Between 2014 and 2016, the global economy was hit with one of the largest oil price declines in modern history. The 70% drop was the longest lasting decline since the oil collapse of 1986. This dramatic and sustained price collapse pushed Big Oil into an increasingly cost-conscious mindset — one that, according to comprehensive NewtonX analysis based on quantitative surveys deployed to oil executives and oil industry experts, could result in $287B of potential savings.
Today, oil prices are back up, but the sustained volatility in the market has made investors wary and has pushed oil giants including Exxon Mobil Corp, BP PLC, and Equinor (formerly Statoil) toward a tech-driven, lean, cost-savings model.
The insights from this article are sourced from NewtonX surveys, panels, and expert consultations. To gain access to these services visit newtonx.com.
Automated, Data-driven, and Efficient: The New Oil Industry
BP expects to drive down costs by 20% in the coming years solely through technological improvements and increasingly automated drilling. Competitors are similarly devoted to integrating digital sensors, AI, drones, and robots.
Fiber optic cables running to oil wells allow companies to gather data, monitor, and alter projects in real-time. This reduces the need for robust teams on-site, and also improves speed and operational efficiency. Numerous oil giants have developed automated control systems to send commands underground that can capture data on a well’s flow rate and other variables. Adjustments based on this data can be made from remote operations centers that replace on-site laborers.
This technology offers massive cost savings; for instance, a computer can show the progress that a drill makes in a well 8,000 feet underground, while an algorithm displays in graph format the budgetary impacts in real-time that the progress is having. If the drill isn’t hitting the spot where the company believes the oil to be, then dollar signs tick up; if it hits a “sweet spot” — sometimes no more than a few feet wide, the graph ticks down under budget and workers in the field adjust the equipment accordingly. Most Big Oil companies also use machine learning to determine the best way to frack to get the most oil as quickly as possible based on data captured through fiber optic cables and pressure on the wells.
Increasingly, this process is wholly controlled remotely, with only a few, or sometimes even no, workers on-site. Equinor, a Norwegian energy company, recently installed nine oil and gas wells 80 miles off the coast of Norway that are expected to run without anyone onboard. The daily operations are run from a remote control board, and workers can be deployed to the sites for repairs or emergencies; but for the most part, the drilling is operated robotically. This model is likely to be adopted by other companies both as a cost saving measure and in efforts to improve worker safety.
A New Era For Oil – And Oil Workers
Baker Hughes, the successor to GE Oil & Gas has already altered its recruiting and hiring strategy to focus on high-tech workers from Silicon Valley. The oil industry, which was once a mainstay for blue collar workers, is no longer a place where high school graduates can go to expect a well-paid, if grueling, career. Devon Energy Corp., for instance, currently has 3,100 employees, down from 5,500 in December 2014. The company estimates that its costs are down 40% since then, and says that it has improved its production rates through new technologies and automation.
U.S. oil production is at an all-time high even while employment in the sector has gone down significantly since 2014. Automated control systems have spurred demand for workers who have both oil industry and technical knowledge. While this opens the industry up to a new demographic, it also has a detrimental effect on unskilled laborers who previously saw the industry as a path to a well-paying and stable career.
This effect will only be exacerbated in the coming years, according to the NewtonX oil executive and expert survey results. Unpredictable market moves are keeping oil executives focused on improving productivity while cutting costs. Despite the fact that crude prices are trading at their highest levels in years, the sustained slump of 2014 pushed the industry into a lean, data-driven and tech-first mindset that is likely to grow, not diminish, regardless of market movement.
The new automated generation of oil drilling and well management platforms gives Big Oil companies the capacity to manage more wells, drill for smaller wells in remote locations, and drill and frack more efficiently to maximize productivity.