By Joachim Breidenthal

Unlike other industries that are enjoying a sudden embrace of benefits from data, the oil and gas sector is well acquainted with analytics. For decades, energy companies have relied on rich pools of data to discover and understand the potential of their reservoirs and other production opportunities.

Even so, most have yet to capture the full potential of their data because they have not always been able to generate actionable insights or make better and faster decisions based on data. That will change as oil and gas companies upgrade their digital capabilities and improve the way they connect these insights to their operating models. We expect to see dramatic cost savings and significant improvements in productivity and revenue. One integrated oil company managed to save about 10% on unit costs by digitising a remote offshore operations centre. Another reduced operating costs for each barrel produced by about 10% and recovered more reserves by using selective applications in intelligent oilfields through collective computing and sharing real-time information at all company levels.

Most of today’s digital initiatives in oil and gas are incremental rather than disruptive. Companies are making improvements in technical or operational capabilities such as predictive maintenance or completed analysis on wells. One reason for this gradual approach is that most companies are not ready for a big transformation because they lack the people, processes and capital required to make it happen. In particular, we see three common pitfalls in some oil and gas companies that have begun to invest in digital:

The absence of a long-term digital strategy. Without an integrated, multiyear plan, companies risk investing billions of dollars while realising few benefits. For example, offshore platforms can generate more than a terabyte of data every day, but the satellite uplink is too slow to transfer all that data. Consequently, the operations teams on land cannot keep up with the available data. An integrated plan would spot this and place the analytics resources closer to the data – on the platform.

An outdated operating model. Valuable information can become stranded if companies neglect to connect information flows. For example, a company might invest in a visual scheduling system with sophisticated routing capabilities; however, if it fails to connect the system to line management’s scheduling systems, the data ends up being stranded.

An unprepared workforce. As in many other industries, oil and gas teams are mostly unprepared to take full advantage of the potential in digital. Most will need to invest in the capabilities of their teams, in most cases requiring a combination of recruiting fresh talent (including data scientists and other digitally savvy professionals) and teaching new skills to current staff.

As companies put in place specific digital capabilities that can deliver fast results at reasonable costs, executives need to develop a strategic roadmap encompassing the digital strategy, operating model changes and, most important, people capabilities.

Approaches differ, of course, from one company to the next, depending on appetite for risk and the potential gains at hand. But they typically include five key elements:

• Identify the areas of the value chain with the highest impact on financial and operating results and cross them with the opportunities to enhance delivery through digital technologies.

• Monitor key industry and technology trends, focusing on the identified value chain areas that are specific to the operations. Decide whether to lead the industry by innovating or by acting as a fast follower by implementing tested technologies and processes.

• Clearly define the links between the company’s most critical decisions and digital applications, including showing how digital applications will improve decision- making effectiveness. In addition, adjust the operating model to facilitate the sharing of key information, leveraging all available data sources.

• Evaluate the investment necessary to digitise the key activities of the company’s value chain, and develop a multiyear budget and an overall roadmap balancing the capture of economic benefits with the financial burden on the cash flow.

• Assess current personnel capabilities and develop a plan to address the gap. The talent upgrade plan should deal with deficits in technical expertise and include a comprehensive set of actions to instruct those at the front line on how to change their way of working.

Every oil and gas company’s digital journey will differ, depending on the company’s industry position, ambitions and opportunities. However, at a time when low oil and gas prices are restricting investment, this is one area of the business where cost has been decreasing and tools rapidly improving. So, it should merit an increasing share of the budget and focus.

But whether a leader or fast follower, every oil and gas company will need a strategic plan that measures out short-term gains while building capabilities to develop long-term competitive advantage. Perhaps most important, they should all include details on how the flow of information necessitates changes to the operating model and how each company plans to upgrade its talent and capabilities to make the most of its potential.

Breidenthal is a partner with Bain & Company in Johannesburg. He co-authored this arrticle with Riccardo Bertocco, a partner with Bain & Company in Dallas, and Lodewijk de Graauw, a partner in Bain's Perth office.