IBM Chemicals and Petroleum October 2017

Digital transformation
in oil and gas
How innovative technologies modernize
exploration and production
2 Digital transformation in oil and gas

Contents
2 The new normal in oil and gas

3 Digital transformation creates unprecedented opportunity

4 How digital transformation drives improvements in

exploration and appraisal

6 Applying digital technologies in development and

production

7 The benefits of digital transformation flow through to the

bottom line

9 Digitizing transactions and information sharing through

blockchain

8 Accelerating your digital transformation

Figure 1: Oil and gas companies look toward digitization to help propel them
11 Why IBM into the future low carbon economy.

11 Additional resources profoundly impacted the entire O&G ecosystem. To thrive in

11 About the authors both the current market conditions and the projected future
low carbon economy, it will not be enough for most O&G
11 Acknowledgements companies to simply enhance the way they currently operate.

Today’s market and industry outlook are forcing O&G

The new normal in oil and gas
Oil and gas (O&G) companies are currently experiencing
major disruption. It’s becoming increasingly difficult to find
new sources of oil. As a result, exploration and development
investments are progressively made in remote and
environmentally sensitive areas, adding significant cost and
complexity to capital projects. More stringent regulations are
increasing constraints on the business. At the same time a
generation of experienced employees are retiring from the
industry workforce. Exacerbating the current environment is
the precipitous drop in oil price, putting the entire industry
under pressure.
Persistent volatility and production oversupply in global
energy markets over the past three years, and the resulting
significant and sustained depression of oil prices, have
companies to re-examine core business capabilities, and explore
new ways to execute business strategies in a dynamic and volatile
marketplace. Whether large or small, national or international,
digitalization of key operational workflows in O&G companies
will be critical for success in the years to come.
In this whitepaper, we will explain how IBM is taking an industry
approach to help clients reinvent themselves to become:
• Highly profitable in a “lower for longer” marketplace
• More productive, even when facing a shrinking workforce
• Renowned for safety, regulatory compliance and
environmental excellence
• Resilient and able to grow within a volatile industry ecosystem
• Prosperous within a low carbon economy
 IBM Chemicals and Petroleum 3

Digital transformation creates
unprecedented opportunity
Lower crude prices have necessitated a “shift in agility” in which
companies must explore and adopt new technology to enable and
sustain their exploration, development and production ambitions.
Companies once considered conservative and risk averse are now
testing and implementing new technology, and also looking at
other industries for new ways to significantly improve core
processes and decision making.
Implementing necessary changes requires traditional integrated
oil companies to address all aspects of the entire value chain,
across upstream, midstream and downstream. Success depends
on overall improvement, not merely shifting the problem to
suppliers or buyers.
We are also seeing the emergence of “Pureplay” companies
which specialize in specific parts of the value chain. These
companies are driving a change in market dynamics by designing
their operations around their specific areas of expertise.
Significant gains can be realized through better optimization of
equipment maintenance activities in our industry. New analytics
technologies generate timely insight from historical and
real-time data to predict failures and optimize maintenance plans.
Understanding equipment criticality, costs of maintenance,
remaining lifetime and the possible impact on production
efficiency can reduce lifting costs and increase the economic
life of fields.

Data is recognized as key to drive value. New methods required for new unconventional exploration,
seismic technologies and data overload.

300,000 80,000 sensors 2TB/day

Publications/year in a single modern platform Only 5% gets to the shore
American Petroleum Institute, SPE,
94% of production in 1,500 oil Fields 95% is not used
AAPG, SGE and others. (65,000+)
1-2 TB/day One major O&G company only

Data overload and Workforce transition IoT, data and Declining giant fields, Challenges and risks
reliance on traditional, and shortage of skills computationally intensive slow reserve replacement in new E&P frontiers
non-scalable methods technologies rates

Figure 2: Disruptive trends in the O&G industry

4 Digital transformation in oil and gas

How digital transformation drives

improvements in exploration and
appraisal
IBM believes that now is the time to accelerate digital
transformation at both the strategic and operational level, and
drive significant improvement in business value realization.
Improving output of facilities and wells, streamlining
maintenance and turnarounds, and optimizing downstream
commodity trading are areas where information technologies
create improvements in cost reduction and avoidance,
operational uptime and revenue generation.

