Prolonged low oil prices environment is making oil companies speed up the digitalisation of processes to push down operating costs, save billions of dollars, promote transparency and optimise value creation.
Process digitalisation involves the use of digital data and technologies to transform existing business processes into more efficient, optimised, more profitable, streamlined and value-adding operations.
Last year, Rystad, an energy research firm analysis report, showed that the global oil and gas industry could save as much as $100 billion through automation and digitalisation in the 2020s. The efforts could help cut about 10 percent of the $1 trillion spent in 2018 on operational expenses, wells, facilities and subsea by more than 3,000 producers.
In Nigeria, some oil companies have been leveraging digitalisation and automation to keep operating expenditures (OPEX) low, make processes repeatable, auditable and to shorten opportunity in maturity cycles by more than 60 percent. This has also led to efficient oil well stock inventory management.
“We have been able to save as much as $20 million in operating expenditure. Our OPEX is about the lowest in Nigeria’s oil and gas industry,” Emeka Onyeka, petroleum engineering manager, Eroton E&P Limited, said during the second edition of NNPC/IDSL Asset Management Operational Excellence Webinar Series themed ‘Process Digitalisation to Improve Asset Management Efficiency.’ “We were producing a barrel of oil at $12 until some security challenges set in and started eroding value,” Onyeka said.
The economic fallouts from Covid-19, which saw oil prices fall, remain low for long and added to the volatility in oil prices of the last six years have sent strong signals to oil companies, particularly in Nigeria, to push down the unit cost of production per barrel of oil by leveraging process digitalisation. On the average, crude oil production cost is between $21 and $30 per barrel in Nigeria.
Brent crude oil price fell to approximately $33 per barrel on Monday, March 9, the worst of its kind in a day since 1991. Earlier in 2020, oil prices had fallen to almost $45 per barrel, the lowest for years. As of Friday, Brent crude was trading at $42 per barrel.
For oil companies to stay profitable in this lower prices environment it means conventional models would no longer work. Oil companies have to be more responsive and bring high operating costs within control.
“Inefficient processes cost money. A recent study shows 20 – 30 percent of value is lost to inefficiency by oil companies. Workflow processes are not transparent, unrepeatable, inconsistent and analogue,” said Sophia Weaver, manager, Production Technology & WRFM at FIRST E&P, an indigenous Nigerian oil company, at the Operational Excellence Webinar. “Upstream E&P companies can save $73 billion annually through process digitalisation.”
A race among suppliers is currently underway as companies roll-out new digital products; the last 12 months have seen major releases by Schlumberger, Baker Hughes and TechnipFMC. One of the largest digitalisation initiatives was launched on September 17, 2019, the result of collaboration by Schlumberger, Chevron and Microsoft. This ambitious project aims to visualise, interpret and ultimately obtain meaningful insights from multiple data sources across exploration, development, and production and midstream sectors.
However, Edirin Abamwa, chief operating officer of NPDC/NDW OML 34 AMT, said decisions were not purely based on data. The process of data gathering, integration, storage and democratisation is more valuable because of the critical information generated.
Abamwa argued that the current environment in which operators do businesses cannot make it possible, talk less of being feasible to bring down the unit operating cost to $10 per barrel by 2021 as Mele Kyari, NNPC’s group general managing director, recently suggested. For a starter, sufficient censors are required for surface operators.
“We run systems that were set up 70 years ago and designed to militate against disaster. The systems ensure emergency preparedness and quick shutdown of assets but fail to address the issues of optimal performance. Let us start by changing these systems,” Abamwa said, noting, “With more censors in the operations, we can build a dashboard showing on a per-second basis how an asset is doing.”
At the exploration and production level, Total saves $1 billion yearly because it has begun digitalising some processes and continues to do so. At the affiliate level, the oil major saves $200 million yearly, according to Olatunji Akinwumi, executive manager, Deepwater Geosciences & Planning, Total E&P.
