Mood music changes

So BP have gone back to the future. Beyond Petroleum all over again.

When I started the Bestem Network 7 years ago I focussed it on issues surrounding the Oil and Gas industry – specifically how to use technology and reconfigure operations to develop and produce projects at lower cost and risk.

Last drop or leave it in the ground?

The Wood report was flavour of the month and much of my work centred around MER-UK (Maximum Economic Recovery). One of the categories of posts on this site was (and still is) labelled “Last Drop”; it focussed around the changes that would be required to make it possible to cooperate economically to achieve the maximum aggregate profit for the industry. It tackled things like tying together infrastructure, developing small pools and draining the basin over the long-haul and not to optimise short-term or locally.

While I never expected that the industry would return to 2012 levels, I did expect that it would come back and stabilise at a more “normal level”. I was concerned that the “big-crew-change” would mean that young people would not have the knowledge to operate our much-needed oil and gas infrastructure. I had no idea that they would reject oil and gas completely. That thought occurred to me in 2019 when I visited London Tech Week.

In 2017 I wrote that exploration was really of waning interest [Link] but I didn’t expect one of the primary reasons was that we didn’t want any more hydrocarbons.

Contrast this recommendation from Wood in 2014: “Government and Industry to commit to a new strategy for maximising the recovery [of oil reserves] in UK Continental Shelf] with the growing idea that we might leave reserves in the ground.

I wonder what the report on maximising the economic recovery from the whaling industry said.

Could the oil industry just disappear?

Despite sounding the drum for the 4th Industrial Revolution and arguing (nicely) with Patrick Von Pattay ( I was the more conservative because I thought that oil and gas really wouldn’t change fundamentally). It appears I may have underestimated things.

A very successful (and foresighted) businessman recently told me that the plastic-straw industry had simply ceased to exist within six months of the revelations of the damage it did to the oceans in the TV programme the Blue Planet. This chap now takes into account environmental position before bidding for work from a company – not for ecological reasons. He wants to direct effort to customers that will remain in business!

Surely we can’t do without oil?

Of course, there are oilmen who will tell you that the world economy cannot work without hydrocarbons – their case has always been that growth will come from renewables, and that demand would be flat. I tend to agree. But what if we’re wrong?

Here are a couple of thoughts for this (exceptionally) rainy Feb morning.

  • Solar is the cheapest form of energy production already. It’s getting cheaper and more efficient at a blistering rate.
  • Petroleum products might become classified as a dangerous substance – think asbestos or CFCs, what would that do to demand and price when supply, licensing, permitted uses and public perception of the product changes.
  • Microeconomics – which is what many businessmen optimise for – operates within Macro economic boundaries. Macro economics are formed by policy, are political and by nature are ideological. Think about: Soviet Russia, China, Thomas Pickety, Trade Wars, Sanctions. Things you think are “real” business decisions can be usurped by political will in an instant.
  • The IPCC report on climate change was issued in 2007, the Paris agreement was 2015 we seem likely to go beyond this and as a world embrace Net Zero sooner rather than later. For insight listen to Myles Allen on the life scientific (BBC https://www.bbc.co.uk/programmes/m000fgcn )

Engineering will still be important

With all this doom and gloom around it’s easy to get despondent. But, here’s the good news: if the world decides it wants to change then this will call for difficult and complex engineering, delivered in remote locations across political divides on an unprecedented scale over a mulit-decade period.

Not only will we need to invent all sorts of new technology for carbon reduction, energy efficiency, generation, storage etc. etc. We will need to deploy them all and decommission all the legacy assets.

There are not many companies that can muster the amount of engineering talent, capital control processes, large scale international project management, logistics construction that will be required. In fact, I can think of two that could – Energy and Shipping. And of course, if the world doesn’t change, oil and gas will have a renaissance.

Under all circumstances the people inside the oil industry will have skills that are needed and which are hard to replicated at scale. The only loss of value will come from those who can no longer exploit their control of underground deposits of oil in the future, and those that must pay for legacy assets and impact from the past.

Fundamental engineering practice still matters

With all the digital wizz (which I fully support) it is important not to lose sight of the practical situational requirements, human organisation and civil society that we need to enable the “platform” in which the innovative start-ups, electric cars and energy transition can happen.

Basic engineering discipline still matters, and is sometimes overlooked by hand-waving innovators and wet-behind-the ears management consultants.

