IT's official! Report says IT plays key role in E&P! (November 1996)

A new report from Cambridge Energy Research Associates (CERA) 'Quiet Revolution: Information Technology and the Reshaping of the Oil and Gas Business' tells us quite a lot about what we newalready.

The revolution in IT has helped to keep the E&P industry in business despite persistently low oil prices. This extravagantly priced volume ($2500 for the first copy, $100 for further copies for internal use, obtainable from Cambridge Energy Research Associates, LP, 20 University Road, Cambridge, Massachusetts 02138, USA) does have the virtue of spelling out the importance and the challenge of IT to convince doubting management. PDM welcomes its publication and reproduces extracts (some meaty, some less so) from the Executive Summary

The CERA report lists 15 findings as follows:

The challenges for management


IT has made an extremely powerful impact on costs and efficiency in the E&P business. Prospects can be found and reservoirs produced that would otherwise be uneconomic or invisible. Fields can be developed more cheaply and much faster and teamwork has been reinforced. At the same time, IT also allows an E&P company to function with far fewer people - whether its activities are in-house or outsourced.


Most companies continue to maintain a range of different vintages of hardware and software. Many have not yet completely abandoned their mainframes or their smaller successors, especially for non-technical applications. They are increasingly skeptical about the arguments for undertaking further investments in IT the price of change seems more visible than the benefits from making it.


Whether a company writes its own software, adapts it or lives with what comes off the shelf, senior management involvement is seen as a key ingredient of a successful IT project. This is not just upward delegation in case things go wrong. Designing and managing an IT project requires judgements about how the business is going to be conducted. Unfortunately, IT projects are hard to relate to business objectives and senior management is often not close to the IT issues.


Although its existence is much debated, we do believe, based on what we have learned, that there is a generation gap - it would be more surprising were there not. New entrants to the workforce tend to be more adept and more flexible in their use of IT. They are less prone to suffer from 'digital anxiety'. Yet, there is more to managing IT than familiarity and dexterity. Hence, we do not expect that this IT 'problem' will be solved only by the passage of time, as the next generation of managers enters the executive suite.


The dominant IT strategy in the E&P industry is fast follower. Since internal IT budgets have already been passed to operating companies as the IT customer', innovations are being concentrated on immediate problem solving rather than on more fundamental developments. IT spending continues to rise in the geosciences, where it tends to be regarded as providing the tools of the trade; it is under more pressure in oil field operations where the potential may now be greater to reduce total costs by spending more IT.


IT projects are famous for running over time and over budget. The current remedy is to keep them short and small. If a project must be large, many companies would start with a pilot. It is particularly difficult for people whose experience lies in one computing environment to implement a project in another, many companies have had the unhappy experience of trying to do so. They now prefer not to write their own software since it is also difficult to keep innovations exclusive for long enough to get a compensating proprietary advantage. However, companies usually cannot buy suitable off the shelf products without some degree of troublesome custom tailoring. This is a major source of friction with IT suppliers.


The second major source of friction with IT suppliers concerns the pace of change. Some E&P companies believe that they are too often pressed into unnecessary upgrades. IT suppliers would rather continue to innovate than to lose traction by supporting an ever growing list of their customers' legacy systems. In addition, the customers often send their suppliers mixed signals - specialist users tend to have most contact with suppliers and are most eager for new refinements ("like children in the candy shop", as they were unkindly described by one executive).

Quote "The residual value of IT after three years is zero. We need to think of IT as a consumable, like drilling mud. That is the paradigm shift."

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