Getting Started with Oil&Gas
Worldwide, energy consumption is on the rise – and oil and gas are predicted to be the main source of that energy well into the future. By 2030, in fact, consumption is likely to increase by 50% – with much of that attributed to the developing world. Already, this increased demand is leading to a dash for resources which is increasing the level of competition in the oil & gas industry precipitously. And all of this is happening in the context of an industry undergoing significant internal change.
Today national oil companies (NOCs) are showing their strength – and this is leading to a shifting center of gravity in the industry. With NOCs setting the agenda, the integrated majors – who previously were squarely in the driver’s seat – must play by a different set of rules.
For the NOCs, the business challenges center on establishing a collaborative environment to facilitate partnerships while protecting and controlling national resources. For the integrated majors, the focus is on making operations more efficient and harmonizing business processes in order to meet the more stringent demands of the new spheres of operation they are entering. As for the independents who have little interest in engaging in the politics of global energy, their focus is on providing niche-market expertise and exploiting their agility and entrepreneurial flair to respond to change and capitalize on opportunities as the market continues to evolve.
These and other dynamics are having significant impact on the way companies in the oil & gas industry design and manage their business processes. Business process experts will need a solid understanding of these dynamics if they seek to help their organizations compete effectively in this rapidly changing market.
On the upstream side of the equation, many of the challenges and corresponding business process implications center on the following issues:
- Efficient Asset Operations
With increasingly remote opportunities and governments restricting access to assets, oil and gas companies are looking for ways to reduce asset-related expenditures – such as lifting costs – in order to maximize the available opportunities. This requires increased efficiency – typically in the context of working with advanced technology partners. Companies also want to be able to monitor production networks, track volumes back to individual wells, calculate profitability, and accurately estimate the end of life for a given asset to maximize return.
- Succession Planning
The average age of top talent in the oil & gas industry is approaching 50. As companies feel the impact of an aging talent pool, they are increasingly concerned with capturing individual knowledge and translating it into organizational knowledge. This will require more sophisticated approaches to knowledge management and e-Learning so that employees entering companies today can get up to speed quickly.
Smooth management of joint ventures is one of the key success factors for all players in the oil & gas industry. Companies need ways to set up and manage increasingly complex cooperative relationships, track capital and operational expenditures, and distribute costs to partners in a transparent manner. This will require a robust, standards-based process platform that is capable of extending internal processes to project partners in a flexible, cost-effective manner.
Oil & gas companies must contend with a wide range of regulatory pressures to mitigate environmental impact and protect the health and safety of workers. Wherever possible, these regulations should be built into processes to increase compliance efficiency. Companies are also looking for greater process flexibility so that they can incorporate regulatory changes with ease.
- Handover Management
With the rush on to take charge of assets, companies will be working even more with engineering companies to construct drilling platforms and other upstream infrastructure. The handover process after construction is completed is notoriously cumbersome and costly. Oil and gas companies are striving to streamline this process by harmonizing the data structure for assets and managing all information associated with the new asset in an orderly, centralized manner from day one.
On the downstream side of the equation, oil & gas companies are facing constrained revenue growth, downward margin pressure, reductions in operating efficiencies, and increased governmental regulations. The business process issues for the downstream side of the business include the following:
Downstream operators contend with many of the same compliance issues as their upstream counterparts. More of an issue on this side of the business, however, is Sarbanes Oxley compliance. In addition to the challenges mentioned above, companies must have reliable, accurate, swift accounting systems and processes in order to close their books and provide accurate reports.
- Operational Efficiency
As the cost of operations continues to rise, companies will seek to increase efficiencies by retiring outdated legacy systems in favor of integrated platforms that support greater levels of automation for critical processes. These include order-to-cash, on-board truck computing, terminal automation processes, push replenishment and others.
- Supply Side Pressures
Oil & gas companies are facing increased supply side pressures such as reduced brand exclusivity and the proliferation of suppliers and vendors on the global stage. To counteract these pressures, many companies will seek to maximize the use of term contracts, reduce transportation costs through more efficient scheduling and routing, improve carrier collaboration, and make improvements in the areas of demand planning and fulfillment.
- Demand Side Pressures
On the demand side, oil & gas companies face a maturing market characterized by aggressive competition, increasingly savvy customers, mounting demand for services, and a consolidating distributor base. In response, we see the growth of marketing as a core discipline for downstream success – with a focus on managing and optimizing prices across all channels of trade. Companies also want to maximize the buy/sell margin spread, automate terminals with direct data feeds from the rack, and increase their overall ability to identify opportunities and capitalize with rapid response.
This review of market drivers provides only a limited glimpse into the highest-level challenges facing the oil & gas industry. A lot remains to be discussed and explored. We encourage you take the opportunity to delve deeper, learn more, and add to this community by sharing your own experience and insight.