OTC Commentary: Digital disruption in oil and gas: Are we there yet?

By Archana Deskus

We hear a lot of talk these days about digital disruption. What does that mean for the oil and gas industry and the way we deliver energy to those who need it?

“Digital disruption” is the transformation that occurs when digital technologies radically change the way companies operate, sometimes dismantling old business models. In oil and gas, our industry is changing today to digitize and solve for what we know. But we also have a tremendous opportunity to create new outcomes by digitizing the value chain from the resource to the consumer.

Consider this. Digital disruption has been cited as the main reason that just over half of the companies on the Fortune 500 in the year 2000 are no longer listed today. In their place are new entrants like Netflix and Uber, which leveraged digital capabilities and an asset-light approach to disrupt existing markets or create new ones. In doing so, they replaced or in some cases made obsolete traditional ways of doing business.

Uber is the world’s largest taxi company, but owns no taxis. Netflix is the world’s largest movie house, but owns no cinemas. Similar disruption is occurring in the latest industrial revolution by combining proven products with digital technology, an example being self-driving cars by Google and Tesla.

True disruptors stand out for two reasons: they focus on creating value that doesn’t currently exist, and they bring that value directly to the end user.

Our industry faces its own unique set of challenges and threats. Not just from alternative sources of energy, but from volatile commodity pricing, high capital requirements, environmental regulations, geopolitical and trade tensions and shifts in consumer values and preferences. Through our own digital disruption, we can mitigate these risks to ensure we can continue to provide energy more plentifully, affordably and sustainably.

We’ve talked about the digital oilfield for at least a couple of decades, and we’ve made great strides in using downhole sensors and data to automate certain systems and processes, including drilling systems and rigs. However, we are still hampered by inefficiencies across the entire oil and gas ecosystem.

With 1.5 trillion barrels of proven reserves globally, average recovery factors are less than 30 percent across all operating environments. We are leaving a lot of energy and value untapped. Only 3 to 5 percent of oil and gas assets (including the wells themselves and all the equipment used to drill, complete, stimulate and produce) are connected digitally. And, 97 percent of the data is never used. This presents a huge opportunity for us.

Digital technologies can help us extract more energy, more efficiently, with less impact on the environment and less threat to human life. They can help in the effective communication and universal adoption of safety standards. They can help us use the energy we produce to directly support the development of economies and communities around the world. They can help us create more value for the ultimate consumer and shareholders.

A bigger leap is to challenge our thinking to how a consumer-centric approach could change the current energy production and delivery industry. Or, how a significant catalyst from innovation, economic, political, social or other means could change the industry as we know it today.

This industry is ripe for a digital transformation of the Silicon Valley type, and there is certainly enough interest from those within and outside of the industry to seize this opportunity. We have started on the digital journey to meet today’s challenges, but the larger prize will come from using digital technologies to uncover opportunities and solve problems that we didn’t even know existed.

Archana Deskus is vice president and chief information officer at Baker Hughes.