Intelligent Energy: A Strategic Inflection Point
Authors: Lochmann Mark , Brown Ian 
Published: June 2016

As defined by Andrew Grove (one of the founders and the chief executive officer of Intel Corporation, the world's largest manufacturer of semiconductors), strategic inflection points (SIPs) represent what happens to a business when a major change occurs in its competitive environment (Grove 1999) or when major market changes significantly affect business fundamentals. Oil-and-gas case studies have documented new ways of working and a more-than ten-fold improvement to individual productivity, demonstrating that new, more-effective ways of operating oil-and-gas assets are possible and practical.

This evidence suggests that oil-and-gas production has experienced an SIP in recent years, driven by individual productivity and operational efficiency. Throughout the last few years globally, approximately 400 work flows representing more than 50 digital oilfield automation projects have been implemented successfully. Many have focused on improving efficiency, and all have gone far beyond basic SCADA implementation. These projects encompass nearly every asset type, demonstrating that intelligent or digital energy (I/DE) solutions are not restricted to a single operating environment. Many papers have been published on this topic at SPE conferences. Examples cited by Moisés et al. (2008), Dutra et al. (2010), Van den Berg et al. (2010), Barbarino et al. (2011), Sankaran et al. (2011), Al-Jasmi et al. (2013), and Vignati et al. (2013) provide descriptions of representative projects. All these projects experienced significant engineering-capacity gains.

This implies that when companies respond to the SIP, engineers and operators no longer must devote the majority of their time to routine, low-value tasks. Instead, they can concentrate on activities that produce meaningful performance improvements and business value. In other words, the resulting expansion of effective engineering capacity and the maximum amount of high-value work that an engineer can complete in a given period can change the way oil-and-gas companies operate (Holland and Crompton 2014).

Although specific work processes are prioritized differently among various companies and assets, the underlying I/DE principles of operational excellence, efficiency, and automation on which solutions are based remain constant. The application of these principles is what makes business transformation possible (Lochmann 2012).

Presently, significantly higher levels of production performance are achievable within the oil-and-gas industry. Companies that choose to fully implement I/DE principles are likely to follow the steep upward performance trend predicted in the SIP model, whereas employees focus on such business imperatives as increasing production, reducing cost, and managing risk, rather than routine, mandatory, low-value assignments. Although I/DE concepts are not routinely used within the industry, there is little doubt that such technology needs to advance and support fundamental shifts in production operations and operational excellence to assist producers, especially through low-price periods. The recent price decline clearly puts additional pressure on oil companies to operate more efficiently and at lower costs.

As this paper is being prepared in 2015, oil price has been reduced by more than USD 100 per barrel since its 2008 high. Many observers might consider this an SIP. However, as historical oil-price data illustrate, there have been approximately 10 sharp oil-price changes since 1973, none of which has resulted in long-term changes to business structures. With the exception of the market impact of the Organization of Oil Exporting Countries (OPEC) in 1973–1974 (clearly, an SIP), subsequent price volatility has caused dramatic expansions and contractions, but the industry seems to consistently fall back into its established ways of doing business. The challenge for oil-and-gas management is to recognize whether a situation such as the drop in oil price is an SIP or a normal variation (although severe) that routinely affects an exploration-and-production (E&P) business and to act accordingly.

The consequences of an SIP within production are similar to those encountered in exploration 25 to 30 years ago when the introduction of information technology made the routine application of 3D seismic interpretation a reality and brought profound business changes to the upstream geoscience sector.