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Capturing value from digital and advanced

analytics in the O&G industry


JULEN BAZTARRICA , PARTNER
ARGENTINA OIL & GAS SUMMIT - DIGITALIZATION AND OPERATIONAL EFFICIENCY PANEL

10.04.2019

CONFIDENTIAL AND PROPRIETARY


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Key Messages

The Digital and Advanced Analytics (DnA)


revolution in O&G can potentially unlock
1 ~200 to 250 BUSD in upstream over the
next 5 years

However, in most cases O&G companies


2 are getting stuck in “pilot purgatory” and are
struggling to take their DnA efforts to scale

By focusing on 6 critical elements,


companies can greatly enhance their
3 chances of having a successful digital
transformation

McKinsey & Company 5


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The Digital and Advanced Analytics (DnA) revolution in O&G can potentially unlock ~200 to 250
BUSD in upstream over the next 5 years

Opportunity to increase EBITDA with Digital and Advanced Analytics (DnA) in upstream O&G, billion US$/year

~200-250

~40-50

~40-50 DnA transformations


~120-150 in an O&G company
can unlock ~8-15%
of increased annual
EBITDA

Total Exploration Development Production


~70% of the opportunity in O&G is estimated to be in upstream
1 Including midstream and downstream
SOURCE: McKinsey McKinsey & Company 6
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As of today, the impact for DnA in O&G companies is concentrated in Advanced Analytics applications
with most of the opportunity arising in operations and maintenance teams
% of the opportunity in upstream1 Magnitude of the opportunity
Low High

Operations and Total


Exploration2 Drilling Field development SG&A
maintenance

Advanced
analytics
And AI
22 6 2 41 - 71

Process digitization
And Software
Automation
- 4 9 3 1 18

Robotics And
Hardware
Automation
- 1 2 6 2 11

Total 22 11 13 50 3 100
1 The source and location of opportunities varies from company to company 2 Excludes drilling
SOURCE: McKinsey Global O&G Digital / AA Service Line McKinsey & Company 7
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Several O&G players are already committing significant efforts to capture this opportunity…
OUTSIDE-IN

Digital impact committed as


as a share of 2018 EBITDA, % Public statements on digital aspiration
Year of
commitment
Digitalization opens the door for massive improvements ...
We are working in our business units and assets to
24 2025 develop use cases and to progress key digital initiatives

Aker CEO
Digitalization is enabling new business models,
operational excellence and robot process automation that
13 2022 will translate in €0.3 billion of free cash flow generation
pretax in 2020
Repsol CEO
Digital and technological transformation could generate up
to US$1.0 B EBITDA per year
10 2021

Ecopetrol March 2019 investor day presentation

SOURCE: Investor reports, Press releases, McKinsey McKinsey & Company 8


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…and they are starting to pay off; as early movers are already materializing
the benefits from these efforts

O&G digital impact examples


AA optimization on 180 wells and 5 pads increased production
by 20%, reduced emissions by 74%, and reduced costs by 22%

Predictive maintenance and automated production optimization in


Brazil reduced costs by US$500 million and reduced driving
time by 25%

Implementation of a predictive model to optimize calibration


for a MPFM1 resulted in reduction in losses of 30-50%2

Deployment of AI initiatives and machine learning for exploration


and well construction increased production by 2% with a US$100
million annual benefit
1 Multiphase flow meter 2 Losses associated with MPFM calibration
SOURCE: Public statements, Company websites, Investor presentations, McKinsey McKinsey & Company 9
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However, in most cases O&G companies are getting stuck in “pilot
purgatory” and are struggling to take their DnA efforts to scale

Company piloting/deploying DnA solutions


% respondents

~0% Ecosystem
transformation
Network

Company
~20% transformation
Scale

Isolated
~80% efforts Use-case
implementation pilots
Start

SOURCE: McKinsey DnA practice McKinsey & Company 10


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Based on 3,000+ digital engagements, we see 6 crucial elements for a successful Digital and
Advanced Analytics (DnA) transformation

Think of data and technology Top management must define


scalability from day one an end-to-end DnA aspiration
Quickly define an approach for data DnA must enable the strategic objectives
management, systems integration of the business all across the value
and cybersecurity chain. Isolated use-cases can rarely
scale and drive significant impact

C-level executives Business and digital have to work


Elements in a
have to lead the change hand in hand in a new way
successful
Invest in change management. digital Integrating business and DnA teams to
People initially won’t trust transformation work in agile is challenging (e.g., carving
prescriptive/predictive models (e.g. out your top players) but transformations
“the black-box”) cannot succeed without this
Leverage the
ecosystem for talent Fail-fast and iterate quickly
DnA talent is scarce and you need Taking ~1 year to develop and pilot is
the best. Develop strategic not acceptable. Create – test – iterate
partnerships in your ecosystem to and redeploy your MVPs1 quickly and
leverage access to talent and frequently
expertise
1 MVP – Minimum Viable Product
SOURCE: McKinsey McKinsey & Company 11
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By leveraging these 6 elements, AkerBP has become a reference
case in successfully implementing an end-to-end DnA transformation
Key success factors in AkerBP’s digital transformation

A CEO-led transformation with 650+ m USD target for 2025 around 14 digital
ambitions across the value chain

8 digital tribes with carved-out key senior personnel from business, front-line
and digital functions working in agile

30+ MVPs developed within the first 3 months

Strategic partnerships built with established tech firms such as Google

Rotations of senior leaders and rising stars through the DnA structure to
create champions across the company

Use of a single structured data platform with extensive tagging that enabled
access to all the company data (including data freed from other platforms)

SOURCE: AkerBP, McKinsey McKinsey & Company 12


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Thank You!

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