of oil fields. Many of the processes described above have been technology back-waters relying on manual systems, ad-hoc applications and a lot of tacit know-how. I believe that this will change. It will take new technology and also take new ways of working. The supply chain will need to respond. FEED, EPC and PMC contractors who get on the bandwagon first will create the opportunity to assemble unassailable leads and take a dominant market-share in the way that Google did for internet search.

(Image credit : https://www.gie.com/)










Energy security and geopolitics

This big topic was brought to mind during a recent breakfast with Capt. Mike Paterson (Royal Navy retired). In the oil and gas industry we are often at the mercy of large political forces playing out. This shows up in both commodity prices and physical security. Employees of few other businesses are as acutely aware of this as they are in Oil and Gas.

You don’t need me to tell you the current oil price nor the speculate about the reasons, but it is clear that there are national interests at play. Is Saudi Arabia waging a price-war to drive unconventional sources of production out of business? Is there some form of cross-state agreement to undermine the Russian position? Are there ulterior motives for allowing Iran back into the market? What will be the effect on South America and African politics? What will the destabilisation of Iraq and the Levant states mean?

Here is interesting view: CNBC saudi’s and Russians game of bluff.


While it is interesting to ruminate on what the price will be, there is really nothing that I (and probably you) can do about it, and predicting which factors will combine with global economic growth and low-carbon technologies to influence Oil prices is something I’m not qualified to talk about. When I need to find an opinion my first port of call is my friend Delia Morris who is now with RigZone.

There were many theories around why OPEC (namely Saudi Arabia) would [refuse to cut production]. I am of the opinion that it was to make better sense/better predict the behavior of the US shale players (force them to consolidate, not necessarily to put them out of business). Frontier plays (like the Arctic and ultra-deepwater plays) and Canadian oil sands (which require huge upfront capital costs) I think were targets (by OPEC) to forcibly put them out of business. And we are seeing that play out now. Delia Morris quoted in Vice.Com [Link]


When Mike Paterson gave a talk on security at one of last year’s networking dinners, he provided a simple framework that every business can use to structure their thinking about emerging threats.

Where this really matters is for security of workers and assets within countries. That’s where the Oil and Gas industry and national security agencies start to align interests. There is are very intriguing analysis sets available from the military which provides many insights, this for instance:

The Baltic Sea is one of the busiest shipping areas in the world; the volume of maritime transportation navigating it has doubled in the last 20 years. Energy shipments from Russia are particularly important and the entrance to the Sea, through the Danish Straits, is one of the world’s eight strategic oil transit chokepoints. The Nord Stream gas undersea pipelines from Russia to Germany are also an important strategic element in the BSR. Energy dependencies within the BSR vary, with nations having different strategies, and most importantly, varying degrees of dependence on Russia. It should be remembered that the Russian economy is reliant on the energy market. Significant reductions in demand may, therefore, have a major effect on its economy, and potentially have a destabilising effect on regional security. “Future Security Challenges in the Baltic Sea Region” [Link]

There is a very thoughtful piece by Anusar written under the pen-name PolicyTensor which is available here [Link]. In this piece written in 2012 concerned why prices were so high, interesting to re-read this in the light of the current prices.

Oil prices will be volatile but your business may not be directly driven by them, you might be driven by the response of your customers – their response may be driven by technical or revenue-maximisation considerations – or, quite likely, financial constraints which drive decisions that do not maximise economic recovery, but do protect equity value in the face of debt covenants.

Watch out though – Mike Paterson alerted us to the correlation between grain prices and the Arab Spring. Perhaps low petroleum-state revenues will lead to reduced public spending which might lead to popular uprisings and increased instability. Unstable times ahead.