Key areas within exploration that will benefit from an

accelerated digital transformation include:
Figure 3: Organization and prioritizing of the end-to-end process makes
• Business development—obtaining a competitive information timetabling production much easier.
advantage
• License acquisition—assessing the portfolio impact and From an overall portfolio management point of view, a digital
ensuring strategic fit transformation strategy will enable better visibility, planning
• Exploration and appraisal—using information from analogues and de-risking of the organization’s current and future
to reduce uncertainty and valuation risk reserves. There are large variances in time from technical
• Feasibility assessment and promotion—identifying commercial
discovery until first-oil, both across oil and gas companies and
options and reusable technical concepts
resource types. To improve this metric, organizations must
• Well delivery—improving well planning from lessons learned
address the end-to-end maturation process and the overall
and using real-time data to predict problems during drilling
portfolio perspective. This will ensure better prioritizing of the
Perhaps the most important digital transformation opportunity areas and prospects with the highest business potential and where
lies in the end-to-end process. While explorers in each step are
new data, technology and capabilities should be applied first.
innovating within their disciplines, the overall process can be
transformed by enabling new and better ways of collaborating.
Sharing data, refined information and the basis of decision
making will make prospects more visible though the various
exploration decision gates.
 IBM Chemicals and Petroleum 5

Regional Technical and Prospect Technical and

attractivenes and risk economics maturation economics

Exploration Prospect Feasibility assessment

attractiveness and risk attractiveness and risk and recommendation

Reputational and Partnering and Exploration well Concept options

commercial risk risk mitigation request and partnering

Business License Explore and Feasibility and Field

Development Acquisition Appraise Promotion Development

Industry analysts Subsurface data and Seismic pre and post Market insight and
and studies adjacent production stack, area data new concepts

Government and Internal and external Own and partners Reservoir analogues
companies websites data of “analogues” portfolio data and GGRE data

Global news and Competitive Well plan, cost Historical concepts

social media intelligence and risk data and lessons learned

Figure 4: Access, manage and share the volumes, variety, velocity and veracity of exploration relevant data.
6 Digital transformation in oil and gas

Applying digital technologies in

development and production
Technology can now deliver “big data” from virtually every
aspect of drilling, production, operations and maintenance.
The capability to process, analyze and develop insights from
data has unfortunately not spread as quickly. As a result,
operations are suffering from “avoidable interruption” and lack
of optimization. While the digitized oilfield provides an
abundance of real-time sensor data, the information is most
often used to make immediate, single point decisions on a
particular piece of equipment. These include wells or an isolated
task. The data is usually not stored, filtered or analyzed to reveal
new insight or inform future decision-making. One of the
biggest challenges the industry faces today is making data
available to decision-makers across disciplines in a way that
allows everyone to benefit from it. Instead, data is more likely Figure 5: Cognitive analytics enable companies to monitor their operations in
to be stored in closed-type systems. real time.

Utilizing Cognitive Analytics and IoT provides the ability to:

The IBM perspective on optimizing the efficiency of
operations is comprised of the following guiding principles:
• Connect to sensors, devices and equipment, and receive
real-time insight and health information
• Oil and gas companies introducing digitalization agendas
• Predict and prevent issues and failures before they happen
will find immediate insight and improvement potential from
utilizing machine learning for constant sweeping of
existing, unstructured and new streaming data.
non-obvious patterns
• Advanced insight and better situational awareness can be
• Harness insights from documents, manuals and correspondence
extracted by applying Cognitive analytics to existing data.
• Repair more efficiently and effectively with a “cognitive
Cognitive solutions yield better and un-biased predictions,
assistant” that provides step-by-step guidance
impact assessment, recommendations and hypotheses.
• Visualize near real-time updates for early warning
• Enhanced insight comes from connecting the organization’s
• Optimize the use of systems, equipment and people
data sources with analytics capabilities to create a holistic
by providing near real-time continuous improvements
view of the enterprise operation, from functional details to
to operations
aggregated impact, e.g. reservoir, well and surface
equipment. An analytics platform is required to see, predict,
plan, act, learn and continuously improve.

