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Unrealized
potential
of digital
Realizing loT &
digitization
value in O&G The changing oil and
gas landscape affords
opportunities for improving
operational efficiency
The imperative of Oil & Gas digitization

The Oil and Gas (O&G) industry has
been focused on increasing production,
recovery, and throughput for years.
New market realities are now forcing
operators to shift focus from top line to
bottom line growth, towards improving
cost structure and margins in order to
be competitive in current conditions
and prioritizing efficiency gains over
production growth. While various
digitization initiatives over the last
decade have attempted to address
these issues and led to gains by
reducing inefficiencies, they require
heavy capital investments, have
extended pay-back periods, and face
several internal operational barriers
that have prevented O&G firms from
realizing full value.
benchmarks against their own sensor-
covered cars, helping them learn
lessons for future engineering and
design. GM also digitized test tracks
to gleam insights from how the car
handles on various surfaces. Airlines
widely use digitization to reduce
operating costs, employing systems
that can enable real-time resource
planning to drive greater utilization
of their planes. For example, smart
engines notify maintenance and
operation centers of performance
issues while an aircraft is still in the
air, and request that a replacement
part be waiting when it lands.

One challenge is that the oil and

gas industry, especially in upstream
and midstream, has been very
conservative in implementing smart
field technology. Until recently, market
factors did not incentivize or create
an existential crisis large enough
to require full scale adoption/
implementation. For instance, the
automotive and aviation industries
implemented several enterprise-wide
digitization initiatives to increase
efficiency and tackle costs when they
faced their own upheavals during the
many crises that have plagued them.
GM, for example, now uses 3D
scanning to generate models of
competitor vehicles to run simulation

PwC | Unrealized potential of digital 2

 Digitization involves physical devices communicating
directly with each other – machine-to-machine – with
little or no human intervention. To the O&G business,
digital includes smart elements such as sensors,
measuring devices, and actuators embedded in drills or
wellheads exchanging data in real time. Such exchange
enables expansive monitoring, integrated operations,
remote configuration and optimization, and even self-
management. Wireless networking connects these
elements, and through use of purpose-built applications,
sends their combined and integrated data to servers for
processing, storage and analytics.

Millions of smart elements sending real-time data 24/7

results in huge datasets and data flow. A single drilling
rig can generate one terabyte of data each day, bringing
the total amount of data passing through an oilfield to
potentially one petabyte (10^15 bytes) or more per day.
In a control room, personnel see and interact with an
accurate virtual representation of the field and all its
components. Field data can be processed continuously
in real time, with applications automating decision-
making, performing predictive analyses, reacting to
alarms, and monitoring and controlling production
process – with or without human intervention.

All of these technological advances enable streamlined,

more efficient field operation. The resulting outcomes
include reducing costs and achieving efficiency gains
that are required to survive the foreseeable low-price
era. Oxford Economics predicts that increased digital
adoption by the O&G industry could result in global
real (inflation-adjusted) GDP increase by somewhere
between 0.5 percent and 0.8 percent (or $552 billion
to $816 billion) by the end of 2025i.

ihttp://www.rigzone.com/news/oil_gas/a/138503/Study_Low_Oil_

Price_Gives_Industry_Chance_to_Pursue_Digital_Transformation/
?all=HG2
According to a market research report published by
MarketsandMarkets, “Internet of Things (IoT) in Energy Market
by Systems & Solutions (Predictive Asset Maintenance,
Connected Logistics, Security, Energy Analytics, IoT
Platform, Energy Management), by Application (Oil & Gas,
Mining), by Services & by Regions - Global Forecast to 2020”,
the IoT in Energy Market is expected to grow from USD 7.59 Billion
in 2015 to USD 22.34 Billion by 2020, at a Compound Annual Growth
Rate (CAGR) of 24.1% during the forecast period.

PwC | Unrealized potential of digital 3

The unrealized opportunity for Oil & Gas digitization

Almost all major and independent O&G companies have
some sort of digital initiative underway, some for more
than ten years.
The downstream sector, frequently plagued by long
periods of low margins, shifted from a top line to a
bottom line mindset and embraced digitization earlier
than the upstream counterparts. O&G plants and
refineries are now some of the most automated facilities in
any industry. Every piece of equipment is under constant
surveillance, control loops adjust themselves, and whole
process analytics and simulations enable operators to
predict the effects of changes in the system. Embedded
smart sensors in vessels, tanks, compressors and turbines
send real-time data to control rooms where a handful of
experts can monitor processes and provide diagnostics
for issues. Additional opportunities exist in connecting
biometric data to improve operator safety and materials
movement within facilities.
facilities embedded with smart sensors with integrated
models run and managed by engineers/experts in
collaboration centers; wearable technology brings the field
closer to the office; field automation technologies have
provided real-time work scheduling; near-ubiquitous
asset tracking and condition monitoring occurs via
wireless sensors over a network backbone; 3D scanning
technology is used to create virtual asset representations
for construction optimization, maintenance planning,
operator training, and simulation. Now a new fleet of
drones and smart robots armed with video analytics and
artificial intelligence are inspecting pipelines, flare stacks
and going places not safe for humans. A relatively new
technology in upstream is flow composition analysis;
extending this through full lifecycle digitization will
enable the stream to be more accurately valued.

