For organizations in the oil and gas (O&G) industry, the combined impact of COVID-19 and erratic oil prices have made for an unprecedented roller coaster ride. Many oil and gas companies are finding it difficult to cope, and others are likely to be severely impaired for the foreseeable future.
However, even in the worst of times, there are tools and strategies that can help an organization’s fortunes, namely the increased use of technology and digitalization. To be sure, neither is a magic wand that will create a reasonable floor for petroleum prices or encourage Russia and Saudi Arabia to cooperate over oil production. But used strategically, these concepts could well provide the added margin needed to see an O&G organization through to more stable times and be better prepared for the next drop.
These concepts, of course, are not new in the industry. Even before the pandemic and the price collapse, a number of major O&G firms had announced their intention of moving in a big way toward digitalization to shore up their competitive edge. A Bloomberg report in March cited Shell’s plans to use artificial intelligence (AI) to save $1 billion to $2 billion in oil production costs. BP estimates it will decrease expenses by billions going digital, while Equinor expects a $3 billion increase in cash flow through its digitalization efforts in the next six years. And in the midstream subsector of the industry, refineries that go digital and use high-tech solutions such as machine learning (ML) could save in excess of $2.5 billion.
But adopting new technology and digitizing manual processes is not just for the O&G majors. Companies of all sizes can take a number of actions to cut costs and help increase their market share. Here are a few of them:
Optimize Use of Already Existing Software and High-Tech Tools
Faced with workforce restrictions and the need to economize, organizations should scrutinize their current IT and cybersecurity toolkits for capabilities that are not being leveraged. For example, the Microsoft Cybersecurity Reference Architecture describes a number of useful applications and services that could replace existing products or vendors, resulting in substantial savings. In speaking with our clients in the industry, many do not realize the extent of the products offered by Microsoft that they might already be paying for with existing licensing.
To give a few examples, Azure Information Protection (AIP) scans files and documents for sensitive data and then protects those files. Windows Defender Advanced Threat Protection (ATP) sniffs out viruses, malware, ransomware and other threats that can be very costly if allowed to penetrate and fester within the company’s systems. Opportunities exist for organizations to replace existing tools/vendors with the equivalent Microsoft offering to achieve significant cost savings while maintaining comparable (if not superior) functions and features.
Convert to Digital Where Feasible
Installing IoT sensors to collect data from field operations is the next step toward achieving efficiency. Though the data can come from a variety of sources — rigs, refineries, even field workers’ headsets — the ability to quickly accumulate and analyze large volumes of information provides organizations with an edge in running their operations. With the addition of advanced analytics techniques, AI and ML, companies are better positioned to maintain field equipment and predict outages.
Transition IT Infrastructure to the Cloud
Leveraging the cloud in lieu of on-premises data centers for hosting IT infrastructure could be another potential cost-saver. Cloud service providers such as Microsoft, IBM, Amazon and Google have the bandwidth and resilience capabilities that most companies can only dream of. Another advantage of moving to the cloud is that an organization’s IT capabilities become easily scalable, allowing for future company growth when the recovery takes hold. Further, a cloud-hosted environment may be more stable than company-hosted infrastructure.
Even downtime has its advantages, and one potential benefit is that it gives an organization a little breathing space to optimize manual or labor-intensive processes. Capabilities such as robotic process automation, AI and ML can greatly help with, and sometimes replace, back-office operations. Additionally, with their predictive and monitoring capabilities, these technologies can be a significant aid in understanding markets and knowing when and how to hedge commodity prices.
Don’t Ignore Cybersecurity
Recent news reports have indicated that U.S. cybersecurity has become more vulnerable during the pandemic. Moreover, as we noted in an earlier blog, moving to digital provides additional portals for cybercriminals to hack into an organization’s internal systems and applications. With the sudden transition to a remote workforce due to the COVID-19 pandemic, O&G firms should prioritize conducting an external exposure assessment to understand where they have weaknesses from the internet that may have been introduced as a result of expanding remote connectivity to applications and data. (See our first bullet point above regarding useful apps an organization may already have access to but not yet implemented or fully utilized.) Additionally, organizations should dedicate communication efforts to brief staffers working from home about the current trends in cybercriminal phishing techniques, which include a recent increase in frequency of these attacks.
As reported in Forbes in mid-July, the timing and extent of recovery the United States will experience is still anyone’s guess. Given the ongoing market uncertainties, O&G firms are well advised to use every advantage available, particularly leveraging technology and digitalization, to retain their competitive stance, increase efficiencies and reduce costs. And, as always, cybersecurity should remain a top priority. Time invested in protecting IT (and OT) operations could pay back the effort in spades.
For a better understanding of cybersecurity measures, organizations should look into existing tutorials, such as the complimentary Microsoft Security Workshop offered by Protiviti.
This blog was originally posted on The Protiviti View.