A successful digital transformation is achievable through various routes, but a plan is essential. These decisions include:
Leading digital oil companies tend to have answers to each of these questions and a plan to digitalize upstream, midstream and downstream operations. They deploy projects across a range of sites, ensure the operators on the ground are well-trained and centralize data collection and management procedures. They also have a senior steering committee and senior C-suite buy-in. Most oil companies will need a Chief Digital Officer and a digital budget.
We judge oil companies on how broad their scope of ambition is, the range and type of partnerships and the business opportunity they are looking to build.
Companies decide the scope of their ambition by determining the extent to which they want digital technologies to affect the whole enterprise, connecting upstream and downstream operations, and the significance of investment. Companies with broad digital ambitions often centralize decision making and budget within a core team. Often, these come from executive-level mandates and investment levels of over $200 million per year.
But having a broad vision for the company is not the only path to success. Operators such as Indian Oil and Suncor have succeeded by identifying pain points in their operations and deploying targeted software solutions. While these projects may have more limited impact than enterprise-wide strategies, they often produce results more quickly.
All oil companies want to reduce cost of operation and enhance safety. For them, digital is a tool to reduce asset downtime and automate processes. But digitalization can also mean new IP creation and new revenue streams. For example, Sinopec has launched an IoT platform to sell to its oil and chemical refining peers, with Huawei. Shell has spun out a technology startup that reduces leaks in refineries through connected wrenches.
Oil companies do this in a few different ways. Some, like BP, have set up specific business units to commercialize promising technology. BP’s internal incubator, Launchpad, spun out a company that uses artificial intelligence to interpret acoustic signals within wells. Others are going to market with peers. For example, Schlumberger and Rockwell Automation have established a joint venture, Sensia, to sell end-to-end automation for upstream. Sensia is estimated to earn $200 million in incremental sales in 2020.
It remains to be seen if oil companies will want to buy software products from their peers and competitors, when they have the alternative of buying from OFS, EPC and industrial providers, or startups.
The range of potential technology partners for oil companies has expanded rapidly. These include traditional service providers like oilfield services and industrials who have invested in building IoT platforms as well as process-specific analytics. As well as cloud computing companies, oil majors are becoming familiar with startups by using their VC arms to invest or even launching their own software startups, such as Shell and BP have done. Lead software startups in the oil and gas industry include C3.ai, Spark Cognition, Akeselos, Dataiku, Tachyus and Bluware. In choosing a partner, oil companies are weighing domain expertise against technical capability. Partners that can bring both are likely to be the most successful. Many companies – like Total and Shell – are taking a multicompany approach to partnerships and completing pilot projects with a range of providers.
Leading European oil companies have formed dozens of partnerships with large and small technology firms, while those in the Middle East and North America tend to pick one or two partners, often consultants. BNEF's research shows that oil companies are turning to big data analytics in the cloud, challenging traditional oil field service providers and industrials to deliver new IoT platforms and applications. Both Chevron and Equinor have also partnered with Microsoft – Chevron has sold its private data center back to Microsoft to manage. Total is working with Google Cloud to develop and commercialize a product in machine-learning for seismic studies. Exxon and Suncor are the two latest oil majors to shift from on-premise data centers to the cloud.