Much like their downstream brethren, midstream

companies’ portfolio of gathering systems, pipelines
and storage facilities leverage vast digital components
and ecosystems. Advanced measurement devices such
as electronic flow metering technology, data-intensive
Pipeline Inspection Gauges (PIGs), SCADA and digital
sensors are prevalent industry-wide. The opportunity
for midstream companies lies within future use of drones
to perform pipeline flyovers and the collective ability to
distill massive amounts of data collected into meaningful
information for safety, pipeline integrity and asset
management. The opportunities are seemingly endless,
but until this point in time only a few organizations have
captured meaningful value from their digital investments.

In the upstream sector, companies vary vastly in terms

of digitization. They span from very sophisticated,
unmanned, automated, robotic drilling platforms to fields
where sensors and communications barely exist and
operations are still paper based. Analytics are widely
used in seismic data processing, beyond-bit drilling,
and predictive maintenance, sometimes through
crowdsourcing of expertise. Digital Oilfield initiatives have
combined intelligent, self-monitoring wells, reservoirs and

PwC | Unrealized potential of digital 4

Ultimately, all these companies are looking for whole-asset
management across the lifecycle to maximize returns.
Digitization initiatives have come a long way towards
realizing efficiencies, however, in pockets. The biggest
obstacle preventing full scale success and adoption of
enterprise digitization is the time the initiatives take to
reach full deployment. Other factors which contribute to
these extended durations include the combination of
fragmented implementation, often in silos, and preference
to buy COTS (commercial off the shelf) versus developing
in house standards.

Most O&G companies often view anything IT, data,

or digital as activities not related to core business. Each
department turns to their preferred suppliers to develop or
bring in expertise and solutions that help their immediate
needs. Siloed digitization does not provide the cross-
functional cross-asset insights needed to drive efficiency
at the enterprise level. Technology implemented in this
manner provides value in a specific area but does not
enable end-to-end data flow. Financial and organizational
information is rarely integrated into any of the digital
solutions. Additionally, each initiative has to “start from
zero” in terms of building the business case, gaining
stakeholder buy-in, mobilizing a team, setting up
infrastructure, and addressing data quality. While
there is a lot of innovation across sectors, there are
no end-to-end digital solutions common to the
industry and no clear leaders.

PwC | Unrealized potential of digital 5

In fact, we see five major trends in the industry propelled
by digitization thus far (Fig xx). (i)Prevalence of data
from increasingly connected devices enables further
analytics to drive higher ROI from investments;
(ii)Market conditions dictating lower CAPEX spend
across firms are resulting in alliances being formed
to create and deploy end-to-end digital technologies;
(iii)Companies working together in turn is driving
increased simplification and standardization of processes
and equipment across the full industry lifecycle,
(iv) which in turn is enabling optimized relationships
between end-users and their suppliers when sourcing
technology (and data); (v)Enhanced collaboration and
knowledge transfer across the industry is leading to
efficiencies that further bring down digitization costs.

Falling digitization costs & Reduced M&A appetite drives desire

operational data prevalence for packaged end-to-end solutions
drive the network of “things“
Internet Increasing
of things alliances

Major
Oil & Gas
Reduce costs, Knowledge trends Standardize processes
spread risks, and transfer and equipment
enable quicker ROI across entire Simplification across regions
due to consolidated value chain while streamlining
expertise across maintenance, repair &
OFS/IOCs/NOCs operations costs

Solution-based
buying

Companies shifting from discrete services to

solutions-based buying, mitigating risks by
eliminating disparate interfaces and data