You probably know about the 737-Max flight-stability software and instrumentation scandal. Recently, I read an article on Boeing where it says they are now re-inspecting new plane fuel tanks because they have found rags and tools left in them by construction workers: https://www.flightglobal.com/air-transport/boeing-orders-737-max-inspections-after-fuel-tank-fod/136819.article

It’s a sobering thought when flying :- if the wrong culture takes hold and introspective and solid processes are overtaken by gregarious and extroverted leadership.

The world still needs good engineering.

Ubique & Quo Fas Et Gloria Ducunt

Machine Learning — Data First

With all the attention on Machine Learning (ML) that I encountered at London Tech Week, I thought I better find out a bit more about it. I wanted to verify my view that it won’t have a dramatic impact on the Oil and Gas industry and see if this was actually true.

My findings, so far, is that ML might:

  • Speed up some analysis
  • Change the spread-sheet paradigm (for better or for worse)
  • Enable people with the right level of expertise to create predictive analysis (whether this will be at all valuable is a different matter)
  • In a myriad of small ways, change minor tasks (removing annoyance, reduce low-value add data & reporting work, change interfaces)

None of these applications are dramatic in themselves, but over time they may add incremental benefits that provide a moving improvement-front. A bit like a six-sigma or Kanban.

What will you need in order to drive broad-value from ML

You’ll only be able to take advantage of that if four things are true:

  1. You have clean, historical data available
  2. You can access and combine quality-controlled, time-dependant data in near real-time (ideally from multiple sources)
  3. You have wide-spread knowledge of how to apply the new analysis tools – like those based on “R”. (think how many people can use Excel today for collecting, analysing, querying and reporting on data – varying degrees of proficiency, but who do you know that can use “R”)
  4. You are prepared to reorganise the way work is performed to take advantage of the new possibilities created by: data analysis leading to demonstrated-fact-based / probability-assessed management decisions & employee actions.

Low cost hardware is the trigger

The interest in machine learning is spawned from the dramatic drop in the cost of hardware and software required to perform the number crunching required. Because of this, not only has the complexity of the addressable problem increased but also the inefficiency of code that can be supported increases the usability of tools and techniques leading to their application by practitioners outside pure decision sciences.

If you attend any of the IoT conferences – or speak to the large vendors of real-time industrial data, you’ll hear a lot about how edge-computing and Machine-Learning will change things for industry. “Edge” means placing computing power in the field with low-power and small costs.

Putting this alongside the sensor enables pre-processing information to send back only the results. This helps to reduce data bandwidths and increase responses.

For a view on how cheap this type of technology now is – and how undramatic the applications of ML really are I invite you to have a look at this video (from the hobbyist market) showing what can be done for less than $100. Listen out for the references to “TensorFlow” one day that will be important, there are also some passing references to cloud-based resources that may be of interest.

London Tech Week

Last week was London tech-week. I guess a bit like London fashion week, only much larger.

There were events all over London – this has grown from a week of borrowed conference rooms and underground gatherings into a large series of happenings. Monday-Wednesday saw the COG-X show near the google campus north of Kings Cross. At this event there were 10 stages giving parallel presentation sessions over the full three days, an Expo, start-up section and various corporate networking events.

Wednesday and Thursday (yes overlapping) saw the TechXLR8 exhibition at the Excel Centre, this was a large expo event with presentation 6 stages running all day.

Alongside these two there was also 5G Europe and Identity Management conferences both of substantial size.

Have a look at the website here https://londontechweek.com/events – there are 18 pages of events with 7 events per page. Tech-XLR8 above is only one of these.

This blog previously covered the launch of the UK’s industrial strategy (at Jodrell Bank) and the lack of coverage of this in the main stream media [Link]. Well, despite there being still no interest from the media. The UK industrial strategy was evident everywhere – with announcements from the various bodies, challenges, and funding opportunities. Have a look at this if you haven’t already : https://www.gov.uk/government/publications/industrial-strategy-the-grand-challenges

And did you know there is an “Office for Artificial Intelligence” ? https://www.gov.uk/government/organisations/office-for-artificial-intelligence

I’ll write more about some of the events in due course but here are the highlights:

  • There were 1000’s of under 40, very intelligent, eager advocates of tech everywhere. Very diverse in terms of sex, ethnicity, country of origin you name it, very much in contrast to this [Link]
  •  AI, IoT, ML, CV, AR, VR were the flavours of the moment (and I learnt some really interesting new insights here, more later)
  •  AI Ethics is a huge deal, and lots of people are thinking about this.
  •  Energy tracks focused on decarbonisation, distributed grid and combining sensor technology with predictive algorithms to reduce consumption. Oil and Gas didn’t feature once.
  •  Interesting to see the traditional tech players (with notable exceptions) were looking dated and pushing out platitudes about the new tech and the business impact it should have (but with no concrete examples). Meanwhile there were (really) hundreds of well-funded small companies that had real-world use-cases for niche solutions that had demonstrated value (though most had not had to pass a business-case hurdle to get going).

