It has been a couple of years since we attended the GE Oil & Gas annual get together in Florence, Italy. This is a well organized event with contributions from a star studded cast including GE’s own Jeff Immelt. In some ways GE’s event is the engineer’s equivalent of CERA Week. The theme of the event was GE’s digital transformation and its plans push this out to clients. In his closing keynote, chief digital officer Bill Ruh summed up, ‘GE is a digital business. Digital is fully integrated into everything we do.’ GE takes inspiration from what it describes as the ‘consumer internet’ i.e. Facebook, Google and other mega successes. While these companies have made great progress in the past few years, the industrial sector has missed out.
This might seem to overlook the huge installed base of industrial IT that is the ERP system. Ruh argues ‘We have to recognize that what we have done in IT in the past is necessary but not sufficient. ERP is important, but we need to accommodate different platforms for industry and for the back office in ‘bimodal’ operations. We will continue with traditional ERP-style systems, but the true digitization of the business will be in mode 2.’
Mode 2 is characterized by data that is easy to collect and ready for use. With the cloud, the cost of doing this is ‘foundationally different’ (i.e. less) than with traditional IT. Mode 2 means that we need to think about applications differently. But we already ‘do’ data and analytics, so what’s new? A digitized business has hundreds or thousands of little analytic components that each attack a piece of the problem. The platform is the key. For GE, ‘Predix is the business.’ The combination of connected machines and analytics represents the ‘yin and yang’ of the industrial internet even though today, ‘the imprint of machines is still way too visible compared with the potential scope of the digital enterprise.’
Our two year break from the Florence event gave us the opportunity for a lookback to the closing days of the last boom. Back in 2014, big data and the interface between equipment and IT was a highlight, as was IT and operations technology convergence. Security was a the big challenge and, according to Accenture, the digital oilfield experienced was ‘mixed.’ GE was positioning its Industrial Internet as a ‘social network’ for machines and the IEA boldly forecast that ‘you will be gas and oil not oil and gas companies.’
Fast forward to 2016 and it is doubtful that gas has achieved quite such importance. BG Group’s Jon Harris told a joke about a colleague who had been ‘let go.’ ‘So what are you doing now?’ ‘I’m working for a not-for-profit.’ ‘So you’re staying in oil and gas then!’
IEA director Keisuke Sadamori described the COP21 Paris agreement as a ‘big driver for energy transition.’ The IEA forecasts that in 2030, one third of the world’s energy will come from low carbon sources and oil’s use in power generation is set to half. Wind and solar photovoltaic costs continue to decline and nuclear is will be the second largest source of low carbon energy after hydro. While costs are looking good for renewables, things are not so good for oil and gas as the easy stuff has been depleted.
Shell projects and technology director Harry Brekelmans said that these are ‘exciting times’ for Shell. The industry needs to use the current sustained low price to reinvent itself in a Florentine-style ‘renaissance.’ How? First, by recognizing that the world needs oil and gas ‘for decades to come.’ Much of this future production will come from mega projects such as Shell’s Mars development and Pearl GTL. Here improved execution has seen 75% of projects delivered with less than a 10% cost overrun. But we still need to do more. Construction productivity has declined as complex projects breed more pages of documentation and bigger teams. A multitude of construction industry standards defeats the purpose of standardization. The interfaces between owner operators, engineering contractors and other stakeholders are experiencing ‘fragmentation. The automotive industry does better here. We need renewed focus on scope, execution, affordable technology and the supply chain. Scope should be no more and no less than what is required for acceptable performance. Shell has applied lessons learned from shale ‘factory drilling’ to its deepwater Gulf of Mexico Stones development, cutting well costs by 30%. Elsewhere, studies found that workers only spent 30% of their time working! The rest was frittered away. This is being addressed with more studies of engineering workflows, better training and more use of IT. In which context, Brekelmans referred to Shell’s Project Vantage, a suite of data (as opposed to document) centric apps with ‘ever green’ virtual documents generated from data in the cloud. Shell has extended its engineering data management into the fourth dimension (time). An extension to a ‘fifth dimension’ (of scheduling) is planned for real soon now. Better supply chain transparency will help Shell negotiate lower prices via enterprise framework agreements. The approach has already proved its worth in HSE where, despite a big increase in hours worked, fatal accidents are down. Brekelmans called for further collaboration, with GE and others to achieve the same capex successes.
Colorado Governor John Hickenlooper (we said it was a star-studded cast) elegantly referred to the ‘battle between climate change and non-climate change’ saying that ‘we accept it’ although it is ‘not as important as clean air.’ Colorado has looked closely at regulations that impact the transportation and refining supply chain, finding some 17,000 of which 8,000 have now been reformed or eliminated. Regulations regarding the air quality around large natural gas fields has been thrashed out in meetings between operators and affected communities to reach a shared goal of reduced emissions. The boom years have been a period of market innovation. WPX Energy (Exxon) drilled 80 wells from 14 pads, piping frac fluid through temporary pipelines to minimize trucking. Natural gas is used on site instead of diesel. The election year in the US has created a ‘caustic environment.’ Hickenlooper advocates holding difficult conversations at the local level. Then the federal government will follow suit.