PwC | Unrealized potential of digital 6

 Value capture – Digitization’s time to
deliver for Oil & Gas
Industries and organizations who are
thriving in the digital era (i.e. Apple,
Amazon, Google, etc.) have shown
that differentiation from competition
is achieved through the use of an
ecosystem that enables data-driven
insights. This has recently shifted
the perspective in the O&G industry
to view digitization as a critical
component of core business.
The iPhone is a technology that in
and of itself had incremental value
over what was already available on
the market. However, by being a
technology platform that enables
developers to create value-add
applications, it has become a
game/world changing ecosystem.
In upstream for example, the Digital
Oilfield concept and associated
initiatives have been around for 10-15
years, and so far we’ve only laid the
foundations for the upstream
platform that will enable the
next generation of value-add
developments. While there have been
some additional steps taken, such as
introducing Internet of Things (IoT)
initiatives, we have not made all of
the Operating model changes (People,
Process and Technology) needed to
maximize value from having data and
information. The O&G industry is in
need of an end-to-end digitization
platform, or ecosystem, where silos
do not exist; one in which anyone can
develop value-add applications and
services. This is increasingly possible
with falling digitization costs, and
the existential imperative exists
for evolution due to market/
industry drivers.
PwC | Unrealized potential of digital
Many impactful technologies are
here already and in broad use
(refer to graphic/table), while others
will take several years of testing and
refinement. The ecosystem needs
to be set up in a manner so that it
can accept these technologies into
the fold to provide full realization
of the original digital vision, as well
as overcome some of the challenges
that companies face when
undertaking large enterprise-wide
transformation initiatives. Both
providers (data, tech and service
companies that help develop & create
the ecosystem) and adopters (the end
user O&G companies) must take into
consideration the following success
factors as the ecosystem enabled
by the Industrial IoT becomes
more mature:
• Encompass many connected
players and machines through
a broad ecosystem
• Align a clear value proposition to
company strengths, management
requirements, and the ways to play
(see next section or insert graphic)
• Create service offerings which assist
in preserving and maximizing value
of operations
• Provide a complete view across
the lifecycle, inclusive of sensitive
company data (financial, HR,
asset), to enable quicker adoption
and better decision making
• Provide better tracking of value
throughout the project lifecycle
through connectivity, enabling
better enforcement of governance
to monitor progress and means to
adjust course as needed real-time
• Treat the ecosystem comprehensively
across the enterprise
7
Digitization in Oil & Gas
Upstream Midstream Downstream
High-impact • End-to-end digitization • Remote surveillance/monitoring • Biometric monitoring
solutions enabled by IoT of pipelines, plants, storage
• Automated control-loop
facilities (drones)
• Workflow enabled processes systems
(inclusive of smart advisors) • Fleet optimization through
• Real-Time Dynamic
tracking technologies
• Self-optimizing Quantitative Risk Assessments
equipment/assets • Need input
• Remote plant, value and
• Virtual & Augmented Reality pressure controls via
mobile technology
• Drill floor and bit robotics/
automation • Predictive maintenance
monitoring system. System
inputs on device
Medium- • Analytics in the cloud for • Drone Monitoring of contractors • Fire Protection digital
impact issue detection video surveillance for
• Monitor control with a
solutions smoke detection
• Wearable computing centralized maintenance
and operations system • Computational Fluid Dynamics
• Simulation
for: Flow & Heat Transfer
monitoring in pipes
• ASPEN Plus Separator
Simulator

Some of the
technology
and digitization
examples discussed
to this point can best
be understood in the
context of relevant
case studies.

PwC | Unrealized potential of digital 8

 A large IOC developed
a centralized
surveillance
capability for deep
Case study
water Oil And Gas
1

A case of applying digital
technologies to enhance efficiency
very typical for the upstream
sector over the last 5-10 years is
the establishment and usage of
Integrated Operations Centers
(aka Collaborative Work
Environments or Asset Decision
Environments). One company
combined offshore control and
onshore asset engineer collaboration
rooms to create a “Digital Trauma
Center” that focused engineers on
high value workflow-enabled
activities while improving
surveillance quality. Time spent
on surveillance reduced by 60%
while adding 240 new surveillance
activities per month. Predictive
monitoring was built upon the
exception based foundation to
identify potential risks, resulting
in a substantial reduction of
unscheduled deferment related to
trips, equipment performance, and
corrective maintenance. Ultimately,
enhanced decision making enabled
by optimized surveillance permitted
the operator to move to 75% of
alarm-driven surveillance services
within 24 hours, 88% in less than
48 hours, and 99% in less than
72 hours. Further enhancements
would be to incorporate additional
real-time field data through
wearables and drones, as well
connect this process to the supply
chain/field logistics process.