What struck me most was the vibrancy of the arenas, the buzz of conversation and the high-energy engagement between participants – problem solving and exchanging ideas. It was very refreshing to see. There was also a willingness by all sorts of industries to try new solutions and approaches – knowing that not everything will work but understanding the need to learn and push the envelope forward. The pace of change is amazing.

I was lucky enough to have the chance to try a VR simulation made by Linconshire Fire Brigade to train their officers in fire investigation. On with a VR head-set and into a virtual world. It was very, very realistic.

Oh and everyone was talking about “Digital Disruption”

Next year London Tech-Week should be one for your diary.

Looking for inspiration

I like to look across sources for analogy and stimulating ideas. A couple of things have recently caught my eye.

I find it amazing how hard it is for people (including me) to see the implications of new technologies and ways of working. In retrospect, once a change has happened, it’s obvious what the outcome would have to be. But when the change is happening it’s not so clear.

Going up

Ground floor
Perfumery, stationary, and leather goods, wigs and haberdashery, kitchenware and food. Going up…

Can you remember the theme tune to Are You Being Served?

I’m old enough to remember the lift operators in Aberdeen’s E&M and Watt & Grant department stores. They were replaced by automated lifts in about 1980. The stores have both succumbed – one to the shopping mall, the other a victim to digital retail.

Being a lift operator was a skilled profession, making sure that you stopped the elevator car level with the floor and opening the concertina iron-work doors with the brass handles.  Apparently New York’s last lift operator was only made redundant in 2009 Link

The Economist 1843 magazine just ran a story making the connection between the elevator operators strike and the adoption of self-driving cars. We could probably do the same with roles in the oil field.

The elevator strikes in 1945-47 crippled the city, and led to calls to redesign the city so that only low-rise development was permitted – to reduce the power of unions.

Of course, the answer was – as we know – automated elevators. But a lot of change management was required before people started to use them. Innovations such as emergency stop buttons, telephones for help and recorded announcements all came about in this time.

I’ll wager that we will look back at some of the manual ways of operating an oilfield we use today in the same way was we look back at the anachronism of the elevator operator.

Electricity – who’d want that?

Another story that I picked up on and found illustrated a point was this one [Link]. It’s written by the BBC’s Tim Harford. He asked and answered the question why did it take so long for electricity to displace steam in the factories in the North of England. It was decades after the invention that it was fully adopted.

He explained that it required a redesign of factories before the economics made enough sense for people to abandon centrally powered manufacturing and move to individually powered machines. We’ll see the same adoption economics in oil field operations and technologies such as 3D printing.

Digital Marketing – a lesson for oil and gas?

Today I found another article that resonated. This one is from Marketing Week [Link]

Mark Ritson makes the case that the separation between Digital Marketing teams and Traditional Marketing is ridiculous. What I think he’s saying echoes my point that there should be no separation between “IT” and “The Business”, because IT needs to be just how things are done around here. It’s true in Marketing, it’s true in Oil and Gas too.

“… On the one hand you need to avoid being precious about your digital creds. Signal early you are entirely comfortable losing the D prefix from your title and, for good measure, add something re-assuring like ‘I do not even know what digital means anymore’ or ‘isn’t everything digital now?’.

The merger process means that anyone who is a member of the extreme digerati will be the victim of the new regime. You know the type: obsessed with AI, convinced in the long-term value of VR, boastful that they don’t own a TV. They will be the first to go when the revolution comes.

Digital experience is a prerequisite

But make no mistake, it’s no good proclaiming that digital is wank and it’s time to get back to basics, pull all the money from Facebook and get it back into ‘proper’ media. The post-digital era cuts both ways.

While idiot digerati will be exposed, so too will those who aren’t open to the potential of all the new research and media options that have appeared over the past decade. When Alastair Pegg, the leading marketer at Co-op Bank, noted that that there was “no such thing as digital marketing” he followed up with the corollary that “all marketing is digital marketing”.

I think I can see the parallels between what he’s saying is happening in Marketing now, and what will overtake the world of Oil and Gas operations in the next 3-5 years. What do you think?

To innovation and beyond – 2019+

My first post of the year – a look ahead for 2019 – was a bit tongue-in-cheek. Now The World Economic Forum (WEF) is meeting in Davos, Switzerland, I thought I would provide a more insightful analysis.