The benefits of digital transformation flow
through to the bottom line
Exploring and exploiting the right technology, and continuously
developing the organization’s capabilities, will influence your
operation, enable a new way of working, and ultimately define
your core business capabilities. The “Digital Transformation”
illustration below outlines the playing field to be explored.
The significance of increasing recovery and reducing
uncertainty is well known in our industry. The prize is large—
increased current cash flow and Net Present Value (NPV)—for
reducing risks and capital and operating expenses, increasing
recovery and reducing health, safety and environmental
exposure. For example, in a Steam Assisted Gravity Drainage
(SAGD) operation, IBM developed data driven models and
physics-inspired cognitive algorithms to predict emulsion
results. IBM utilized non-linear optimization with non-linear
constraints to run simulations on historical data, creating the
ability to predict emulsion rate days ahead with over 90%
accuracy. The operator achieved a material improvement in
emulsion production rates, including:
• Digitalization of work processes to improve
collaboration across disciplines.
New ways of working
• Connect, manage and share internal data,
enabling analytics for improved insight.
Leverage internal data
and knowledge
• Simplification and automation of work
processes to improve workforce efficiency.
• Connect and consume internal data for
automated analytics enabling predictions
and prescriptions.
Figure 6: Examples of new ways of working in the digital transformation field.
IBM Chemicals and Petroleum 7
• Better hourly steam injection profile for each well
• Over 13% improvement to cumulative emulsion
• Over 3.5% increase in emulsion volumes
In another example, IBM scientists have also discovered that a
drop of oil doesn’t look like a drop at all if it is small, to the
scale of one billionth of a billionth of a liter, or attoliter.
Rather, a nanoscale oil droplet looks more like a flat film
against a solid surface. This discovery reveals that the
simulation tools and techniques commonly employed by the
oil industry do not take into account the increased energy
required to extract these oil molecules. And it results in 60%
or more of oil being left behind, for example, in the nanoscale
capillaries of shale reservoirs. In response, IBM Research-
Brazil is developing nanoscience-enhanced oil flow simulations
that could better-predict oil extraction from a reservoir. By
carrying out those flow simulations in computational three-
dimensional representations of actual reservoir rock, the IBM
research team is now developing an enhanced oil recovery
advisor technology. This includes the computerized design and
test of functional materials, such as nanoparticles, for enhanced
Effectiveness
• Digitalization of work processes to
improve collaboration across oranizational
boundaries.
• Connect, manage and share external
data, enabling analytics for improved insight.
Digital Leverage external data
transformation and knowledge
• Simplification and automation of work
processes to improve value chain efficiency.
• Connect and consume all data for
Work more automated analytics enabling predictions
efficiently and improve prescriptions.
8 Digital transformation in oil and gas
oil extraction. Provided as a cloud-based IT service, the
simulation technology will ultimately generate reservoir-
specific recovery recommendations for industry experts who
plan and manage oil production.
Digitizing transactions and information
sharing through blockchain
Commodity trade finance traditionally requires complex
workflows and paper-based processes in which documentation
is shared through courier, fax and email exchange. This creates
multiple friction points with high processing costs and
limited automation.
Buyer’s Bank
L/C Dpt
Middle Office
Front Office
Blockchain
Buyer
Trader
Figure 7: The blockchain shared hyper ledger system.
Natixis, IBM and Trafigura leveraged blockchain’s hyper ledger
technology to modernize the crude oil trading process with a
shared, distributed, secured and transparent environment for all
impacted parties within a single ecosystem.1
By having the buyer, seller and their respective banks all on the
same ledger, all parties can simultaneously view and share data.
From the status of a transaction, the time a new trade is
confirmed and validated, to when the cruder oil is inspected to
its delivery and cancellation of the letter of credit.
Seller’s Bank
L/C Dpt
Middle Office
Front Office
Seller
Trader
 IBM Chemicals and Petroleum 9

End-to-end visibility over financing life cycle

14 Step Process

New trade confirmation L/C Confirmation from seller Final invoice issuance
Trade validation Guarantee validation Final invoice validation
L/C Application request Transportation & inspection L/C payment issuance
L/C Application approval Transportation details validation L/C cancellation
L/C issuance Delivery inspection

Figure 8: The end-to-end visibility of the financing life cycle.