Jon Harris BG Group described the current world situation as ‘Vuca,’ volatile, uncertain, complex and ambiguous.’ Until recently, cheap capital was chasing costly resources. In the ensuing downturn there have been many layoffs. But these are more survival measures than solutions. When you roll COP21 into the picture it is clear that the industry needs a new business model. This will involve structural change, for instance with simplification and standardization. We are currently too complex and bespoke. For instance in the vast range of valve designs deployed (the subject of an IOGP standardization/clarification initiative). Harris did observe en passant that previous initiatives, in particular the earlier UK Crine initiative had ‘lost its way.’ There is also hope that big data and digital advances will help. But today we collect data. What is needed is an efficient way of realizing its value, through holistic monitoring of equipment or with autonomous systems. ‘Today’s business leaders have heard all this before. But are they driving the transformation?’ We need a digital revolution. Maybe the necessity of the downturn will be the mother of invention. There are positive signs with developments like IBM Watson, augmented reality, robotics and drones. We have automated braking in cars, why not drilling automation?
Brian Salerno, director of the US offshore regulator the Bureau of safety and environmental enforcement (Bsee) described safety as a strategic imperative that transcends individual companies. He offered an analogy with the fact that infectious diseases are on the rise and that our collective defenses are diminished through widespread misuse of antibiotics. Fortunately the World health organization (WHO) is in a position to take a global stance. Oil and gas has its own ‘penicillin,’ the blow out preventer. But its effectiveness was shaken by Macondo where the technology was mishandled and public trust was blown. This and other failures have contributed to the perception of an ‘industry that is prone to failure.’ Salerno asks what can be done on an industry-wide basis and suggests that although technology is good, ‘lessons learned are seldom shared beyond company boundaries.’ Unfortunately there is no WHO for oil and gas. But there is the Bsee which recently alerted GE to reports of failing bolts in a lower marine riser package. This resulted in a worldwide recall and a revised manufacturing process. While there was some downside in sensational media reports, the action strengthened GE’s credibility worldwide. Salerno also provided a heads-up to the International regulators safety forum and the SafeOCS voluntary confidential near-miss reporting system. He concluded that ‘inaction holds the whole industry hostage to the weakest players.’
GE Chairman Jeff Immelt took the stage to encourage the troops and to put the current downturn in oil and gas into context. Oil and gas, like other GE lines of business is cyclical. GE knows cycles having seen the post 9/11 ‘destruction’ of the aviation business with engine shipments down 25%. Power generation had its own dark days in 2004-6 with turbine shipments down 60%. So for oil and gas it will be 2014 till when? Immelt believes that this stage in the cycle is a good time to invest in productivity improvements and especially in ‘digitalization,’ a major initiative for GE itself and, for Immelt, ‘perhaps the most important initiative of my entire career.’ GE is moving to a better, simpler product architecture. This involves the continued development of the ‘physical world’ i.e. GE’s compressors and other equipment with a parallel development in the world of digitization. Here, ‘consumers have got a good deal’ as did the internet companies. But in industry, productivity growth has declined, from around 4% in the first decade of this century to a meagre 1.5% today. GE plans to reverse the productivity decline by leveraging the large amount of data that streams in from its equipment. Enter Predix, the digital ‘thread’ that links smart machines with analytical apps. GE expects to have 20,000 developers working on Predix this year. Immelt invited Shell, Total to follow BP and leverage Predix to ‘generate a billion dollars’ worth of productivity this year by avoiding well and facility downtime.’ Elsewhere, GE’s onshore oil and gas solution is ‘digitizing the rocks’ offering rock physics-based sweet spot mapping to enhance reservoir performance, all available in the GE Store. Other applications include ‘smart iron’ pumps, ‘brilliant’ drilling systems and advanced instrumentation solutions. On a more practical level, Immelt offered some advice on leading through a cycle by ‘focusing on what you can control.’ Use less charts, focus on data not presentations. Use less consultants, do less studies, believe in self-help. Finally, (and rather paradoxically) Immelt invited us to ‘Wipe out of your minds Industrial Internet, Industrie 4.0 these are just fancy words.’
Immelt’s enthusiastic oratory kind of stole the thunder from the ensuing digital round table session. We heard CTO Bill Ruh drive home the point that GE is doing this digital transformation first for its own use but that by 2020 expects the Predix segment to grow into a $15 billion business. Ashley Haynes-Gaspar reported on early adoption of the industrial internet by Columbia Pipeline, Atwood BOP, Dongi Senoro and BP. The partnership with Paradigm (this month’s lead) on reservoir modeling across subsurface and surface equipment also got a plug. In the Q&A someone asked if data quality might be the fly in the big data ointment. Ruh observed that there is today a proliferation of databases and spreadsheets which need to be ‘collapsed.’ At the same time it is necessary to deal with dirty, badly-entered data but there is no easy answer, this is a major problem for IT. Ruh suggested that machine learning techniques may help removing bad data analytically. We asked whether Predix was in the Microsoft camp or, like most of todays ‘consumer’ innovators, more of an open source user. Ruh responded that GE also uses Microsoft Azure technology and that Office 365 in the cloud ‘integrates well with Predix.’ ‘I believe that Microsoft is making a shift to a rapprochement with open source and Azure development.’
In the panel session on new centers of gravity in the oil and gas space, Roberto Casula (ENI) opined it is too early to say if shale could become a swing producer. Novatek’s Mark Gyetvay was less sanguine, many companies got into projects with the expectation of a long term high price. Today this translates into impairments and write-offs and there is more to come with the next round of reserves based determinations. ‘We started to see financial stress at $40 and will see destruction at $20 as cash flow does not cover op costs.’ Gyetvay continued that we are all influenced by the analysts but, ‘go back and check, they are never right.’ A lot of current thinking is based on false information. Geopolitical and environmental risk should come before price risk. Jeff Reilly (Amec) added that the industry was slow to take up new technology like 3D engineering software – but ‘we are there now.’
More from Florence and especially on Predix next month.
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