The WEF will be considering the implications of the 4th Industrial Revolution as the headline theme for their annual conference. If you’re new to all this here is a I4.0 primer from CNBC [Link]. 2019 is going to be a year where industrial innovation takes centre stage. 

The thinking from WEF is always good, detailed thorough. I think that some of the crucial themes for unlocking innovative value will be focussed around opportunities and risks. Here are some of my current favourites.

The Opportunities

  1. Using information and reconfigurable platforms to provide new solutions to stakeholder experience. This will establish new ways to create, deliver and consume the core outputs from industrial processes.
  2. Removing the idea of separation between “IT and the Business”. The two are now conjoined. Being good at tech will be a prerequisite of being good in business. Technology will be embedded in every way that work is done, products are created, consumed and delivered.
  3. Empowering the front-line will be crucial. The winners will be faster organisations where workers make autonomous decisions and are rewarded for outcomes. As an analogy think of Deliveroo drivers. For many reasons, more refined models of work-coordination are required but the core autonomous nature of the work is being previewed here. Decentralised decision-making and autonomous action guided by technology removes many of the tasks performed by middle management. I hope we will start to see teachers, dentists, doctors and nurses no longer filling in spreadsheets and working as relecutant automatons directed by ill-informed command-and-control resource-allocation systems.
  4. With power comes responsibility. Without middle management, new forms of controls (and motivation) will be needed to spot problems and reward behaviour. Surprisingly for some, I don’t believe it is the front-line worker, but middle management, that is most under threat from AI, visual computing and big-data. I hope the CFO won’t push progress only on AIQ but that marketing and talent managers will push the AEQ agenda. It’s important we understand not only economics but also pride, satisfaction and feelings of accomplishment.
  5. Innovation may not be in new forms of technology. The tech available to us now is far ahead of our application of it. Deployment options are already available but not used. Innovation will come from the application of existing technology to new areas of business. Those stuck with old infrastructure will not be able to reconfigure fast enough to keep up. Value will arise from designing new ways of working. Capturing the value will rest on finding ways to get the rest of us to work that way too.

And now the risks

  1. Innovation will come from networks. Big companies will look to small companies for ideas, small companies will be formed from collaborative networks of individuals. Ideas will be mashed-up to cross-fertilise creativity. Guards must be in place to avoid exploitative situations – if they arise unchecked it will mean that the small-guys can’t and won’t play for long. Without them, brilliant ideas will never be used. Rights management is crucial for the distribution of the value created. In the way that song-writing credits generate performance fees for artists. Licenses for ways-of-working are needed to stimulate innovation, and society needs to enable easy access to legal enforcement to uphold claims against copying without permission.
  2. Massive generalisation follows: Young people are frustrated by old-people’s inability to embrace new ways of working. Technology savvy folks are orders of magnitude more productive than their peers. They are quicker to make decisions and to multi-task. This leads to not only high-productivity but also to high-error rates. Iterative short-cycle experimentation and learning-by-doing is the hall-mark of agile strategy. This is not an approach that has been adapted to high-risk industrial work-settings. This leads to a clash of culture and an inability to attract and retain talent.
  3. Innovative individuals will continue to pursue independent careers in increasing numbers. Old industries will die, vested interests will be disenfranchised. The world of work, taxation, social contracts, pensions and access to finance will have to evolve to cope with this. To create a consensus and establish a sense of fairness new-politicians will need not only wisdom but also to deploy the old-tools of oratory and persuasion. There will be big disagreements across society and between nations. It will be necessary to create hope for those who fear being disenfranchised. They will not go quietly into that good night.
  4. Politics of property will come to the fore – the control of assets will be important. Whether that is physical real-estate where low-paid important workers are unable to afford to live where the people who need them reside; property from an accumulation of historical data that provides an unassailable lead and monopoly positions; or the “IDEA” that one person has spent 10 years creating that is exploited by a large corporation without reward. Society will need to find ways to address the control and distribution of property in a world where labour and working-time may not function as a distribution & motivation method.

I will spend time exploring these themes during the year – I have a number of initiatives already kicking off for the year and I hope that you’ll be able to help.

Industry 4.0 – Are we there yet?

Something’s up. I was reviewing my web-stats for this site and I found that since Jan 2018 one post has been read 1000’s of more times than any other one. This one: Innovation and Productivity with the Fourth Industrial Revolution.

About 3 years ago,  I started to talk about how relevant to the Oil and gas industry were things I had been studying about the 4th Industrial Revolution. At that time no one had a clue what I was talking about. Some thought I may have gone mad. I’m glad to say that things have (mostly) changed.

Who’s talking about it?