Digitization of production operations

Seconds Minutes Hours Days Weeks Months Years Field life

Real time Well and reservoir

Surveillance
operations performance

Exception based surveillance

“Digital Trauma Center”

Operations Analyst Specialists Asset Engineer

Alarm Engine “911”
“First Responder” “ER Doctor” “The Surgeon”

PwC | Unrealized potential of digital 9


A large IOC was spending $100B
for their Material Management
process. Production control centers
were being updated with newer
maintenance sensors/models, yet
maintenance reliability and materials
management delays affected 60% of
assets. A multi-year program to
digitize the broader materials
management process was launched,
targeting $1.6B in efficiencies.
Digitization of materials management
7. Ordering policy
5. Equipment standards
4. Control centers
3. Advanced
sensors/equipment
2. Global ERPs
IOT enabled 1. Governance
PwC | Unrealized potential of digital
A large IOC portfolio
digitized materials
management to
Case study reduce downtime
2
The key was monetizing the value solution. Future enhancements
by addressing gaps in data/BOMs, planned include 3D printing of
orders and workflows. To scale, parts, increased robotic automation
the solution needed to work for actual parts movement, RFID
with partners and departments tracking, and adding fleet operations
systematically e.g., create “BOM to this IoT ecosystem.
factories” and rewire ERP to reduce
“generic orders”. An IoT connecting
orders to equipment to materials was
the key catalyst to taking an end to
end process view and scaling the
8. Inventory logistics
9. Warehouse
operations
10. Critical spares
6. Advanced analytics 11. Surplus
12. Mobile devices
10
Holistic digital strategy is a means of survival
We see several ways for companies to play as the
O&G Digitization market evolves – an Industrial IoT
ecosystem consisting of Enablers, Engagers, Enhancers,
and Embedders will emerge where each plays a critical
role in the end-to-end digitization required for full
value realization and survival in a low-price,
high-efficiency market.
Enablers provide the technology, applications, and
services that underlie the IoT offerings, from endpoints to
network and cloud services. Engagers use the Enabler’s
hub to produce services for consumers and businesses,
providing the direct link between IoT and the market.
Enhancers provide integrated services that leverage and
repackage products and services of the Engagers, finding
new ways of creating and extracting value from the data,
relationships, and insights generated from IoT activity.
Embedders apply sensors, monitors, and other devices
to improve their own operations and optimize their
own businesses.
Industrial IoT ecosystem framework
Enablers
Embedders
PwC | Unrealized potential of digital
Refer to “A Strategist’s Guide to the Internet of Things”
(Winter 2014 issue of strategy+business) by Frank
Burkitt, a senior executive with Strategy& leading the IoT
and Digital services business, for a broader perspective.
In an O&G context, the marketplace is currently full of
companies which play these roles partially but as stated
previously, rarely do they connect in a manner which can
help develop a conducive ecosystem. Owner-operators
typically take on the role of engager (more specifically
their IT or R&D department) and work with numerous
supplier offerings, trying to create value for their business.
Software firms are primarily enablers, but have started to
move into the enhancer role as well. Similarly, service and
consulting firms are primarily enhancers, but have started
to act like enablers. OEMs are embedders, building
“smart” into their equipment. The larger, broader OFS
firms cover all of the above in many cases, with primary
focus on being enablers of IoT. In addition, large tech
firms that previously only provided network and
infrastructure connectivity are moving into the
enabler space.
Our perspective is that the latter two groups, large OFS
and tech firms, will be the drivers in developing the end-
to-end ecosystems in the near future, by partnering with
OEMs, software developers, and consulting/knowledge
service firms to continue developing capabilities that
enhance the overall O&G market.
Regardless of which category an organization might fit
into, the industry’s focus on sustainable efficiency (both
technological and operational) creates a “new oil field”
paradigm that will differentiate between those that
succeed and those that disappear. Speed of value delivery
is critical; analysis must be data driven (both structured
and meta), resulting in automated decision making and
controls. This will provide an ability to model best and
worst case business and operation scenarios automatically;
anytime- anywhere connectivity combined with cloud
infrastructure will drive core processes through mobility;
asset utilization will be vastly improved by combining
tracking technologies and sensor data with the supply
chain; analytics-as-a-service will be provided for
repeatable and scalable solutions. Several additional
factors must be considered, see Table xx.
11
 Companies already playing in one (or more) of these
areas need to determine if that is sustainable, or whether
they truly can span the entire framework. Companies

?
planning to enter the market need to understand that
while financial prospects are large, so are the associated
risks. Clear identification of a “way to play” is critical to
mitigating those risks.

Questions to help determine ‘Way to Play’

• How quickly can an org play/participate in
this space?
• What customer centric or business
engagement capabilities are needed?
• How will data be managed & used?
• What connections, relationships, and/or
partnerships with other IoT companies
are needed?
• What will distinguish one company
from another?
• What investments/skills are needed?

PwC | Unrealized potential of digital 12

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