10 Digital transformation in oil and gas

• How will your perceived competitive advantages be

Key benefits of the solution include:
• Reduced cash cycle times
• Improved efficiency with lower overhead costs and fewer
cost intermediaries
• Increased transaction visibility to help reduce the threat of
tampering, fraud and cybercrime
• The creation of transparent transactions by using shared
processes and recordkeeping.
Accelerating your digital transformation
Are you ready to start your digital transformation journey? As
you consider the introduction of digital technologies into your
organization, think about these key questions:
influenced by new technology?
• Which areas within your organization will be impacted or
benefit most from new technology?
• How will you measure success, and secure rapid paybacks?
• What is your plan to encourage and support revenue growth?
• What is your plan to improve efficiency and reduce cost?
• What are your challenges in bringing together data from
various sources to solve important business problems?
• How do you include the organization in exploring options
and ways to implement digital technologies?
• What new skills or competencies would be required in your
organization to take advantage of cognitive computing?

Digital reinvention

Digital transformation

Digitization

Digitization improves
efficiency by applying
technology to individual
resources or processes.
Digital transformation
digitizes whole aspects
of a business producing
customer experiences that
support what individuals
need or want.
Digital reinvention
incorporates digital
technologies like never
before to create revenues
and results via innovative
strategies, products and
experiences.

Figure 9: An example of the digitization process.


Why IBM
Clients choose IBM because we combine our deep industry
and process expertise with our portfolio of cloud-based tools
and capabilities to deliver value for our clients in over 190
countries. IBM is a recognized world leader in many of the
technology fields needed to support digital transformation.
We have a network of global experts and a proven track record
of client success in O&G operational enhancements.
Visit ibm.com/chemicalspetroleum to learn more.
Additional resources
To learn more about digital transformation in the chemicals
and petroleum industry, please contact your IBM
representative or IBM Business Partner, and visit:
• Thought Leadership on Digital Transformation from the
IBM Institute for Business Value— ibm.biz/BdipDZ
• Chemicals and Petroleum insights from the Global C-Suite
Study— ibm.biz/BdrujU
• Whitepaper: Blockchain can help transform supply chain
networks in the chemicals and petroleum industry—
ibm.biz/BdsKva
• Follow us on Twitter— twitter.com/IBMindustries
About the authors
Ole Evensen, Upstream Leader, IBM WW Chemicals and
Petroleum
Ole has more than 25 years of international industry experience
from working with global and national oil and gas companies as
well as governmental agencies. He has worked as strategic advisor
IBM Chemicals and Petroleum 11
and program manager for operational improvement initiatives in
Europe, Middle East, Africa and Asia. His current focus is to
explore how new cognitive and advanced analytics technology can
provide new insight from structured and unstructured “big
data”—to improve planning, prediction, optimization and
strategic decision support across the E&P value chain.
His academic background is Advanced Management Program
from Harvard Business School, an MBA degree from Henley
Management College and Bachelor’s Degree from the
University of Stavanger. He is a regular speaker at industry
events, a writer in industry journals and hosts a blog in IBM
Insight on Business—WW Chemical and Petroleum. insights-
on-business.com/chemicals-and-petroleum/author/oevensen
John Matson, Executive Consultant, Upstream Expert
John R. Matson, a petroleum engineer, has 40 years of
experience in the upstream oil and gas business with a diverse
background in operations, strategy, technology, engineering
and investor relations. He has demonstrated strong leadership,
managerial, interpersonal and consulting skills for successful
development and implementation of strategy, process and
organizational improvements for enhanced P&L performance.
Acknowledgements
David Womack, Chemicals & Petroleum Global Director of
Strategy and Business Development
Spencer Lin, Chemicals and Petroleum Lead, IBM Institute
for Business Value
Dave McKay, Chemicals & Petroleum Global Market
Segment Manager
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