Since 2018 I’ve seen the term being used by a number of my peers in Oil and Gas, and when you search on this and combine with the term “Digitalisation” It becomes obvious that there is a major movement underway.

Steve Ashley uses the term in his article: Digital, data and taking control of our own destiny and its also used in this press release from Petrotechnics.

Today this announcement from CapGemini helping Statoil with a 3 year project to create a digital roadmap.

How to assess a digital project

There are still a few fundamental questions that every digitalisation project should be able to answer. Below is your starter for ten, and – yes – you may confer:

Examine the project value:

  • What is the primary business driver;
  • Does this project fulfil the agenda of the CIO or the COO;
  • What is the net cost of this project;
  • When will I see value (hint: the choice is either this year, or 3-5+ years out); and
  • Is this a platform investment or can it ride a set of network effects?

Examine the project risks:

  • What things will prevent me from realising the planned benefits;
  • How much change will be required in the way we work;
  • If I do this, does it prevent me from doing other things;
  • How likely is it to require more money than I’ve budgeted for; and
  • What happens if I wait and do it later?

These criteria (and others) should be considered for every project.

Enterprise level

At the enterprise level there are a couple more  things that need to be considered including:

  • How does this project fit into my portfolio of digitiallisation initiatives;
  • As my business gets more digitalised, how am I addressing digital integrity; and
  • Should my HSSE function be renamed HSSED?

Further reading

I wrote an article for ITProportal for some of this and here is a note on project portfolio prioritisation that I wrote a few years back – Introduction to Prioritisation V 1.0.

Digital disruption landscape for upstream oil and gas

I was recently asked by a client for assistance in examining how their business strategy might be affected by Digitalisation. This company is a mid-tier upstream operator with a mix of assets mostly non-operated but does have some where it is the duty-holder.

So I’ve propose the following five point map to classify where the disruption could occur in the upstream business. This helps to define not how, or when,  but where disruption is possible. This framework helped us examine what threats and opportunities are likely to emerge in each area and I thought I’d share.

Please feel free to comment and I will keep this updated  for the network.

Demand for Oil and Gas

  1. Digitalisation in the wider economy may affect the demand for energy through different transport usage, renewable control, demand management and micro-grids.

Access to Resources

  1. Access to operate resources may change as national owners find different partners to help them monetize geological wealth
  2. Opportunities to become a non-op partner may change as operators get more certain about their outcomes and require less diversification in their portfolios
  3. Competition for resources increases as development and production services become purchasable/tradeable activities
  4. Transparency of operation and methods to extract changes what is required to retain a license to operate
  5. Better techniques for collecting and interpreting data leads to more resources being found and better development pre-planning (westwood puts the commercial success rate at between 30% and 50% https://www.fircroft.com/blogs/less-drilling-more-success-the-state-of-exploration-drilling-so-far-in-71921114313 )

Development and Operation of Resources

  1. Digital planning and modelling combined with better logistics and manufacturing/construction techniques reduces the capital requirements for fields meaning lower barriers to entry
  2. High frequency low-cost drilling reduces the sunk-cost nature of investment, reduces cyclical volatility of supply/demand imbalances and hence expected return on capital
  3. Better information leads to increased recovery factors and ultimate value of assets. (Currently this is estimated to be below 40% http://www.spe.org/industry/increasing-hydrocarbon-recovery-factors.php )
  4. Better information, co-ordination and reduced waste leads to lower operating costs per hour of activity (for some bench marks check here https://knoema.com/rqaebad/cost-of-producing-a-barrel-of-crude-oil-by-country )
  5. Better prediction of failure and real-time optimization of fields leads to higher efficiency and hence accelerated cash-flow (currently 73% in North Sea https://www.ogauthority.co.uk/news-publications/news/2017/uk-oil-and-gas-production-efficiency-rises-to-73/)

Sale and transport of product

  1. Better information about the crude quality and refinery / other consumer plant configuration leads to higher yield / lower cost processing
  2. Information about the location of supply and demand enables better optimized transportation and reduced costs
  3. Better prediction of both future production and future demand enables balancing of both. This leads to changes in the premium available from trading and who captures it

Human elements

  1. Automation leads to different models for distribution of wealth among the middle classes (no longer based on work)
  2. Automation leads to people choosing to add creativity and seek challenges in different environments and under different conditions
  3. Changes to the working motivation scheme means modernization is required for operating model for Oil and Gas industry to attract talent

 

 

Image credit: https://www.pmfias.com/natural-gas-distribution-world-india-petroleum-gas-value-chain-upstream-midstream-downstream-sector